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|                                                                               
|-------------------------------------------------------------------------------
|UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 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, 2004                                                   
|                               |                                                                                                 
|                               | OR                                                                                              
|                               |                                                                                                 
|                               | For the transition period from ___________
  to __________                                      
|                              
|Commission file number 0-30820

TIKCRO
TECHNOLOGIES LTD.

(Exact name of Registrant as specified in its
charter and
translation of Registrants name into English)

ISRAEL(Jurisdiction of incorporation or organization)

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

|                                                                                |  |                                          
|------------------------------------------------------------------------------- |  | -----------------------------------------
|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, par value NIS 0.10 per share(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:

23,726,401 Ordinary Shares, par value NIS
0.10 per share

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

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

Item 17 o Item 18 x

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|        |                                                       |   
|------- | ----------------------------------------------------- | --
|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                       | 4 
|        |                                                       |   
|C.      | Reasons for the offer and use of proceeds             | 4 
|        |                                                       |   
|D.      | Risk Factors                                          | 5 
|        |                                                       |   
|ITEM 4. | Information on the Company                            | 9 
|        |                                                       |   
|A.      | History and Development of the Company                | 9 
|        |                                                       |   
|B.      | Business Overview                                     | 10
|        |                                                       |   
|C.      | Organizational Structure                              | 10
|        |                                                       |   
|D.      | Property, Plants and Equipment                        | 10
|        |                                                       |   
|ITEM 5. | Operating and Financial Review and Prospects          | 10
|        |                                                       |   
|A.      | Operating Results                                     | 10
|        |                                                       |   
|B.      | Liquidity and Capital Resources                       | 16
|        |                                                       |   
|C.      | Research and Development, Patents and Licenses        | 17
|        |                                                       |   
|D.      | Trend Information                                     | 17
|        |                                                       |   
|E.      | Off-balance Sheet Arrangements                        | 17
|        |                                                       |   
|F.      | Tabular Disclosure of Contractual Obligations         | 17
|        |                                                       |   
|ITEM 6. | Directors, Senior Management and Employees            | 18
|        |                                                       |   
|A.      | Directors and Senior Management                       | 18
|        |                                                       |   
|B.      | Compensation                                          | 19
|        |                                                       |   
|C.      | Broad Practices                                       | 19
|        |                                                       |   
|D.      | Employees                                             | 24
|        |                                                       |   
|E.      | Share Ownership                                       | 25

2

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|         |                                                            |   
|-------- | ---------------------------------------------------------- | --
|ITEM 7.  | Major Shareholders and Related Party Transactions          | 25
|         |                                                            |   
|A.       | Major Shareholders                                         | 25
|         |                                                            |   
|B.       | Related Party Transactions                                 | 26
|         |                                                            |   
|C.       | Interests of Experts and Counsel                           | 26
|         |                                                            |   
|ITEM 8.  | Financial Information                                      | 27
|         |                                                            |   
|A.       | Consolidated Statements and other Financial Information    | 27
|         |                                                            |   
|B.       | Significant Changes                                        | 27
|         |                                                            |   
|ITEM 9.  | The Offer and Listing                                      | 27
|         |                                                            |   
|A.       | Offer and Listing Details                                  | 27
|         |                                                            |   
|B.       | Plan of Distribution                                       | 29
|         |                                                            |   
|C.       | Markets                                                    | 29
|         |                                                            |   
|D.       | Selling Shareholders                                       | 29
|         |                                                            |   
|E.       | Dilution                                                   | 29
|         |                                                            |   
|F.       | Expenses of the Issue                                      | 29
|         |                                                            |   
|ITEM 10. | Additional information                                     | 29
|         |                                                            |   
|A.       | Share Capital                                              | 29
|         |                                                            |   
|B.       | Memorandum and Articles of Association                     | 29
|         |                                                            |   
|C.       | Material Contracts                                         | 34
|         |                                                            |   
|D.       | Exchange Controls                                          | 35
|         |                                                            |   
|E.       | Taxation                                                   | 35
|         |                                                            |   
|F.       | Dividends and Paying Agents                                | 43
|         |                                                            |   
|G.       | Statement by Experts                                       | 43
|         |                                                            |   
|H.       | Documents On Display                                       | 43
|         |                                                            |   
|I.       | Subsidiary Information                                     | 43
|         |                                                            |   
|ITEM 11. | Quantitative and Qualitative Disclosures about Market Risk | 43
|         |                                                            |   
|ITEM 12. | Description of Securities other than Equity Securities     | 44

3

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|          |                                                                                |   
|--------- | ------------------------------------------------------------------------------ | --
|PART 2.   |                                                                                | 44
|          |                                                                                |   
|ITEM 13   | Defaults, Dividend Averages and Delinquencies                                  | 44
|          |                                                                                |   
|ITEM 14   | Material Modifications to the Rights of Security Holders and Use of
  Proceeds | 44
|          |                                                                                |   
|ITEM 15.  | Controls and Procedures                                                        | 44
|          |                                                                                |   
|ITEM 16A. | Audit Committee Financial Expert                                               | 44
|          |                                                                                |   
|ITEM 16B. | Code of Ethics                                                                 | 45
|          |                                                                                |   
|ITEM 16C. | Principal Accountant Fees and Services                                         | 45
|          |                                                                                |   
|ITEM 16D. | Exemptions from Listing Standards for Audit Committees                         | 46
|          |                                                                                |   
|ITEM 16E. | Purchases of Equity Securities by the Issuer and Affiliated
  Purchasers       | 46
|          |                                                                                |   
|PART 3    |                                                                                | 46
|          |                                                                                |   
|ITEM 17.  | Financial Statements                                                           | 46
|          |                                                                                |   
|ITEM 18   | Financial Statements                                                           | 46
|          |                                                                                |   
|ITEM 19.  | Exhibits                                                                       | 46

4

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PART 1

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

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 were formed in December
1999 to receive substantially all of the assets and liabilities of the
semiconductor chip business of our former parent, Orckit Communications Ltd.,
in accordance with the terms of a plan of separation. Under this plan, Tikcro
received substantially all of Orckits semiconductor chip business, including
the business of Silicon Value (S.V.) Ltd., a company which Orckit acquired
prior to consummation of the plan and whose business we sold in April 2001. The
spin-off was consummated on June 30, 2000.

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. The financial data of Tikcro
contained in this annual report are presented as if Tikcro had been a separate
entity since January 1, 2000 and the results of operations of the ASIC business
of Silicon Value, which we sold in April 2001, are reflected only in the line
item called loss from discontinued operations. 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. These data are not necessarily indicative of operating
results or financial position that would have been achieved had the plan been
consummated on January 1, 2000 and should not be construed as representative of
Tikcros future operating results or financial position.  Our mode of operation and operating results
were significantly affected by the agreements we entered into in February 2002
with STMicroelectronics, which are described below under Item 10.C Additional
InformationMaterial Agreements.

1

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In April 2003, we sold
substantially all of our assets and liabilities to STMicroelectronics (other
than financial indebtedness) pursuant to an asset purchase agreement, which is
described below under Item 10.C Additional InformationMaterial
Agreements.  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 entity in a new area of operations. Accordingly,
the data presented below are not indicative of our future operating results or
financial position.

2

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|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|---------------------------------------------------------------------------- |  | ------------------------------------- | ---------- | ---- | - | ---------- | - | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                             |  | Years
  Ended December 31,            |           
|                                                                             |  |                                       |           
|                                                                             |  | 2000                                  |            | 2001 |   | 2002       |   | 2003 |            | 2004 |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |  
|                                                                             |  | (in thousands, except per share data) |           
|Statement of Operations Data:                                                |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Revenues                                                                     |  | $                                     | 14,517     |      | $ | 1,440      |   | $    | 7,912      |      | $ | 2,691      |   |   | --         |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Product costs                                                                |  |                                       | 13,107     |      |   | --         |   |      | --         |      |   | --         |   |   | --         |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Research and development expenses and development services
costs             |  |                                       | 8,974      |      |   | 9,545      |   |      | 6,395      |      |   | 2,154      |   |   | --         |  
|Less - royalty-bearing grants                                                |  |                                       | --         |      |   | 1,571      |   |      | 1,468      |      |   | 394        |   |   | --         |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Research and development expenses, net and development services
  costs, net |  |                                       | 8,974      |      |   | 7,974      |   |      | 4,927      |      |   | 1,760      |   |   | --         |  
|Selling, marketing, general and administrative expenses                      |  |                                       | 3,470      |      |   | 4,067      |   |      | 2,227      |      |   | 788        |   |   | 351        |  
|Spin-off expenses                                                            |  |                                       | 1,199      |      |   | --         |   |      | --         |      |   | --         |   |   | --         |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Impairment of property and equipment                                         |  |                                       | --         |      |   | --         |   |      | 157        |      |   | --         |   |   | --         |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Amortization of deferred stock compensation(1)                               |  |                                       | 92         |      |   | 2,252      |   |      | 635        |      |   | 771        |   |   | --         |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Operating loss                                                               |  |                                       | (12,325    | )    |   | (12,853    | ) |      | (34        | )    |   | (628       | ) |   | (351       | )
|Other expenses                                                               |  |                                       |            |      |   | (16        | ) |      | (10        | )    |   | --         |   |   | --         |  
|Other income                                                                 |  |                                       | --         |      |   | --         |   |      | 9,698      |      |   | 12,834     |   |   | --         |  
|Financial income (expense), net                                              |  |                                       | 969        |      |   | (1,238     | ) |      | (874       | )    |   | (228       | ) |   | 140        |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Net income (loss) from continuing operations                                 |  |                                       | (11,356    | )    |   | (14,107    | ) |      | 8,780      |      |   | 11,978     |   |   | (211       | )
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Income (loss) from discontinued operations(2)                                |  |                                       | (120,839   | )    |   | (4,043     | ) |      | 19         |      |   | --         |   |   | --         |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Net income (loss)                                                            |  | $                                     | (132,195   | )    | $ | (18,150    | ) | $    | 8,799      |      | $ | 11,978     |   | $ | (211       | )
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Basic net earnings (loss) per share from continuing operations               |  | $                                     | (0.51      | )    | $ | (0.60      | ) | $    | 0.35       |      | $ | 0.50       |   | $ | (0.01      | )
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Basic net earnings (loss) per share from discontinued
operations             |  |                                       | (5.38      | )    |   | (0.17      | ) |      | *          | )    |   | --         |   |   | --         |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Basic net earnings (loss) per share                                          |  | $                                     | (5.89      | )    | $ | (0.77      | ) | $    | 0.35       |      | $ | 0.50       |   | $ | (0.01      | )
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Diluted net earnings (loss) per share from continuing
operations             |  | $                                     | (0.51      | )    | $ | (0.60      | ) | $    | 0.
  31    |      | $ | 0.47       |   | $ | (0.01      | )
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Diluted net earnings (loss) per share from discontinued
operations           |  |                                       | (5.38      | )    |   | (0.17      | ) |      | *          | )    |   | --         |   |   | --         |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Diluted net earnings (loss) per share                                        |  | $                                     | (5.89      | )    | $ | (0.77      | ) | $    | 0.31       |      | $ | 0.47       |   | $ | (0.01      | )
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Number of shares used in computing basic net earnings (loss) per
  share     |  |                                       | 22,455,860 |      |   | 23,604,309 |   |      | 24,771,743 |      |   | 23,948,650 |   |   | 23,726,041 |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Number of shares used in computing diluted net earnings (loss) per
  share   |  |                                       | 22,455,860 |      |   | 23,604,309 |   |      | 27,888,462 |      |   | 25,288,650 |   |   | 23,726,041 |  
|                                                                             |  |                                       |            |      |   |            |   |      |            |      |   |            |   |   |            |  



