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<TITLE>S-1</TITLE>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>As filed with the Securities and Exchange Commission on
January&nbsp;18, 2006.</B>
</DIV>

<DIV align="right" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Registration
No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>
</DIV>

<DIV align="center" style="font-size: 6pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 2.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
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<DIV align="center" style="font-size: 14pt;color: #000000; background: #ffffff; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt;color: #000000; background: #ffffff;">
<B>Washington,&nbsp;D.C. 20549</B>
</DIV>

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</DIV>

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<B>Form&nbsp;S-1</B>
</DIV>

<DIV align="center" style="font-size: 12pt;color: #000000; background: #ffffff;">
<B>REGISTRATION STATEMENT</B>
</DIV>

<DIV align="center" style="font-size: 12pt;color: #000000; background: #ffffff;">
<B>UNDER</B>
</DIV>

<DIV align="center" style="font-size: 12pt;color: #000000; background: #ffffff;">
<B>THE SECURITIES ACT OF 1933</B>
</DIV>

<DIV align="center" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 26%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 20pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OMRIX BIOPHARMACEUTICALS, INC.</B>
</DIV>

<DIV align="center" style="font-size: 8pt;color: #000000; background: #ffffff;">
<I>(Exact name of registrant as specified in its charter)</I>
</DIV>

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    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="28%">&nbsp;</TD>
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<TR>
    <TD align="center" valign="top">
    <B>Delaware</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>2836</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>52-2147005</B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <I>(State or other jurisdiction of<BR>
    incorporation or organization)</I></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <I>(Primary Standard Industrial<BR>
    Classification Code Number)</I></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <I>(I.R.S. Employer<BR>
    Identification Number)</I></TD>
</TR>

</TABLE>
</CENTER>

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<DIV style="width: 26%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>708 Third Avenue</B>
</DIV>

<DIV align="center" style="font-size: 9pt;color: #000000; background: #ffffff;">
<B>New York, New York 10017</B>
</DIV>

<DIV align="center" style="font-size: 9pt;color: #000000; background: #ffffff;">
<B>(212)&nbsp;209-3902</B>
</DIV>

<DIV align="center" style="font-size: 8pt;color: #000000; background: #ffffff;">
<I>(Address, including zip code, and telephone number,</I>
</DIV>

<DIV align="center" style="font-size: 8pt;color: #000000; background: #ffffff;">
<I>including area code, of registrant&#146;s principal executive
offices)</I>
</DIV>

<DIV align="center" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 26%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Michael Burshtine</B>
</DIV>

<DIV align="center" style="font-size: 9pt;color: #000000; background: #ffffff;">
<B>Senior Vice President and Chief Financial Officer</B>
</DIV>

<DIV align="center" style="font-size: 9pt;color: #000000; background: #ffffff;">
<B>Omrix Biopharmaceuticals, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 9pt;color: #000000; background: #ffffff;">
<B>708 Third Avenue</B>
</DIV>

<DIV align="center" style="font-size: 9pt;color: #000000; background: #ffffff;">
<B>New York, New York 10017</B>
</DIV>

<DIV align="center" style="font-size: 9pt;color: #000000; background: #ffffff;">
<B>(212)&nbsp;209-3902</B>
</DIV>

<DIV align="center" style="font-size: 8pt;color: #000000; background: #ffffff;">
<I>(Name, address, including zip code, and telephone number,</I>
</DIV>

<DIV align="center" style="font-size: 8pt;color: #000000; background: #ffffff;">
<I>including area code, of agent for service)</I>
</DIV>

<DIV align="center" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 26%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B><I>With copies to:</I></B>
</DIV>

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    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="42%">&nbsp;</TD>
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<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Phyllis G. Korff,&nbsp;Esq.<BR>
    Skadden, Arps, Slate, Meagher&nbsp;&#38; Flom LLP<BR>
    Four Times Square<BR>
    New York, NY 10036<BR>
    (212)&nbsp;735-3000<BR>
    Facsimile: (212)&nbsp;735-2000</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>Donald J. Murray,&nbsp;Esq.<BR>
    Dewey Ballantine LLP<BR>
    1301 Avenue of the Americas<BR>
    New York, NY 10019-6092<BR>
    (212)&nbsp;259-8000<BR>
    Facsimile: (212)&nbsp;259-6333</B></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;
<B>Approximate date of commencement of proposed sale to the
public:</B> As soon as practicable after this Registration
Statement is declared effective.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule&nbsp;415 under the Securities Act of 1933, check the
following
box:&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;
If this Form is filed to register additional securities for an
offering pursuant to Rule&nbsp;462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;
If this Form is a post-effective amendment filed pursuant to
Rule&nbsp;462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;
If this Form is a post-effective amendment filed pursuant to
Rule&nbsp;462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="center" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>CALCULATION OF REGISTRATION FEE</B>
</DIV>

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<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 3pt; ">

<TR style="font-size: 1pt;">
    <TD width="44%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
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    <TD width="24%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
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<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Proposed Maximum</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Amount of</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="center" nowrap><B>Title of Each Class of Securities to be Registered</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Aggregate Offering Price(1)</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Registration Fee</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common Stock, par value $0.01</DIV>
    </TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $80,500,000</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $8,613.50</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)</TD>
    <TD align="left">
    Estimated solely for the purpose of calculating the amount of
    the registration fee pursuant to Rule&nbsp;457(o) under the
    Securities Act of 1933, as amended.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;
<B>The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section&nbsp;8(a)
of the Securities Act or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant
to said Section&nbsp;8(a), may determine.</B>
</DIV>

<DIV align="center" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 8pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 4pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 2.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" cellpadding="5" style="border: 3pt double #000000; margin-bottom: 6pt; font-size: 10pt"><TR><TD>
<FONT style="font-size: 9pt" color="#E8112D">The information in
this preliminary prospectus is not complete and may be changed.
We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell
these securities and we are not soliciting offers to buy these
securities in any jurisdiction where the offer or sale is not
permitted.