---

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amortization
  of deferred stock compensation related to the following operating expenses:
  research and development expenses, net and development services costs, net of
  $92, $1,338, $387, $47 and $0 for the years ended December 31, 2000, 2001,
  2002, 2003 and 2004, respectively; and selling, marketing, general and
  administrative expenses of $0, $914, $248, $724 and $0 for the years ended
  December 31, 2000, 2001, 2002, 2003 and 2004, respectively.                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(2) | This item
  includes, for the year 2000, impairment of goodwill and other intangible
  assets in the amount of $58,068, a charge to expense of in-process research
  and development in the amount of $24,695, goodwill amortization in the amount
  of $21,598 and amortization of other intangible assets in the amount of $4.1
  million. For the year 2001, this item includes goodwill amortization in the
  amount of $2,259 and impairment of property and equipment in the amount of
  $823.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|*)  | Represents
  an amount lower than $0.01.                                                                                                                                                                                                                                                                                                                                                                                                                                                            

3

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|                                                     |  |                |        |      |   |         |   |      |        |      |   |        |  |   |       | 
|---------------------------------------------------- |  | -------------- | ------ | ---- | - | ------- | - | ---- | ------ | ---- | - | ------ |  | - | ----- | 
|                                                     |  | December
  31, |       
|                                                     |  |                |       
|                                                     |  | 2000           |        | 2001 |   | 2002    |   | 2003 |        | 2004 |  
|                                                     |  |                |        |      |   |         |   |      |        |      |  
|                                                     |  | (in thousands) |       
|Balance Sheet Data:                                  |  |                |        |      |   |         |   |      |        |      |   |        |  |   |       | 
|Cash and cash equivalents and short term investments |  | $              | 18,793 |      | $ | 7,712   |   | $    | 5,559  |      | $ | 7,883  |  | $ | 9,755 | 
|Working capital                                      |  |                | (2,653 | )    |   | (4,368  | ) |      | 3,951  |      |   | 9,965  |  |   | 9,707 | 
|Total assets                                         |  |                | 59,697 |      |   | 13,450  |   |      | 9,498  |      |   | 10,146 |  |   | 9,921 | 
|Parent company investment                            |  |                | --     |      |   | --      |   |      | --     |      |   | --     |  |   | --    | 
|                                                     |  |                |        |      |   |         |   |      |        |      |   |        |  |   |       | 
|Shareholders equity (deficiency)                     |  |                | 3,629  |      |   | (10,994 | ) |      | (1,548 | )    |   | 9,965  |  |   | 9,707 | 

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the offer and use of proceeds

Not applicable.

4

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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 entity in a
new area 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 may not be successful in identifying and evaluating
suitable business opportunities or in consummating a business combination.

We do not have an agreement
or understanding with respect to engaging in a business combination with a
specific entity.  We expect to incur
expenses in the course of this evaluation, whether or not such evaluation
results in a business combination. 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, the success of our operations
will be dependent upon the management of the target company and numerous other
factors beyond our control.  There is no
assurance that we will be able to negotiate a business combination 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. 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 subject us
to material adverse consequences.

Possible dilution of value of shares upon business
combination.

A business combination
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.

5

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We may need additional financing following a business
combination.

If we consummate a business
combination, we may need to raise funds through a public or private
financing.  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 have generated a significant amount of income from the sale of the ASIC
business of Silicon Value and our various agreements with STMicroelectronics.
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 our investments.

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, 2004, see Item 11 
Quantitative and Qualitative Disclosures About Market Risk--Interest Rate Risk
Management.

Risks relating to
our incorporation in Israel

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

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 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.

There is doubt as to the
enforceability of civil liabilities under the Securities Act and the Securities
Exchange Act in original actions instituted in Israel.  However, subject to specified time
limitations, Israeli courts may enforce a U.S. final executory judgment in a
civil matter, provided that:

| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | 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;

6

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| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the judgment was obtained
  after due process before a court of competent jurisdiction according to the
  rules of private international law prevailing in Israel;
| |   |                                                                                                                                                                   
| |  | the judgment was not
  obtained by fraudulent means and does not conflict with any other valid
  judgment in the same matter between the same parties;            
| |   |                                                                                                                                                                   
| |  | 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; and        
| |   |                                                                                                                                                                   
| |  | the U.S. court is not prohibited
  from enforcing the judgments of Israeli courts.                                                                                

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.

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 at a meeting called upon at least 21 days
notice.  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.

7

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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.

Risks relating to
the market for our ordinary shares

Holders of our ordinary shares who are U.S. residents face
income tax risks.

There is a high likelihood that we were properly classified for U.S.
federal income tax puroses as a passive foreign investment company, or PFIC,
for 2004.  Our classification as a PFIC could result in
a reduction in the after-tax return to the U.S. holders of our ordinary shares,
thus causing a reduction in the
value of our shares, and could trigger the application of certain United
States tax reporting requirements.  For U.S. federal income tax purposes, we are
treated as a PFIC for any tax year in which either:

| |   |                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 75% or more of our gross
  income is passive in nature, or                                                                                                                                             
| |   |                                                                                                                                                                                                        
| |  | on average for such tax
  year, 50% or more of our assets (by value or, if we so elect in certain
  circumstances, by adjusted tax basis) produce, or are held for the production
  of, passive income.

For this purpose, passive income includes dividends, interest,
royalties, rents, annuities and the excess of gains over losses from the
disposition of assets which produce passive income. As a result of our
relatively substantial cash and investment assets, there is a high likelihood that
we were properly classified as a PFIC for 2004 under the asset test.  We could also be classified as a PFIC for
2005.  A separate determination must be made each
year as to whether we are a PFIC.  As a
result, our PFIC status may change.

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

On
December 19, 2001, our ordinary shares were delisted from the Nasdaq National
Market and subsequently from the Tel Aviv Stock Exchange. Our ordinary shares
currently are quoted on the OTC Bulletin Board, an electronic quotation medium regulated
by the National Association of Securities Dealers. The market for shares quoted
on the OTC Bulletin Board is typically less liquid than that for shares quoted
on the Nasdaq National Market. This could make it more difficult for our
shareholders to sell their shares at desired prices and amounts.

8

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Our shares are subject to the Securities and Exchange
Commissions penny stock rules and may be difficult to sell.

The
rules of the Securities and Exchange Commission require brokers to provide
information to purchasers of securities traded at less than $5.00 per share and
not traded on a national securities exchange or quoted on the Nasdaq Stock
Market. Once our shares were delisted from Nasdaq, they became penny stock
that is not exempt from these rules. 
Therefore, these disclosure requirements may have the effect of reducing
trading activity in our shares and making it more difficult for investors to
sell. The rules require a broker-dealer to deliver a standardized risk
disclosure document prepared by the Securities and Exchange Commission that
provides information about penny stocks and the nature and level of risks in
the penny stock market. The broker must also give bid and offer quotations and
broker and salesperson compensation information to the customer orally or in
writing before or with the confirmation. The rules also require a broker to
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchasers written agreement to
the transaction before a transaction in a penny stock.

Two shareholders may be able to control us.

Izhak
Tamir and Eric Paneth, directors of Tikcro, each beneficially own approximately
13.3% of our outstanding ordinary shares and are our largest shareholders.
Currently, Messrs. Paneth and Tamir are not party to a shareholders agreement.
However, if Messrs. Paneth and Tamir act together, there is a high likelihood
that they effectively would 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.

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.

In
February 2002, we entered into three strategic agreements with
STMicroelectronics NV. Pursuant to a technology transfer agreement, we granted
STMicroelectronics certain co-ownership rights in our existing intellectual
property in the DSL field and ownership rights over our products, including
products under development. Pursuant to a development, marketing and services
agreement, we provided research and development and marketing services to
STMicroelectronics through April 2003. Pursuant to a one-year option agreement,
STMicroelectronics had the right to acquire our business. For a more detailed
description of these agreements, please see Item 10.C Additional
InformationMaterial Agreements. Following the execution of these agreements,
our activities consisted primarily of research and development and marketing
services provided to STMicroelectronics and we ceased to conduct business as an
independent DSL chip developer.

9

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In
January 2003, STMicroelectronics exercised its option to acquire our business.
This acquisition was consummated in April 2003. For a more detailed description
of our asset purchase agreement with STMicroelectronics, please see Item 10.C
Additional InformationMaterial Agreements.

Principal Capital Expenditures

Our
principal capital expenditures to date have been the purchase of equipment and
other fixed assets used in our business. These purchases totaled $0.1 million
in 2002, $10,000 in 2003 and $0 in 2004.

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 entity in a new area of operations. We may also invest a portion of
our funds in one or more smaller investments. In addition to the cash and cash
equivalents that we hold, we believe that there are perceived benefits to being
a reporting company with a class of publicly-traded securities which may be
attractive to certain entities.

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

C. Organizational Structure

We
do not have significant subsidiaries.

D. Property, Plants and Equipment

We
do not have any material fixed assets.

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.

10

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Overview

We
were formed as a private Israeli company in December 1999.  Prior to our separation from Orckit, our
business was operated as a division of Orckit. 
Our historical business was the design, development and marketing of DSL
chips used by manufacturers of telecommunications equipment, and the vast
majority our chip sales were to Orckit. Upon our separation from Orckit, we
received from Orckit all of the outstanding capital stock of Silicon Value.
Silicon Value designed, developed and marketed ASIC solutions to systems
manufacturers in the communication and other markets.

In
April 2001, we sold the ASIC business of Silicon Value to a wholly owned
subsidiary of Zen Research plc. for consideration of $21.7 million. As a
result, the results of operations of the ASIC business of Silicon Value are
reported separately as a discontinued operation in our statement of operations.

In
February 2002, we entered into three strategic agreements with
STMicroelectronics. Pursuant to a technology transfer agreement, we granted
STMicroelectronics certain co-ownership rights in our existing intellectual
property in the DSL field and ownership rights over our products, including
certain products still under development and our rights under certain design
wins. Pursuant to a development, marketing and services agreement, we provided
research and development and marketing services to STMicroelectronics through
April 2003. Pursuant to a one year option agreement, we granted to
STMicroelectronics the right to acquire our business.  STMicroelectronics exercised its option and acquired our business
in April 2003 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.  For
a more detailed description of these agreements, please see Item 10.C
Additional InformationMaterial Agreements.

As
a result of these agreements, from February 2002 through April 2003 our
activities consisted primarily of research and development and marketing
services provided to STMicroelectronics. During this period, substantially all
of our revenue derived from STMicroelectronics.

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 entity in a new area of operations.  Accordingly, the financial information
presented herein is not indicative of our future operating results or financial
position.

In
2002, we generated net income of $8.8 million. Our net income in 2002 includes
$9.7 million of  other income, which consists of payments under the technology
transfer agreement signed with STMicroelectronics in February 2002, net of
transaction costs.

In
2003, we generated net income of $12.0 million. Our net income in 2003 includes
$12.8 million in other income.

11

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In
2004, we generated only financial income, which was lower than our expenses,
resulting in a net loss of $211,000.

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.

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.

Revenue recognition

Prior
to entering into the agreements with STMicroelectronics in February 2002, we
derived our revenues from continuing operations mostly from royalties and sales
of products to Orckit. In 2001, following the amendment of our product supply
agreement, we recognized our royalty revenues as net revenues without cost of
goods sold. Revenues under our agreements with Orckit were recognized at the
time of shipment as reported to us by Orckit.

Revenues
from sales of products were recognized when persuasive evidence of an agreement
exists, delivery occurred, the fee was fixed and determinable and
collectibility was probable.

Revenues
from research and development services were recognized at the time they were
rendered.

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.

12

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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, |      
|                                                                             |  |                            |      
|                                                                             |  | 2002                       |       | 2003 |   | 2004   |  
|                                                                             |  |                            |       |      |   |        |   |   |      |  
|Statement
  of Operations Data:                                              |  |                            |       |      |   |        |   |   |      |  
|Revenues                                                                     |  | $                          | 7,912 |      | $ | 2,691  |   |   | -    |  
|Product costs                                                                |  |                            | -     |      |   | -      |   |   | -    |  
|Research and development
  expenses and development services costs           |  |                            | 6,395 |      |   | 2,154  |   |   | -    |  
|Less royalty-bearing
  grants                                                |  |                            | 1,468 |      |   | 394    |   |   | -    |  
|                                                                             |  |                            |       |      |   |        |   |   |      |  
|Research and development
  expenses, net and development services costs, net |  |                            | 4,927 |      |   | 1,760  |   |   | -    |  
|Selling, marketing,
  general and administrative expenses                    |  |                            | 2,227 |      |   | 788    |   |   | 351  |  
|Impairment of property and
  equipment                                       |  |                            | 157   |      |   | -      |   |   | -    |  
|Amortization of deferred
  stock compensation                                |  |                            | 635   |      |   | 771    |   |   | -    |  
|Operating loss                                                               |  |                            | (34   | )    |   | (628   | ) |   | (351 | )
|Other expenses                                                               |  |                            | (10   | )    |   | -      |   |   | -    |  
|Other income                                                                 |  |                            | 9,698 |      |   | 12,834 |   |   | -    |  
|Financial income
  (expense), net                                            |  |                            | (874  | )    |   | (228   | ) |   | 140  |  
|                                                                             |  |                            |       |      |   |        |   |   |      |  
|Net income (loss) from
  continuing operations                               |  |                            | 8,780 |      |   | 11,978 |   |   | (211 | )
|                                                                             |  |                            |       |      |   |        |   |   |      |  
|Income (loss) from
  discontinued operations                                 |  |                            | 19    |      |   | -      |   |   | -    |  
|                                                                             |  |                            |       |      |   |        |   |   |      |  
|Net income (loss)                                                            |  | $                          | 8,799 |      | $ | 11,978 |   | $ | (211 | )
|                                                                             |  |                            |       |      |   |        |   |   |      |  

13

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The
table below sets forth, for the periods indicated,* financial data, expressed
as a percentage of total revenues, which we believe to be significant in
analyzing our results of operations.

|                                                                             |  |      |       |      |  |       |   
|---------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ----- | --
|                                                                             |  | 2002 |       | 2003 | 
|                                                                             |  |      |       |      | 
|Revenues:                                                                    |  |      | 100   | %    |  | 100   | % 
|                                                                             |  |      |       |      |  |       |   
|Product
  costs                                                              |  |      |       |      |  |       |   
|Research and
  development expenses, net and development services costs, net |  |      | 62.3  | %    |  | 65.4  | % 
|Selling,
  marketing, general and administrative expenses                    |  |      | 28.1  | %    |  | 29.3  | % 
|Impairment
  of property and equipment                                       |  |      | 2.0   | %    |  | -     |   
|Amortization
  of deferred stock compensation                                |  |      | 8.0   | %    |  | 28.7  | % 
|Operating
  loss                                                             |  |      | (0.4  | )%   |  | (23.3 | )%
|Other
  expenses                                                             |  |      | (0.1  | )%   |  | -     |   
|Other income                                                                 |  |      | 122.6 | %    |  | 476.9 | % 
|Financial
  income (expense), net                                            |  |      | (11.0 | )%   |  | (8.5  | )%
|Net income
  (loss) from continuing operations                               |  |      | 111.0 | %    |  | 445.1 | % 
|                                                                             |  |      |       |      |  |       |   
|Net income
  (loss) from discontinued operations                             |  |      | 0.2   | %    |  | -     |   
|                                                                             |  |      |       |      |  |       |   
|Net income
  (loss)                                                          |  |      | 111.2 | %    |  | 445.1 | % 
|                                                                             |  |      |       |      |  |       |   

|                                                                       
|-----------------------------------------------------------------------
|*No
data is presented for 2004 because we had no revenues in that year.

Revenues. In 2002 and 2003, we had revenues from development and marketing
services of $7.7 million and $2.7 million, respectively, under our agreement with STMicroelectronics, which was in effect from
February 2002 to April 2003.  In 2002, all of our royalties and chip sale
revenues were generated from ADSL KeyWave chips.

Research and development expenses, net and development
costs, net.  Research and development expenses consisted
primarily of salaries and other personnel-related expenses, consultant
expenses, equipment and software depreciation, supplies, overhead expenses and
other expenses related to the design and development of our products. Our
research and development costs were expensed as incurred. The decrease in 2003
and elimination of research and development expenses in 2004 was the result of
the transfer on April 28, 2003 of all employees in connection with the sale of
our business to STMicroelectronics.

Selling, marketing, general and administrative expenses.  In
2004, we incurred only general and administrative expenses, which consisted
primarily of professional fees and management fees paid to Orckit. In 2002 and
2003, selling, marketing, general and administrative expenses consisted
primarily of salaries and other personnel-related expenses for sales and
marketing personnel, executive, accounting and administrative personnel,
professional fees and other general corporate expenses.

14

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Other Income.  Other income consists of
income generated from STMicroelectronics. In 2003, we had $12.8 million of
other income, which consists of payments under the assets purchase agreement
signed with STMicroelectronics in April 2003. In 2002, we had $9.7 million of
other income, which consists of payments under the technology transfer
agreement signed with STMicroelectronics in February 2002, net of transaction
costs.

Financial income (expenses), net. Financial income consists primarily of
interest on marketable securities and bank deposits. In 2002 and 2003,
financial expense consisted mainly of interest on the loan received from Orckit
during the second half of 2000, which was repaid in 2002 and 2003.

Net income (loss). In 2002, we generated net income of $8.8 million, primarily as a
result of payments in the amount of $9.7 million received from
STMicroelectronics under our technology transfer agreement, net of transaction
expenses.

In
2003, we generated net income of $12.0 million, primarily as a result of a
capital gain in the amount of $12.8 million in connection with our asset sale
to STMicroelectronics.

In
2004, we had a net loss of $211,000, primarily as a result of our general and
administrative expenses in the amount of $351,000, which were partly offset by
financial income in the amount of $140,000.

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).

Most
of our revenues were denominated in dollars and our expenses in new Israeli
shekels.  Our expenses in new Israeli
shekels were principally payroll. Our results of operations were adversely
affected by increases in the rate of inflation in Israel when such increases
are not offset by a corresponding devaluation of the new Israeli shekel against
the U.S. dollar.  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 NIS against the U.S. dollar, and the rate of
inflation of Israel adjusted for the devaluation:

15

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|                              |  |                           |  |                             |   |                                                 |  |  |      |   |  |  |  |      |   | 
|----------------------------- |  | ------------------------- |  | --------------------------- | - | ----------------------------------------------- |  |  | ---- | - |  |  |  | ---- | - | 
|Years
  Ended 
  December 31, |  | Israeli Inflation 
  Rate |  | Israeli Devaluation 
  Rate |   | Israel Inflation 
  Adjusted for 
  Devaluation | 
|                              |  |                           |  |                             |   |                                                 | 
|                              |  |                           |  |                             |   |                                                 |  |  |      |   |  |  |  |      |   | 
|2000                          |  |                           |  | 0.0                         |   |                                                 |  |  | (2.7 | ) |  |  |  | 2.7  |   | 
|2001                          |  |                           |  | 1.4                         |   |                                                 |  |  | 9.3  |   |  |  |  | (7.8 | ) | 
|2002                          |  |                           |  | 6.5                         |   |                                                 |  |  | 7.3  |   |  |  |  | (0.8 | ) | 
|2003                          |  |                           |  | (1.9                        | ) |                                                 |  |  | (7.6 | ) |  |  |  | 5.7  |   | 
|2004                          |  |                           |  | 1.2                         |   |                                                 |  |  | (1.6 | ) |  |  |  | 2.8  |   | 

B. Liquidity and Capital Resources

In
June 2000, in connection with our separation from Orckit, we borrowed $20.0
million under a credit facility from Orckit. In 2002, we repaid an aggregate of
$13.0 million of outstanding principal. We repaid the balance of $7.0 million
in 2003, as well as net accrued interest of $3.0 million. For additional
information about this credit facility, please see Related Party
Transactions below.

In
April 2001, we sold the ASIC business of Silicon Value for total consideration
of $21.7 million ($18.0 in the form of cash, of which $16.2 million was paid in
2001 and the remaining $1.8 million was paid in 2002).

In
2002 and 2003, substantially all of our revenues and other income arose from
our agreements with STMicroelectronics, including the sale of our business to
STMicroelectronics in April 2003.

In
addition, in February 2003, the District Court of Tel Aviv approved our
application for the repurchase of our ordinary shares at an aggregate price of
up to $2.0 million. As of December 31, 2003 and 2004, we repurchased 4,341,154
ordinary shares at an aggregate price of $1.1 million.

We
had working capital of $4.0 million as of December 31, 2002, $10.0million as of December 31, 2003 and $9.7million as of December 31,
2004.

In
2002, we had net income of $8.8 million and we generated $9.0 million of cash
from operations. In 2003, we had net income of $12.0 million and we used
$98,000 in our operations.  In 2004, we
had a net loss of $211,000 and we generated $1.3 million of cash from
operations.

We
generated net cash from investing activities of $1.8 million in 2002, $3.6
million in 2003 and we used $1.8 million in 2004.

In
2002, we had a negative cash flow from financing activities of $13.0 million
due to the repayment of $13.0 million of the loan from Orckit. In 2003, we had
a negative cash flow from
financing activities of $8.2 million, principally due to the repayment of $7.0
million of the loan from Orckit.  In
2004, we did not have any cash flow from financing activities.

16

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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 developed in accordance with the program.

In
2002, 2003 and 2004, we recognized grants from the Office of the Chief
Scientist in the amount of approximately $1.5 million, $ 400,000 and $0,
respectively.

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

Our
policy was to devote a significant portion of our personnel and financial
resources to developing new products and product applications. As a result of
the agreements with STMicroelectronics, from February 2002 through April 2003
our activities consisted primarily of research and development services
provided to STMicroelectronics. Following the sale of our business to
STMicroelectronics in April 2003, we conduct no research and development
activities.

Our
gross research and development expenditures were $6.4 million in 2002, $2.2
million in 2003 and $0 in 2004. In 2002, our research and development
expenditures were funded by payments from STMicroelectronics pursuant to our
development, marketing and services agreement and from grants in the aggregate
amount of $1.5 million from the Office of the Chief Scientist.

D. Trend Information

Not applicable.

E. Off-Balance Sheet Arrangements

We
have no off-balance sheet arrangements.

F. Tabular Disclosure of Contractual Obligations

As
of December 31, 2004, we had no contractual obligations of the type required to
be disclosed in this section.

17

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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 May 31,
2005:

|             |     |                                                    
|------------ | --- | ---------------------------------------------------
|Name         | Age | Position                                           
|             |     |                                                    
|Izhak Tamir  | 52  | Chairman of
  the Board and Chief Executive Officer
|Harel Kodesh | 46  | External
  Director                                
|Eric Paneth  | 55  | Director                                           
|Irit Gal     | 53  | External
  Director                                

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 February 2000
and as our Chief Executive Officer since August 2003.  He has served as President and a Director of Orckit since its
founding in 1990.  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.

Harel Kodesh has served as one of our Directors since June 2000. Since July 2003,
Mr. Kodesh has served as Chief Product Officer for Amdocs, a worldwide leader
in billing and customer care systems. From 2000 to 2003, he served as President
and Chief Executive Officer of Wingcast Corporation, a joint venture between
Ford Motor Corporation and Qualcomm Inc. that offers telematics services to
people on the move.  From 1992 to 2000,
he served in a variety of technical and managerial roles at Microsoft
Corporation, most recently as Vice President of the productivity appliance
division and, prior to that time, as Vice President of the information
appliances division.  Mr. Kodesh holds a
B.S. degree in Computer Engineering and an M.S. degree in Electrical
Engineering, both from the Technion.

Eric Paneth has served as one of our Directors since February 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 its founding 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 Israel Institute of Technology, commonly
known as the Technion.

Irit Gal has 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.

18

---

---



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, 2004, was approximately
$18,000.

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.

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 2003, 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. Mr. Tamir did not receive any compensation for serving in such
office during 2003 or 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.

19

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

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

External Directors

Qualifications of External Directors

Under
the Companies Law, companies incorporated under the laws of Israel whose shares
are listed for trading on a stock exchange or have been offered to the public in
or outside of Israel are required to appoint at least two external directors.
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.

20

---

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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. 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 first term as an
External Director on August 28, 2003, and Harel Kodesh commenced his second
term as an External Director on September 28, 2003.

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 flaws 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.

21

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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                                      

22

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| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

Disclosure of Personal Interest of an Office Holder

The
Israeli 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 an extraordinary transaction that is considered at a meeting of the
board of directors or the audit committee may not be present at this meeting or
vote on this matter, 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.

23

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Disclosure of Personal Interests of a Controlling
Shareholder

Under
the Israeli 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

As
a result of the sale of our business to STMicroelectronics in April 2003 and
the transfer or resignation of our employees, since May 31, 2003, we have no
employees (other than Izhak Tamir, our Chief Executive Officer). As of December 31, 2002, we had 67
employees, 66 based in Israel and one in the United States, of whom 57
employees were engaged in research and development, none in sales and marketing
and 10 in management, administration and operations.

24

---

---



E. Share Ownership

As
of May 31, 2005, Messrs. Eric Paneth and Izhak Tamir, each, directly or through
a wholly owned company, owns 2,965,105 ordinary shares and options to purchase
220,000 of our ordinary shares at NIS 0.10 per share, which is the par value of
the ordinary shares. The options are
fully vested and will expire on the earlier of ten years following the date of
grant and six months following termination of the holders directorship.
Accordingly, each of Messrs. Paneth and Tamir beneficially owns approximately
13.3% of our ordinary shares. Except for Messrs. Paneth and Tamir, none of our
executive officers or directors beneficially owns 1% or more of our outstanding
ordinary shares.

Share Incentive Plan

We
have a Share Incentive Plan pursuant to which options may be granted to
directors, officers, key employees, consultants and contractors of Tikcro. This
share option plan is administered by our compensation committee, which is
empowered, among other things, to recommend to our board of directors the
optionees, dates of grant and the exercise price of options. Unless otherwise decided by our board of
directors or the compensation committee, options granted under the share option
plan are non-assignable except by the laws of descent. Under the share option plan, the grantee is
responsible for all personal tax consequences of the grant and the exercise
thereof.

As
of May 31, 2005, we had outstanding options to purchase a total of 640,000
ordinary shares. All of these options
are held by our directors.

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, 2005 (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) | 
|                            |  |                |  |                       | 
|Eric Paneth(2)              |  |                |  | 3,185,105             |  |  |  |  | 13.3 | % | 
|Izhak Tamir(2)              |  |                |  | 3,185,105             |  |  |  |  | 13.3 | % | 
|Steven N.
  Bronson(3)      |  |                |  | 1,857,639             |  |  |  |  | 7.8  | % | 

---

|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on
  23,726,401 ordinary shares outstanding on May 31, 2005.                                                                   
|(2) | Includes 220,000
  ordinary shares issuable upon the exercise of options that are exercisable
  currently or within the next 60 days.
|(3) | Based on a
  Schedule 13D filed on February 3, 2005.                                                                                 

Clal
Electronics Industries Ltd. and affiliates filed a Schedule 13D on February 14,
2003 reporting that they beneficially own 4.7% of our outstanding ordinary
shares.  On June 30, 2000, they
beneficially owned 12.9%, on April 30, 2001 they beneficially owned 14.4% and
on May 31, 2002 they beneficially owned 10.1% of our outstanding ordinary
shares.

25

---

---



As
of June 22, 2005, there were 71 holders of record of our ordinary shares in the
United States who collectively held approximately 74.7% 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 agreements referred to
below, operate independently of one another as separate public companies.

We
believe that all of the agreements described below have been entered into on
terms similar to terms that would be obtained from independent third parties.

The
following is a summary of the material terms of the agreements entered into by
Tikcro and Orckit which define their ongoing relationship and is qualified in
its entirely by reference to the text of the agreements which are filed or
incorporated by reference as exhibits to this report. See Item 19  Exhibits.

Our Obligation to Issue Shares upon Conversion of Orckits
Notes

On
March 13, 2000, Orckit raised approximately $125 million in a private placement
of 5.75% convertible subordinated notes due April 2005. Holders of the notes
were entitled to convert the notes into the ordinary shares of Orckit and
Tikcro, at a conversion rate of 11.7481 ordinary shares of Tikcro per $1,000
principal amount of notes. In 2001, Orckit converted notes that it repurchased
from holders and has received from us an aggregate of 364,191 ordinary shares
upon said conversions, as per the conversion ratio of the notes. On April 1,
2004, Orckit redeemed the balance of the notes. Today, we have no obligations
to issue shares in respect of the Orckits notes.

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 2003 and 2004 were
$25,000 per quarter. In 2005 the fees were reduced to $18,000 per quarter.

C. Interests of Experts and Counsel

Not
applicable.

26

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---



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



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 TKCRF. The OTC
Bulletin Board typically has lower liquidity than the Nasdaq National Market.

Since
June 26, 2000, the following table sets forth, for the periods indicated, the
high and low sales prices of our ordinary shares as reported on the Nasdaq
National Market or the OTC Counter Bulletin Board.

27

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|                                  |  |                   |       |     |   |      | 
|--------------------------------- |  | ----------------- | ----- | --- | - | ---- | 
|Calendar Year                     |  | Price Per
  Share |      
|                                  |  |                   |      
|                                  |  | High              |       | Low |  
|                                  |  |                   |       |     |  
|2000 (commencing June 26,
  2000) |  | $                 | 20.25 |     | $ | 1.50 | 
|2001                              |  |                   | 3.53  |     |   | 0.23 | 
|2002                              |  |                   | 0.43  |     |   | 0.12 | 
|2003                              |  |                   | 0.45  |     |   | 0.12 | 
|2004                              |  |                   | 0.61  |     |   | 0.30 | 

|                |  |                   |      |     |  |      | 
|--------------- |  | ----------------- | ---- | --- |  | ---- | 
|Calendar Period |  | Price Per
  Share |     
|                |  |                   |     
|                |  | High              |      | Low | 
|                |  |                   |      |     | 
|2005            |  |                   |      |     |  |      | 
|                |  |                   |      |     |  |      | 
|First Quarter   |  |                   | 0.56 |     |  | 0.31 | 
|                |  |                   |      |     |  |      | 
|2004            |  |                   |      |     |  |      | 
|                |  |                   |      |     |  |      | 
|First Quarter   |  |                   | 0.61 |     |  | 0.32 | 
|                |  |                   |      |     |  |      | 
|Second Quarter  |  |                   | 0.39 |     |  | 0.32 | 
|                |  |                   |      |     |  |      | 
|Third Quarter   |  |                   | 0.34 |     |  | 0.31 | 
|                |  |                   |      |     |  |      | 
|Fourth Quarter  |  |                   | 0.38 |     |  | 0.30 | 
|                |  |                   |      |     |  |      | 
|2003            |  |                   |      |     |  |      | 
|                |  |                   |      |     |  |      | 
|First Quarter   |  |                   | 0.22 |     |  | 0.12 | 
|                |  |                   |      |     |  |      | 
|Second Quarter  |  |                   | 0.34 |     |  | 0.15 | 
|                |  |                   |      |     |  |      | 
|Third Quarter   |  |                   | 0.34 |     |  | 0.25 | 
|                |  |                   |      |     |  |      | 
|Fourth Quarter  |  |                   | 0.45 |     |  | 0.27 | 

|               |  |                 |      |     |  |      | 
|-------------- |  | --------------- | ---- | --- |  | ---- | 
|Calendar Month |  | Price Per Share |     
|               |  |                 |     
|               |  | High            |      | Low | 
|               |  |                 |      |     | 
|2005           |  |                 |      |     |  |      | 
|               |  |                 |      |     |  |      | 
|May            |  |                 | 0.40 |     |  | 0.36 | 
|               |  |                 |      |     |  |      | 
|April          |  |                 | 0.44 |     |  | 0.36 | 
|               |  |                 |      |     |  |      | 
|March          |  |                 | 0.56 |     |  | 0.35 | 
|               |  |                 |      |     |  |      | 
|February       |  |                 | 0.56 |     |  | 0.33 | 
|               |  |                 |      |     |  |      | 
|January        |  |                 | 0.35 |     |  | 0.31 | 
|               |  |                 |      |     |  |      | 
|2004           |  |                 |      |     |  |      | 
|               |  |                 |      |     |  |      | 
|December       |  |                 | 0.38 |     |  | 0.32 | 

28

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B. Plan of Distribution

Not
applicable

C. Markets

Our
ordinary shares are quoted on the OTC Bulletin Board under the symbol TKCRF.

D. Selling Shareholders

Not
applicable.

E. Dilution

Not
applicable.

F. Expenses of the Issue

Not
applicable.

ITEM 10. Additional information

A. Share Capital

Not
applicable.

B. Memorandum and Articles of Association

Objects and Purposes

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

29

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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 will be
provided 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.

30

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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

The
Israeli 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, at
a shareholders meeting called on at least 21 days prior notice. 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.

31

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

If
as a result of an acquisition of shares the acquirer will hold more than 90% of
a companys outstanding shares, the acquisition must be made by means of a
tender offer for all of the outstanding shares. If as a result of a full the tender offer the acquirer would own
more than 95% of the outstanding shares, then all the shares that the acquirer
offered to purchase will be transferred to it. The law provides for appraisal
rights if any shareholder files a request in court within 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.

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.

32

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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 association allow 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 insurance contract which would provide coverage for any monetary
liability incurred by any of our office holders, with respect to an act
performed in the capacity of an office holder for:

| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a breach of
  his duty of care to us or to another person;                                                                                                                            
| |   |                                                                                                                                                                                       
| |  | a breach of
  his duty of loyalty to us, provided that the office holder acted in good
  faith and had reasonable cause to assume that his act would not prejudice our
  interests; or
| |   |                                                                                                                                                                                       
| |  | a financial
  liability imposed upon him in favor of another person.                                                                                                                  

Indemnification of
Office Holders

The Companies
Law provides that we 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 or the imposition of any
  financial liability in lieu of criminal proceedings other than with respect
  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:                                                                                                                                                                                                                                                                                                                                                                                                                                                      

33

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| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                                                                                          
| |   |                                                                                                                                                                                                                                                    
| |  | 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.

C. Material Contracts

The agreements
that we entered into with Orckit are summarized below under Item 7.B Major
Shareholders and Related Party TransactionsRelated Party Transactions and
also are incorporated by reference as exhibits to this report.

We entered
into an asset purchase agreement, dated as of April 28, 2003, with STMicroelectronics
NV, and its Israeli subsidiary, ST Microelectronics Ltd.  STMicroelectronics is a large,
multi-national semiconductor company headquartered in Geneva and listed on the
New York Stock Exchange.  Under the
asset purchase agreement, STMicroelectronics acquired all of our assets and
assumed all of our liabilities other than the following liabilities: (i) our
financial indebtedness (including our debt to Orckit); (ii) our liabilities
towards our subsidiaries and our subsidiaries liabilities to us; (iii) tax
liabilities (other than value added tax, if any, which is to be borne by
STMicroelectronics); (iv) liabilities towards the Office of Chief Scientist
with respect to our development, marketing and services agreement with
STMicroelectronics; and (v) any other liability which is actually known to us
and not disclosed to STMicroelectronics.

34

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---



The purchase
price for the acquisition of our business was $12.0 million plus the assumption
of certain liabilities and subject to certain adjustments. STMicroelectronics
hired most of our employees under terms of employment substantially identical
to the terms under which we had employed these employees.

We undertook
additional covenants in the asset purchase agreement, including the
following:  (i) the obligation to change
our corporate name to a name that does not include the word Tioga; (ii) the
obligation not to engage, for a period of three years, in any business that
competes with our business as conducted prior to the closing of the asset purchase
agreement; and (iii) the obligation not to solicit, for a period of two years,
the services of any employee of STMicroelectronics previously employed by us or
to otherwise interfere with the relationship between STMicroelectronics and any
such employees.

In February
2004, we reached an agreement with STMicroelectronics that settled certain
reciprocal financial claims, including with respect to an escrow account which
was established under the asset purchase agreement.

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
is a summary of certain material U.S. federal income tax consequences arising
from the purchase, ownership and disposition of our ordinary shares that are
relevant to shareholders who are U.S. holders, as defined below.  This summary is based upon current law,
including the United States Internal Revenue Code of 1986, as amended (the
Code), Treasury regulations promulgated thereunder, administrative
pronouncements and judicial decisions relating thereto, and the current
U.S-Israeli treaty relating to taxes on income and capital gains, all of which
are subject to change or differing interpretations, possibly on a retroactive
basis.  This summary is limited to U.S.
federal income tax law, and does not consider estate or gift tax consequences,
U.S. state or local tax consequences, or taxation under the laws of any other
jurisdiction.  This summary is further
limited to U.S. holders that hold our shares as capital assets within the
meaning of Section 1221 of the Code, and does not address all aspects of U.S.
federal income taxation that may be relevant to U.S. holders in light of their
particular circumstances (e.g., persons who acquired our shares as
compensation) or to certain types of U.S. holders subject to special treatment
under the U.S. federal income tax laws, such as dealers in securities or
currencies, tax-exempt plans and organizations, regulated investment companies,
life insurance companies, banks, other financial institutions, U.S. holders who
own, directly, indirectly or constructively, 10% or more of our voting shares,
U.S. holders holding our shares as part of a straddle, hedge or conversion
transaction, or certain individuals who are former citizens or former
long-term residents of the United States.
Accordingly, shareholders are urged to consult with their own tax
advisors to determine the tax consequences applicable to their individual
situations.

35

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The U.S.
federal income tax treatment of a partner in a partnership (or other entity
classified as a partnership for U.S. federal income tax purposes) that holds
our ordinary shares generally will depend on such partners particular
circumstances and on the activities of the partnership.  Partners in such partnerships should consult
their own tax advisors.

For purposes
of the following discussion, a U.S. holder is a beneficial owner of our
ordinary shares that is, for U.S. federal income tax purposes:

| |   |                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a citizen or resident of the United States;                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                           
| |  | 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 United States
  or of any state or the District of Columbia;                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                           
| |  | an estate or trust the income of which is subject to U.S. federal income
  taxation regardless of its source; or                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                           
| |  | a trust if (i) the administration of the trust is subject to the primary
  supervision of a court in the United States and one or more U.S. persons have
  the authority to control all substantial decisions of the trust or (ii) the
  trust has a valid election in effect under applicable U.S. Treasury
  regulations to be treated as a U.S. person.

36

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Sale or Exchange of Our Shares

A U.S.
holders sale or exchange of our shares generally will result in the
recognition of capital gain or loss by such U.S. holder in an amount equal to
the difference between the amount realized and the U.S. holders tax basis in
our shares sold, although a portion of any gain may be recharacterized as
ordinary income under the PFIC rules, discussed below.  Gain or loss realized on the sale of our
shares will be long-term capital gain or loss if the U.S. holders holding
period for our shares is more than one year at the time of the sale or
exchange; otherwise such gain or loss will be short-term capital gain or
loss.  Long-term capital gains of
individuals are subject to U.S. federal income tax at preferential rates, which
have been reduced for long-term capital gains recognized on or after May 6,
2003, and before January 1, 2009.
Short-term capital gains are taxed at rates applicable to ordinary
income. The deductibility of capital losses is subject to limitations.  In general, unless a U.S. holder is subject
to the Israeli capital gains tax on the sale or exchange of our shares as
discussed below, any capital gain recognized by a U.S. holder upon such sale or
exchange will be treated as U.S. source income for U.S. foreign tax credit
purposes.

Treatment of Dividend Distributions

For U.S.
federal income tax purposes, subject to the PFIC rules, discussed below, the
gross amount of any distribution, including the amount of any Israeli taxes
withheld therefrom, paid to a U.S. holder with respect to our shares will be
included in his, her or its ordinary income to the extent that the dividends
are paid out of our current or accumulated earnings and profits, as determined
based on U.S. federal income tax principles.
These dividends will not be eligible for the dividends received
deduction allowed to U.S. corporations under Section 243 of the Code.  Because we expect to be treated as a PFIC,
as discussed below, we do not expect that our dividends will eligible to be treated
as qualified dividend income, which is subject to tax at reduced rates for
shareholders that are individuals, estates or trusts.

Distributions
in excess of our current and accumulated earnings and profits will be treated
first as a non-taxable return of the U.S. holders tax basis in our shares to
the extent thereof and then as a gain from the sale of our shares.

Dividends paid
in new Israeli shekels, including the amount of any Israeli taxes withheld
therefrom, will be includable in income in a U.S. dollar amount based on the
exchange rate at the time of their receipt.
Any gain or loss resulting from currency fluctuations during the period
from the date a dividend is paid to the date such payment is converted into
U.S. dollars generally will be treated as ordinary income or loss.

Dividends paid
to a U.S. holder with respect to our shares will be treated as foreign source
dividend income for U.S. foreign tax credit limitation purposes.  At the election of a U.S. holder, any
Israeli withholding tax imposed on such dividends will be eligible for credit
against such U.S. holders U.S. federal income tax liability, subject to the
general conditions and limitations imposed on foreign tax credits.  However, a credit generally will not be
available to the extent the Israeli rate of tax on such dividends exceeds the
U.S. rate of tax thereon.  A credit also
will not be available to the extent the U.S. holder has not held the shares
with respect to which the dividend is paid for at least 16 days of the 31 day
period beginning on the date which is 15 days before the ex-dividend date or to
the extent such U.S. holder is under an obligation to make related payments
with respect to substantially similar or related property.  Any days during which a U.S. holder has
substantially diminished its risk of loss on our shares are not counted toward
meeting the 16-day holding period required by the statute.  A U.S. holder not electing to claim a credit
for foreign taxes generally will be entitled to a deduction for any withholding
taxes imposed on dividends.

37

---

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The
calculation of allowable foreign tax credits and, in the case of a U.S. holder
that elects to deduct foreign taxes, the availability of deductions for foreign
taxes paid involve the application of rules that depend on a U.S. holders
particular circumstances, and also may be complicated by the application of the
PFIC rules, discussed below.
Accordingly, U.S. holders should consult their own tax advisors
regarding their eligibility for foreign tax credits or deductions.

Passive Foreign Investment Company Status

Generally, we
will be classified 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 our gross income is passive in nature, or (ii) on average for
such tax year, 50% or more of our assets (by value or, if we so elect in
certain circumstances, by adjusted tax basis) produce or are held for the
production of passive income.  We
believe we did not satisfy either of the above tests for PFIC status in
2002.  However, it is highly likely that
we were properly classified as a PFIC in 2003 and 2004, and we believe it is
likely that we will be properly classified as a PFIC in 2005.

If we are
treated as a PFIC for U.S. federal income tax purposes for any portion of the
period in which a U.S. holder owns our ordinary shares, then, as to such U.S.
holder who does not make a QEF Election (as described below):

Excess
distributions by us will be taxed in a special way.  Excess distributions are amounts received by a U.S. holder with
respect to our stock in any taxable year that exceed 125% of the average
distributions received by such U.S. holder from us in the shorter of either the
three previous years or such U.S. holders holding period for ordinary shares
before the present taxable year.  Excess
distributions must be allocated ratably to each day that a U.S. holder has held
our stock.  A U.S. holder must include
in its gross income for the current taxable year, as ordinary income, amounts
allocated to the current taxable year or to a prior tax year in which we were
not a PFIC.  A U.S. holder must pay tax
on amounts allocated to each prior taxable year in which we were a PFIC at the
highest rate in effect for that year on ordinary income plus an interest charge
at the rate applicable to tax deficiencies.

The entire
amount of gain that is realized by a U.S. holder upon the sale or other
disposition of our shares will be treated in the same manner as an excess
distribution and would be subject to tax as described above, at ordinary income
rates.

The tax basis
in shares of our stock that were acquired from a decedent who was a U.S. holder
will not receive a step-up to fair market value as of the date of the
decedents death but will instead be equal to the decedents basis, if lower.

A U.S. holder
who beneficially owns shares of a PFIC must file 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 stock in a PFIC, generally by attaching  the
form to a timely filed U.S. federal income tax return.

38

---

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For any tax
year in which we are determined to be a PFIC, a U.S. holder may elect to treat
our shares as an interest in a qualified electing fund (a QEF Election), in
which case the U.S. holder will be required to include in income currently his,
her or its proportionate share of our ordinary earnings and net capital gain in
years in which we are a PFIC regardless of whether distributions of such
earnings and gain are actually distributed to such U.S. holder, but any gain
subsequently recognized upon the sale by such U.S. holder of our shares
generally will be taxed as capital gain and the denial of the basis step-up at
death described above will not apply.  A
QEF election, once made, will apply with respect to the electing U.S. holders
holding of our shares in all subsequent taxable years.

The PFIC rules
also provide a mark-to-market election for certain PFIC stock as an alternative
to a QEF Election.  However, the
mark-to-market election generally applies only to stock that is traded on
certain qualified exchanges. Because of the delisting of our shares from the
Nasdaq National Market and the Tel Aviv Stock Exchange, U.S. holders generally
will not be able to make a mark-to-market election with respect to our
stock.

U.S. holders,
especially U.S. holders of our ordinary shares as of January 1, 2003, should
consult their own tax advisors regarding 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

Any dividends
paid on our shares, and payments of the proceeds of a sale of our shares, paid
within the United States or through certain U.S.-related financial
intermediaries are subject to information reporting and may be subject to
backup withholding at the rate of 28% unless (i) the payor is entitled to, and
does in fact, presume the U.S. holder of our shares to be a corporation or
other exempt recipient or (ii) the U.S. holder provides a taxpayer
identification number on a properly completed Form W-9 and certifies that no
loss of exemption from backup withholding has occurred.  The amount of any backup withholding will be
allowed as a credit against a U.S. holders U.S. federal income tax liability
and may entitle the U.S. holder to a refund, provided that the U.S. holder
files a timely federal income tax return and furnishes the required information
to the Internal Revenue Service.

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 acquiring 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.

39

---

---



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
35% for the 2004 tax year, 34% for the 2005 tax year, 32% for the 2006 tax year
and 30% for the 2007 tax year and thereafter, and are 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.

The Israeli
Ministry of Finance recently published a memorandum proposing an amendment to
the Israeli Tax Ordinance [New Version], 1961 (Tax Ordinance), under which
the corporate tax rate will be gradually reduced to 25%, as follows: 31% for
the 2006 tax year; 29% for the 2007 tax year; 27% for the 2008 tax year; 26%
for the 2009 tax year; and 25% for the 2010 tax year and thereafter. In order
to enact such proposal as legislation, it must be approved by the Israeli
parliament and published. Because we cannot predict whether, and to what
extent, such proposal will eventually be enacted into law, we face
uncertainties as to the potential consequences of such proposal.

Stamp Duty

The Israeli
Stamp Duty on Documents Law, 1961 (the Stamp Duty Law), provides that any
document (or part thereof) that is signed in Israel or that is signed outside
of Israel and refers to an asset or other thing in Israel or to an action that
is executed or will be executed in Israel, is subject to a stamp duty,
generally at a rate of between 0.4% and 1% of the value of the subject matter
of such document. De facto, it has been common practice in Israel not to pay
such stamp duty unless a document is filed with a governmental authority. An
amendment to the Stamp Duty Law that came into effect on June 1, 2003,
determines, among other things, that stamp duty on most agreements shall be
paid by the parties that signed such agreement, jointly or severally, or by the
party that undertook under such agreement to pay the stamp duty. As a result of
the aforementioned amendment to the Stamp Duty Law, the Israeli tax authorities
have approached many companies in Israel and requested disclosure of all
agreements signed by such companies after June 1, 2003, with the aim of
collecting stamp duty on such agreements. The legitimacy of the aforementioned
amendment to the Stamp Duty Law and of said actions by the Israeli tax
authorities are currently under review by the Israeli High Court of
Justice.

In January
2005, an order was signed in accordance with which the said requirement to pay
stamp duty is cancelled with effect from January 1, 2008. Furthermore, pursuant
to such order, as of January 1, 2005, stamp duty is no longer chargeable on,
among others, loan agreements.

40

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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. However, the Minister of
Finance may, with the approval of the Knesset Finance Committee, determine by
order, during a certain fiscal year (or until February 28 of the following
year) in which the rate of the increase of the price index did not exceed, as
applicable, 3%, that all or some of the provisions of this law will not apply
to such fiscal year, or, that the rate of increase of the price index relating
to such fiscal year will be deemed to be 0%, and to make the adjustments
required to be made as a result of such determination.

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.

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
both residents and 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.

Generally,
capital gains tax is imposed on both individuals and corporations at a general
rate of 25% on real gains derived on or after January 1, 2003 (other than gains
from the sale of securities listed on a stock exchange). Regarding assets
acquired prior to January 1, 2003, the reduced tax rate will apply to a proportionate
part of the gain, in accordance with the holding periods of the asset, before
or after January 1, 2003, on a linear basis.

The
aforementioned memorandum proposing an amendment of the Tax Ordinance, which is
intended to come into effect on January 1, 2006, proposes that the tax rate
generally applicable to capital gains (other than gains from the sale of
securities listed on a stock exchange, as defined for Israeli tax purposes)
will be 20% for individuals and corporations, excluding a shareholder holding a
controlling interest who shall be subject to a 25% tax rate. Furthermore, it is
proposed that a resident of a country that is party to a treaty for the
prevention of double taxation with Israel, that acquires securities of an
Israeli resident company between July 1, 2005 and December 31, 2008, will be
exempt from tax on capital gains derived from the sale of such shares, provided
certain conditions are met, including that such gains are not derived in a
permanent establishment of such shareholder in Israel. As aforesaid, such
proposal has yet to be enacted as legislation, and we cannot predict whether,
and to what extent, such proposal will eventually be enacted into law.

41

---

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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 a
treaty between the governments of the United States and Israel concerning taxes
on income, 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 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 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

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, royalties and interest, as well as
non-passive income from services rendered in Israel.  On distributions of dividends other than bonus shares, or stock
dividends, income tax is generally withheld at the source at the rate of
25%.  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 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, the maximum Israeli tax on dividends paid to such
corporation is 12.5%.

The
aforementioned memorandum proposing an amendment of the Tax Ordinance, proposes
to reduce the tax rate applicable to distributions of dividends to a rate of
20% for individuals and non-Israeli residents, excluding a shareholder holding
a controlling interest who shall continue to be subject to a 25% tax rate on
such distributions.

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.

42

---

---



Israel presently has no estate or gift tax.

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 450 Fifth Street, N.W., 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 primary market risk exposure occurs because we generate most of our
financial income in U.S. dollars but incur some of our expenses and part of our
other in new Israeli shekels.

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,
2004, 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.

43

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---



Interest Rate Risk Management

As of December 31, 2004, we had $9.8 million of cash and short and long
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

Not applicable.

ITEM 15. 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, 2004. 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 them on a timely basis to
material information required to be included in our periodic reports with the
Securities and Exchange Commission.

In addition, there were no changes in our internal control over
financial reporting that occurred during 2004 that have materially affected, or
that are reasonably likely to materially affect, our internal control over
financial reporting.

ITEM 16A. Audit Committee Financial
Expert

While all the members of our audit committee are financially literate,
our board of directors has not designated any of them as an audit committee
financial expert, as defined in the applicable regulations.  Since we currently have no business
operations, our financial reporting process is relatively simple.  Accordingly, we believe that our current
situation does not justify the appointment of an audit committee financial
expert.

44

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---



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 2003 and 2004, 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, |       
|                     |  |                         |       
|                     |  | 2004                    |        | 2003 |  
|                     |  |                         |        |      |  
|                     |  |                         |        |      |  
|Audit Fees           |  | $                       | 33,500 |      | $ | 28,000 | 
|Audit-Related
  Fees |  |                         | 0      |      |   | 2,000  | 
|Tax Fees             |  |                         | 16,200 |      |   | 5,000  | 
|All Other
  Fees     |  |                         | 0      |      |   | 58,000 | 
|                     |  |                         |        |      |   |        | 
|Total                |  | $                       | 49,700 |      | $ | 93,000 | 
|                     |  |                         |        |      |   |        | 

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

45

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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.

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 before the first exhibit filed with this
document.

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/ Izhak Tamir
| |                           |                 | 
| | Izhak Tamir              
| | Chief
  Executive Officer

Date:  June 27, 2005

46

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Exhibit Index

|            |  |                                                                                                                                                                                  
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit                                                                                                                                                                          
|            |  |                                                                                                                                                                                  
|            |  |                                                                                                                                                                                  
|1.1         |  | Memorandum
  of Association (a)                                                                                                                                                  
|            |  |                                                                                                                                                                                  
|1.2         |  | Amended and
  Restated Articles of Association (a)                                                                                                                               
|            |  |                                                                                                                                                                                  
|4.8         |  | Share
  Incentive Plan, as amended (b)                                                                                                                                           
|            |  |                                                                                                                                                                                  
|4.16        |  | Asset
  Purchase Agreement, dated April 28, 2003, by and among Tikcro, ST
  Microelectronics Ltd. and
  STMicroelectronics NV (c)                                                
|            |  |                                                                                                                                                                                  
|4.17        |  | Tikcro Stock
  Option Plan (amended 2003) (a)                                                                                                                                    
|            |  |                                                                                                                                                                                  
|8           |  | List of
  Subsidiaries (d)                                                                                                                                                       
|            |  |                                                                                                                                                                                  
|12.1        |  | Certification
  of Principal Executive Officer and Principal Financial Officer pursuant to 17
  to CFR 240.13a-14(a), as adopted pursuant to §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)     
|            |  |                                                                                                                                                                                  
|15.1        |  | Consent of
  Independent Auditor (d)                                                                                                                                             

|    |  |                                                                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------
|(a) |  | Incorporated
  by reference to Tikcros Annual Report on Form 20-F for the year ended
  December 31, 2003 (File No. 0-30820).
|    |  |                                                                                                                              
|(b) |  | Incorporated
  by reference to Tikcros Registration Statement on Form S-8 (File No.
  333-12904).                           
|    |  |                                                                                                                              
|(c) |  | Incorporated
  by reference to Tikcros Annual Report on Form 20-F for the year ended
  December 31, 2002 (File No. 0-30820).
|    |  |                                                                                                                              
|(d) |  | Filed
  herewith.                                                                                                            

47

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# TIKCRO TECHNOLOGIES
LTD.

# CONSOLIDATED FINANCIAL
STATEMENTS

# AS OF DECEMBER 31, 2004

# IN U.S. DOLLARS

# INDEX

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



---

---

# 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, 2003 and 2004, and the
related consolidated statements of operations, changes in shareholders equity and
cash flows for each of the three years in the period ended December 31, 2004. 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. An audit includes consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2003 and 2004, and the consolidated results of their
operations and cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted in the
United States.

|                 |  |                                 
|---------------- |  | --------------------------------
|Tel-Aviv, Israel |  | /s/ KOST FORER GABBAY & KASIERER
|March 20, 2005   |  | 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)                                                  |             
|Due from STMicroelectronics Ltd. (Note 1)                                       |             
|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 of NIS 0.1 par value - Authorized: 50,000,000 shares at         |             
|December 31, 2003 and 2004; Issued: 28,067,555 shares at December 31, 2003      |             
|and 2004; Outstanding: 23,726,401 shares at December 31, 2003 and 2004          |             
|Additional paid-in capital                                                      |             
|Less - treasury shares, at cost (4,341,154 Ordinary shares at December 31, 2003 |             
|and 2004)                                                                       |             
|Accumulated other comprehensive 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 OPERATIONS        
|                                             
|U.S. dollars in thousands, except share data 

|                                                                   | Year ended December 31,
|------------------------------------------------------------------ | -----------------------
|
|
|
|
|Revenues:                                                          |                        
|Development and marketing services (Note 1)                        |                        
|Royalties from a related party (Note 7)                            |                        
|Product                                                            |                        
|                                                                   |                        
|                                                                   |                        
|                                                                   |                        
|                                                                   |                        
|Operating costs and expenses:                                      |                        
|Research and development expenses, net and development services    |                        
|costs, net (Notes 1 and 2)                                         |                        
|Selling, marketing, general and administrative expenses            |                        
|Impairment of property and equipment                               |                        
|Amortization of deferred stock compensation *)                     |                        
|                                                                   |                        
|                                                                   |                        
|Totaloperating costs and expenses                                  |                        
|                                                                   |                        
|                                                                   |                        
|Operating loss                                                     |                        
|Other expenses                                                     |                        
|Other income (Note 1)                                              |                        
|Financial income (expenses), net (Note 9)                          |                        
|                                                                   |                        
|                                                                   |                        
|Net income (loss) from continuing operations                       |                        
|                                                                   |                        
|Discontinued operations                                            |                        
|Income from discontinued operations net of income tax provision of |                        
|$ (157), $ 0 and $ 0 for the years ended December 31, 2002,        |                        
|2003 and 2004, respectively                                        |                        
|                                                                   |                        
|                                                                   |                        
|Net income (loss)                                                  |                        
|                                                                   |                        
|                                                                   |                        
|Net earnings (loss) per share (Note 8):                            |                        
|                                                                   |                        
|Basic net earnings (loss) per share from continuing operations     |                        
|Basic net earnings (loss) per share from discontinued operations   |                        
|                                                                   |                        
|                                                                   |                        
|Basic net earnings (loss) per share (Note 8)                       |                        
|                                                                   |                        
|                                                                   |                        
|                                                                   |                        
|Diluted net earnings (loss) per share from continuing operations   |                        
|Diluted net earnings (loss) per share from discontinued operations |                        
|                                                                   |                        
|                                                                   |                        
|Diluted net earnings (loss) per share                              |                        
|                                                                   |                        

|*) | Amortization
of deferred stock compensation related to the following operating           expenses:
research and development expenses, net and development services costs           net of $ 387,
$ 47 and $ 0 for the years ended December 31, 2002, 2003           and 2004,
respectively; selling, marketing, general and administrative expenses           of $ 248,
$ 724 and $ 0 for the years ended December 31, 2002, 2003           and 2004,
respectively.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|**) | Less
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 (DEFICIENCY)
|                                                          
|U.S. dollars in thousands, except share data              

|                                  | Outstanding
Ordinary shares | Additional
paid-in
capital | Deferred
stock
compensation | Accumulated
other
comprehensive
loss | Treasury
shares | Accumulated
deficit | Total
comprehensive
income (loss) | Total
shareholders'
equity
(deficiency)
|--------------------------------- | --------------------------- | -------------------------- | --------------------------- | ------------------------------------ | --------------- | ------------------- | --------------------------------- | ---------------------------------------
|
|
|
|
|Balance at January 1, 2002        |                             |                            |                             | 24,555,779                           |                 | $                   | 590                               |                                        
|                                  |                             |                           
|Exercise of stock options         |                             |                            |                             | 469,657                              |                 |                     | 10                                |                                        
|Deferred stock compensation       |                             |                            |                             | -                                    |                 |                     | -                                 |                                        
|Amortization of deferred stock    |                             |                           
|compensation related to           |                             |                           
|repriced options                  |                             |                            |                             | -                                    |                 |                     | -                                 |                                        
|Comprehensive income:             |                             |                           
|Net income                        |                             |                            |                             | -                                    |                 |                     | -                                 |                                        
|                                  |                             |                            |                             |                                      |                 |                     |                                   |                                        
|                                  |                             |                           
|Total comprehensive income        |                             |                            |                             |                                      |                 |                     |                                   |                                        
|                                  |                             |                            |                             |                                      |                 |                     |                                   |                                        
|                                  |                             |                           
|Balance at December 31, 2002      |                             |                            |                             | 25,025,436                           |                 |                     | 600                               |                                        
|Exercise of stock options         |                             |                            |                             | 3,042,119                            |                 |                     | 76                                |                                        
|Amortization of deferred stock    |                             |                           
|compensation related to           |                             |                           
|repriced options                  |                             |                            |                             | -                                    |                 |                     | -                                 |                                        
|Purchase of Orckit's subordinated |                             |                           
|notes                             |                             |                            |                             | -                                    |                 |                     | -                                 |                                        
|Purchase of treasury shares       |                             |                            |                             | (4,341,154                           | )               |                     | -                                 |                                        
|Comprehensive income:             |                             |                           
|Net income                        |                             |                            |                             | -                                    |                 |                     | -                                 |                                        
|                                  |                             |                            |                             |                                      |                 |                     |                                   |                                        
|                                  |                             |                           
|Total comprehensive income        |                             |                            |                             |                                      |                 |                     |                                   |                                        
|                                  |                             |                            |                             |                                      |                 |                     |                                   |                                        
|                                  |                             |                           
|Balance at December 31, 2003      |                             |                            |                             | 23,726,401                           |                 |                     | 676                               |                                        
|                                  |                             |                           
|Comprehensive loss:               |                             |                           
|Unrealized losses on              |                             |                           
|available-for-sale                |                             |                           
|marketable securities             |                             |                            |                             | -                                    |                 |                     | -                                 |                                        
|Net loss                          |                             |                            |                             | -                                    |                 |                     | -                                 |                                        
|                                  |                             |                            |                             |                                      |                 |                     |                                   |                                        
|Total comprehensive loss          |                             |                            |                             |                                      |                 |                     |                                   |                                        
|                                  |                             |                            |                             |                                      |                 |                     |                                   |                                        
|                                  |                             |                           
|Balance at December 31, 2004      |                             |                            |                             | 23,726,401                           |                 | $                   | 676                               |                                        
|                                  |                             |                            |                             |                                      |                 |                     |                                   |                                        

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 (loss)                                               |                        
|Adjustments required to reconcile net income (loss) to net cash |                        
|provided by (used in) operating activities:                     |                        
|Depreciation                                                    |                        
|Loss from sale of property and equipment                        |                        
|Realized losses on available-for-sale marketable securities     |                        
|Decrease in dues from STMicroelectronics Ltd.                   |                        
|Increase in trade receivables                                   |                        
|Decrease in other current assets                                |                        
|Decrease in inventories                                         |                        
|Increase (decrease) in trade payables                           |                        
|Increase (decrease) in related party - current account          |                        
|Increase (decrease) in other current liabilities and employees  |                        
|and payroll accruals                                            |                        
|Accrued interest on marketable securities                       |                        
|Impairment of property and equipment                            |                        
|Accrued severance pay, net                                      |                        
|Amortization of deferred stock compensation                     |                        
|Loss from disposal of SVL business                              |                        
|Gain from sale of the Company's intellectual property           |                        
|Gain from sale of the Company's business                        |                        
|                                                                |                        
|                                                                |                        
|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                                                      |                        
|Purchase of property and equipment                              |                        
|Proceeds from sale of property and equipment                    |                        
|Decrease (increase) in long-term lease deposits                 |                        
|Proceeds from disposal of SVL business                          |                        
|Proceeds from sale of the Company's intellectual property       |                        
|Proceeds from sale of the Company's business                    |                        
|                                                                |                        
|                                                                |                        
|Net cash provided by (used in) investing activities             |                        
|                                                                |                        
|                                                                |                        
|Cash flows from financing activities:                           |                        
|                                                                |                        
|Proceeds from exercise of stock options                         |                        
|Purchase of Orckit's subordinated notes                         |                        
|Payment of long-term loan from a related party                  |                        
|Purchase of treasury shares                                     |                        
|                                                                |                        
|                                                                |                        
|Net cash used in financing activities                           |                        
|                                                                |                        
|                                                                |                        
|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                |                        
|                                                                |                        
|                                                                |                        
|Supplemental disclosure of cash flows activities:               |                        
|                                                                |                        
|Cash paid during the year for interest                          |                        
|                                                                |                        
|Cash paid (refunded) during the year for taxes                  |                        
|                                                                |                        

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                    

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

| | Tikcro
Technologies Ltd. (the Company or Tikcro) was incorporated in
1999, under the laws of Israel. Tikcro had a wholly-owned subsidiary, Silicon Value
(S.V.) Ltd. (SVL), which has been voluntarily liquidated. SVL had a
wholly-owned U.S. subsidiary, Tikcro Technologies Inc. Both subsidiaries were inactive
since 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has no business activities and it is actively pursuing investment opportunities.
| | --------------------------------------------------------------------------------------------

| | On
January 30, 2000, the board of directors of Orckit Communications Ltd. (Orckit)
decided to execute a plan of separation (the plan or the spin-off)
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
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2001, the Company sold the ASIC division of its wholly-owned subsidiary SVL.
| | -------------------------------------------------------------------------------------

| | In
September 2001, the Board of Directors of the Company decided to liquidate SVL, which
became an inactive company.
| | --------------------------------------------------------------------------------------------------------------------

| | In
February 2002, the Company entered into three strategic agreements with
STMicroelectronics NV and its Israeli subsidiary STMicroelectronics Ltd. (collectively
ST), a technology transfer agreement, a development, marketing and services
agreement and an option agreement.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pursuant
to the technology transfer agreement, the Company granted ST certain co-ownership rights
in its then existing intellectual property in the DSL field and ownership rights over its
products, including certain products that were still under development and its rights
under certain design wins in consideration of approximately $ 10,000. With respect
to the technology transfer agreement, the Company recorded in 2002 $ 9,698, net of
transaction expenses, as other income.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pursuant
to the development, marketing and services agreement (services agreement),
the Company was required to provide research and development and marketing services to ST
in the DSL field as determined by ST from time to time as detailed in this agreement. In
consideration of the performance of these services during the term of the agreement, ST
paid the Company $ 2,000 for every quarter in which the services were rendered,
commencing January 15, 2002. The services agreement was subsequently extended until April
28, 2003. The Company recorded such fees as revenues (see also Note 7).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
a result of these agreements, the Companys activities consisted primarily of
development and marketing services provided to ST. The Company ceased to conduct its
business as an independent DSL chip developer and manufacturer.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pursuant
to the option agreement, Tikcro granted to ST the right to acquire Tikcros business
via a merger or a sale of Tikcros assets. On January 15, 2003, ST exercised its
option. According to the exercise notice, ST elected to acquire Tikcros business as
an asset deal.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 7

---

---

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

|NOTE 1: |  | GENERAL
(Cont.)
|------- | - | ---------------

| | On
April 28, 2003, the Company and ST entered into the asset purchase agreement. Under the
asset purchase agreement, ST acquired all of the Companys assets (the
acquired assets) in consideration of $ 12,000 and, in addition, it assumed all of
its liabilities other than the following liabilities: the Companys financial
indebtedness (including the debt to Orckit); the Companys liabilities towards its
subsidiaries and the subsidiaries liabilities to the Company; tax liabilities
(other than Value Added Tax, if any, which under the agreement is to be borne by ST);
liabilities towards the Office of Chief Scientist in Israels Ministry of Industry
and Trade with respect to the services agreement with ST and any other liability if
actually known to the Company but is not disclosed to ST in the asset purchase agreement
or in the financial statements as of April 28, 2003. With respect to the asset purchase
agreement, the Company recorded in 2003 the capital gain of $ 12,834 as other income.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
part of the asset purchase agreement, ST hired most of the Companys employees. The
Company has undertaken additional covenants in the asset purchase agreement including:
the obligation to change the Companys corporate name to a name that does not
include the word Tioga; the obligation not to engage, for a period of three
years, in any business that competes with the Companys business as conducted prior
to April 28, 2003; and the obligation not to solicit, for a period of two years, the
services of any employee of ST previously employed by the Company or to otherwise
interfere with the relationship between ST and any such employees.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Upon
the closing of the asset purchase agreement, the Company ceased its DSL activities and
all the Companys operations were discontinued.
| | -------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | a. | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
revenues of the Company were 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 remeasured 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 remeasurement of monetary balance sheet items are reflected in the statements of
operations as financial income or expenses, as appropriate.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 8

---

---

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

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

| | c. | Principles
of consolidation:
| | -- | ----------------------------

| | The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated
upon consolidation.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Cash
equivalents:
| | -- | -----------------

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

| | e. | Marketable
securities:
| | -- | ----------------------

| | Management
determines the classification of investments in marketable equity securities at the time
of purchase and reevaluates such designations as of each balance sheet date. At December 31,
2004, 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f. | Property
and equipment:
| | -- | -----------------------

| | Property
and equipment were stated at cost, net of accumulated depreciation. Depreciation was
calculated by the straight-line method over their estimated useful lives, at the
following annual rates:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | %                          
|----------------------------------------- | ---------------------------
|
|
|
|
|Computers, software and related equipment | 33                         
|Office furniture and equipment            | 7 - 15                     
|                                          | Over the lesser term of the
|Leasehold improvements                    | lease or useful life       

| | g. | Research
and development costs:
| | -- | -------------------------------

| | Research
and development costs, net, of grants received, were charged to the statement of
operations as incurred.
| | -----------------------------------------------------------------------------------------------------------------

| | h. | Income
taxes:
| | -- | -------------

| | The
Company and its subsidiaries account for income taxes in accordance with Statement of
Financial Accounting Standard 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 9

---

---

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

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

| | i. | Revenue
recognition:
| | -- | --------------------

| | In
2002 and 2003, the Company generated its revenues mostly from development and marketing
services.
| | ----------------------------------------------------------------------------------------------------

| | Revenues
from research and development services were recognized at the time they were rendered
(see also Note 1).
| | -----------------------------------------------------------------------------------------------------------------

| | j. | Royalty-bearing
grants:
| | -- | -----------------------

| | Royalty-bearing
grants from the Government of Israel for funding approved research and development
projects were recognized at the time the Company is entitled to such grants, on the basis
of the costs incurred and included as a reduction in research and development expenses.
Research and development grants recognized amounted to $ 1,468, $ 394 and $ 0
in 2002, 2003 and 2004, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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.)
|------- | - | ---------------------------------------

| | Under
SFAS No. 123, pro forma information regarding net income (loss) and net earnings (loss)
per share is required and has been determined as if the Company had accounted for its
employee options under the fair value method of that statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes Option Valuation Model,
with the following weighted-average assumptions for 2002 and 2003: expected volatility of
83% and 66%, respectively, risk-free interest rates of 4% and 2%, respectively, dividend
yield of 0% for each year and a weighted-average expected life of the option of three
years for each year.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                                   | Year ended December 31,
|-------------------------------------------------- | -----------------------
|
|
|
|
|Net income (loss) as reported                      |                        
|Add: Total stock based compensation - intrinsic    |                        
|value                                              |                        
|Deduct: Total stock based compensation             |                        
|determined under fair value based method for       |                        
|all awards                                         |                        
|                                                   |                        
|                                                   |                        
|Pro forma net income (loss)                        |                        
|                                                   |                        
|Basic net earnings (loss) per share as reported    |                        
|                                                   |                        
|Diluted net earnings (loss) per shares as reported |                        
|                                                   |                        
|Pro forma basic net earnings (loss) per share      |                        
|                                                   |                        
|Pro forma diluted net earnings (loss) per share    |                        
|                                                   |                        

| | l. | Severance
pay:
| | -- | --------------

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

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

| | Severance
expenses for the years ended December 31, 2002, 2003 and 2004 amounted to approximately $ 476,
$ 128 and $ 0, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------

F - 11

---

---

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

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

| | m. | 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).
| | --------------------------------------------------------------------------------------

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

| | Basic
net earnings (loss) per share are computed based on the weighted average number of
Ordinary shares outstanding during each year. Diluted net earnings (loss) per share are
computed based on the weighted average number of Ordinary shares outstanding during each
year, plus dilutive potential 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 and subordinated
convertible notes, excluded from the calculation of the diluted net earnings (loss) per
share for the years ended December 31, 2002, 2003 and 2004, were 5,729,217, 0 and
640,000, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Financial
instruments that potentially subject the Company and its subsidiaries 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 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 debentures of the U.S.
government. Management believes that those companies are financially sound, the portfolio
is well diversified, 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | p. | Treasury
shares:
| | -- | ----------------

| | The
Company repurchases its Ordinary shares from time to time on the open market and from
employees who exercise their options, and holds such shares as treasury shares. The
Company presents the cost to repurchase treasury shares as a reduction in shareholders equity.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 12

---

---

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

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

| | q. | Impact
of recently issued accounting standards:
| | -- | -----------------------------------------------

| | In
March 2004, the FASB approved the consensus reached on the Emerging Issues Task Force
(EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments (EITF 03-1). The objective of this
Issue is to provide guidance for identifying impaired investments. EITF 03-1 also
provides new disclosure requirements for investments that are deemed to be temporarily
impaired. In FASB Staff Position on EITF 03-1-1, the Board directed the FASB staff to
delay the effective date for the measurement and recognition guidance contained in EITF
03-1. The disclosure requirements are effective only for annual periods ending after June
15, 2004. The Company does not believe the impact will be significant to the Companys
overall results of operations or financial position.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December16, 2004, the FASB issued FASB Statement No. 123 (revised 2004), Share
Based Payment, which is revision of FASB Statement No. 123, Accounting for
Stock Based Compensation. SFAS 123R supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of
Cash Flow. Generally, the approach in SFAS 123R is similar to the approach
described in Statement 123. However, SFAS 123R requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the income
statement based on their fair value. Pro forma disclosure is no longer an alternative.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
123R must be adopted no later than July 1, 2005. Early adoption is permitted in periods
in which financial statement have not yet been issued. The Company expects to adopt SFAS
123R on July 1, 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
123R permits companies to adopt its requirement using one of the two methods:
| | ----------------------------------------------------------------------------------

| | 1. | A
modified prospective method in which compensation cost is
          recognized beginning with the effective date (a) based on the requirements of
          SFAS 123R for all share-based payments granted after the effective date and (b)
          based on the requirements of SFAS 123R for all awards granted to employees
prior           to the effective date of SFAS 123R that remain unvested in the effective
date.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | A
modified retrospective method which includes the requirements of
          the modified prospective method described above, but also permits entities to
          restate based in the amounts previously recognized under SFAS 123R for purposes
          of pro forma disclosures either: (a) all prior periods presented or (b) prior
          interim period of the year of adoption.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 13

---

---

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

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

| | The
Company plans to adopt SFAS 123R using the modified prospective method. As permitted by
SFAS 123, the Company currently accounts for share based payments to employees using APB
25s intrinsic value method and, as such, generally recognizes no compensation cost
for employees stock options. Accordingly, the adoption of SFAS 123Rs fair value
method will have a significant impact in the Companys result of operations,
although it will have no impact on the Companys overall financial position. The
impact of adoption of SFAS 123R cannot be predicted at this time because it will depend
on levels of share based payments granted in the future. However, had the Company adopted
SFAS 123R in prior periods, the impact of that standard would have approximated the
impact of SFAS 123 as described in the disclosure of pro forma net income (loss) and
earnings (loss) per share in k. above to the Companys financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | The
Companys management believes that the unrealized losses are considered temporary as
the decline per bond is considered insignificant. The unrealized losses on the Companys
are caused due to interest rate increases. Since the Company has the ability and intent
to hold these investments until a recovery of fair value, the Company does not consider
these investments to be other-than-temporarily impaired as of December 31, 2004. In
addition, the unrealized losses are in continuous position for a period not more than
twelve months.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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
|------- | - | --------------------

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

| | 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. | As
of December 31, 2004, an aggregate of 7,375,589 of the Companys           options
are still available for future grant.
| | -- | ---------------------------------------------------------------------------------------------------------------------------

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

| | The
following is a summary of the Companys stock options granted:
| | ------------------------------------------------------------------

|                    | Year ended december 31,
|------------------- | -----------------------
|
|
|
|
|Outstanding at the  |                        
|beginning of the    |                        
|year                |                        
|Granted             |                        
|Exercised           |                        
|Forfeited           |                        
|                    |                        
|Outstanding at the  |                        
|end of the year     |                        
|                    |                        
|Exercisable options |                        
|at the end of the   |                        
|year                |                        
|                    |                        

| | All
options granted during 2002 and 2003, were at an exercise price that is equal to the fair
value of the stock at the grant 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
options outstanding as of December 31, 2004, have been separated into ranges of exercise
price as follows:
| | --------------------------------------------------------------------------------------------------------------

|Exercise
price | Options
outstanding
as of
december 31,
2004 | Weighted
average
remaining
contractual
life (years) | Weighted
average
exercise
price | Options
exercisable
as of
december 31,
2004 | Weighted
average
exercise
price of
options
exercisable
|-------------- | ------------------------------------------- | --------------------------------------------------- | ------------------------------- | ------------------------------------------- | ------------------------------------------------------
|
|
|
|
|$              | 0.02                                        |                                                     |                                 | 440,000                                     |                                                       
|$              | 0.29                                        |                                                     |                                 | 200,000                                     |                                                       
|               |                                             |                                                     |                                 |                                             |                                                       
|               |                                             |                                                    
|               |                                             |                                                     |                                 | 640,000                                     |                                                       
|               |                                             |                                                     |                                 |                                             |                                                       

| | Following
the assets purchase agreement, all outstanding options, other than the 640,000 options
mentioned above held by directors, were either exercised or forfeited as of December 31,
2004.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | In
April 2001, the Board of Directors of the Company resolved to reprice stock
          options of certain of its employees and employees of Orckit. The exercise price
          of the repriced stock options is NIS 0.10 which is the par value of the
Ordinary           shares. The Company had a new measurement date and consequently
recorded           deferred stock compensation of $ 3,374. During 2002, 2003 and
2004,           $ 635, $ 771 and $ 0, respectively was amortized to the
statement of           operations.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | In
March 2000, Orckit issued a $ 125,000 aggregate principal amount of its           5.75%
convertible subordinated notes due in April 2005. Holders of the notes           were
entitled to convert each $ 1 principal amount of the notes into           11.7481
Ordinary shares of Orckit (which is equivalent to a conversion price of           $ 85.12
per share) plus 11.7481 Ordinary shares of the Company. The conversion           rates
with respect to Orckit and the Company were subject to adjustment in           certain
circumstances, such as changes in the applicable companys capital
          structure or upon the issuance by the applicable company of stock dividends or
          certain cash distribution.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2003, Orckit repurchased a $ 75,312 principal amount of the notes. These notes were
convertible to 884,774 shares of the Company (the Companys average price 30 days
prior to that date was $ 0.27).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Orckit
agreed not to convert the notes for a total consideration of $ 249 that was paid to
Orckit by the Company during 2003.
| | -----------------------------------------------------------------------------------------------------------------------------

| | According
to EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Companys Own Stock, the initial balance sheet
classification is based on the concept that contracts that require settlement in shares
are equity instruments.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 16

---

---

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

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

| | Therefore,
according to EITF 00-19, the $ 249 was reduced from the additional paid in capital and
classified as equity during 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------

| | e. | In
February 2003, the Company obtained the required Israeli court approval for           a
share repurchase program.
| | -- | --------------------------------------------------------------------------------------------------------------------

| | The
program allows the Company to repurchase its Ordinary shares for an agreed consideration
of up to $ 2,000. The purchases will be made from time-to-time at the discretion of
management in open market purchases or in privately negotiated transactions. Purchases
will depend upon market conditions and may be discontinued at any time.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2004, the Company repurchased 4,341,154 of its shares (out of which
2,000,000 were purchased from employees) in consideration of $ 1,065 and are recorded as
Treasury shares that are presented at cost, and recorded as a reduction in shareholders
equity, during 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | a. | Measurement
of taxable income under the Income Tax (Inflationary Adjustments)           Law, 1985:
| | -- | --------------------------------------------------------------------------------------------------

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

| | b. | The
regular corporate tax rate in Israel is 35% commencing July 2004 and 34%,           32%,
30% commencing 2005, 2006 and 2007 and thereafter, respectively.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Deferred
taxes on income:
| | -- | -------------------------

| | Deferred
income taxes reflect the net tax effect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes, measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse, which was determined as 30%.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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                           |             
|                                                 |             

F - 17

---

---

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

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

| | Management
currently believes that since the Company and its subsidiaries have 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Company has accumulated operating losses for tax purposes as of December 31, 2004,
in the amount of approximately $ 23,000, which may be carried forward and offset against
taxable income in the future for an indefinite period.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has accumulated capital losses of $ 97,000, which may be carried forward and
offset against capital gains for seven years and expire in 2008. There is no assurance
that the Israeli tax authorities will accept such position.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | The
main reconciling item from the statutory tax rate of the Company to the
          effective tax rate is the non-recognition of tax benefits from accumulated net
          operating losses carryforward due to the uncertainty of the realization of such
          tax benefits.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f. | Net
income (loss) from continuing operations consists of the following:
| | -- | -----------------------------------------------------------------------

|                  | Year ended December 31,
|----------------- | -----------------------
|
|
|
|
|Domestic (Israel) |                        
|Foreign           |                        
|                  |                        
|                  |                        
|                  |                        
|                  |                        

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

| | The
balances with and the results of operations from transactions with related parties, were
as follows:
| | --------------------------------------------------------------------------------------------------------

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

|                                                    | Year ended December 31,
|--------------------------------------------------- | -----------------------
|
|
|
|
|Transactions:                                       |                        
|                                                    |                        
|Revenues from development and marketing services to |                        
|ST, Switzerland (see Note 1)                        |                        
|Revenues from products and royalties - ST           |                        
|Interest on long-term loan - Orckit                 |                        
|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 data 

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

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

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

|                                              | Year ended December 31,
|--------------------------------------------- | -----------------------
|
|
|
|
|Net income (loss) from continuing operations  |                        
|Net income from discontinued operations       |                        
|                                              |                        
|Numerator for diluted net earnings (loss) per |                        
|share - income (loss) available to            |                        
|shareholders of Ordinary shares               |                        
|                                              |                        

| | b. | Denominator:
| | -- | ------------

|                                                                                                                                                                                | Year ended December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------
|
|
|                                                                                                                                                                                |                        
|Denominator for basic net earnings (loss) per                                                                                                                                   |                        
|share - weighted average shares                                                                                                                                                 |                        
|                                                                                                                                                                                |                        
|Effect of dilutive securities:                                                                                                                                                  |                        
|Employee stock options, Orckit's employee                                                                                                                                       |                        
|options, SVL's employee options and options                                                                                                                                     |                        
|to service providers                                                                                                                                                            |                        
|Convertible subordinated notes                                                                                                                                                  |                        
|                                                                                                                                                                                |                        
|Denominator for diluted net earnings (loss) per
          share - adjusted weighted average shares,
          assumed conversions and exercise of options          and warrants |                        
|                                                                                                                                                                                |                        

| | *) | Antidilutive.
| | -- | -------------

|NOTE 9: |  | FINANCIAL
INCOME (EXPENSES)
|------- | - | ---------------------------

|                                         | Year ended December 31,
|---------------------------------------- | -----------------------
|
|
|                                         |                        
|Financial expenses:                      |                        
|Interest                                 |                        
|Foreign currency translation adjustments |                        
|Loss from sale of marketable securities  |                        
|Other                                    |                        
|                                         |                        
|                                         |                        
|                                         |                        
|                                         |                        
|Financial income:                        |                        
|Interest                                 |                        
|                                         |                        
|                                         |                        
|                                         |                        
|                                         |                        

F - 19

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---