</FONT>
</TD></TR></TABLE>

<DIV style="margin-top: 1pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="33%"></TD>
    <TD width="33%"></TD>
    <TD width="33%"></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT color="#E8112D">PRELIMINARY PROSPECTUS</FONT></TD>
    <TD align="center"><FONT color="#E8112D">Subject to completion</FONT></TD>
    <TD align="right"><FONT color="#E8112D">January&nbsp;18, 2006</FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 14pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="60%"></TD>
    <TD width="40%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B>Shares</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD style="font-size: 18pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left">
    <IMG src="y16354y1635400.gif" alt="(OMRIX LOGO)"></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 14pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B> Common Stock</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
This is the initial public offering of our common stock. No
public market currently exists for our common stock. We are
offering all of
the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock offered by this prospectus. We expect the
public offering price to be between
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have applied to have our common stock included for quotation
on the Nasdaq National Market under the symbol &#147;OMRI.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Investing in our common stock involves a high degree of risk.
Before buying any shares, you should carefully read the
discussion of material risks of investing in our common stock in
&#147;Risk factors&#148; beginning on page&nbsp;9 of this
prospectus.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 9pt; ">

<TR style="font-size: 1pt;">
    <TD width="69%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Per share</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Public offering price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Underwriting discounts and commissions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds, before expenses, to us</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The underwriters may also purchase up to an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock at the public offering price, less the
underwriting discounts and commissions payable by us, to cover
over-allotments, if any, within 30&nbsp;days of the date of this
prospectus. If the underwriters exercise this option in full,
the total underwriting discounts and commissions will be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
and our total proceeds, before expenses, will be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The underwriters are offering the common stock as set forth
under &#147;Underwriting.&#148; Delivery of the shares will be
made on or
about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2006.
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Sole book-running manager</I>
</DIV>

<DIV align="center" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>UBS Investment Bank</B>
</DIV>

<DIV align="center" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 37%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Co-lead manager</I>
</DIV>

<DIV align="center" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>CIBC World Markets</B>
</DIV>

<DIV align="center" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 37%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 16pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD align="left"><B>Leerink Swann&nbsp;&#38; Company</B></TD>
    <TD align="right"><B>Oppenheimer&nbsp;&#38; Co.</B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with additional information
different from that contained in this prospectus. We are
offering to sell, and seeking offers to buy, shares of our
common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of shares
of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>TABLE OF CONTENTS</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Page</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#101'>Prospectus summary</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#102'>Risk factors</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>9</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#103'>Special note regarding forward-looking
    statements</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>27</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#104'>Use of proceeds</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>28</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#105'>Dividend policy</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>29</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#106'>Capitalization</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>30</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#107'>Dilution</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>31</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#108'>Selected consolidated financial data</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>33</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#109'>Management&#146;s discussion and analysis
    of financial condition and results of operations</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>35</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#110'>Business</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>54</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#111'>Management</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>79</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#112'>Certain relationships and related party
    transactions</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>89</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#113'>Principal stockholders</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>92</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#114'>Description of capital stock</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>95</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#115'>Shares eligible for future sale</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>103</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#116'>Material U.S.&nbsp;federal income and
    estate tax consequences to non-U.S.&nbsp;holders</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>105</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#117'>Underwriting</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>108</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#118'>Notice to investors</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>112</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#119'>Legal matters</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>115</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#120'>Experts</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>115</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#121'>Where you can find additional
    information</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>116</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#122'>Index to consolidated financial
    statements</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>F-1</B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Quixil is our registered trademark; Crosseal, Tisseel VH,
Tissucol, TachoComb H, TachoSil, Beriplast, FloSeal and CryoSeal
FS System are the trademarks and service marks of others.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> i</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='101'></A>
</DIV>

<!-- link1 "Prospectus summary" -->

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Prospectus summary
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="98%"></TD>
    <TD width="2%"></TD>
</TR>

<TR valign="top">
    <TD align="left">
    <I>This summary highlights selected information appearing
    elsewhere in this prospectus and does not contain all of the
    information that you should consider in making your investment
    decision. You should read this summary together with the more
    detailed information, including our financial statements and the
    related notes, elsewhere in this prospectus. You should
    carefully consider, among other things, the matters discussed in
    &#147;Risk factors&#148; and &#147;Management&#146;s discussion
    and analysis of financial condition and results of
    operations.&#148; You should read this prospectus in its
    entirety.</I></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Unless the context requires otherwise, the words
&#147;Omrix,&#148; &#147;we,&#148; &#147;company,&#148;
&#147;us&#148; and &#147;our&#148; refer to Omrix
Biopharmaceuticals, Inc. and its subsidiaries.</I>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OUR COMPANY</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Omrix is a commercial-stage biopharmaceutical company that
develops and markets innovative biological products. We utilize
our proprietary protein purification technology and
manufacturing know-how to develop biosurgical and passive
immunotherapy products.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In each of our product lines, we are developing novel and
<FONT style="white-space: nowrap">easy-to</FONT>-use products
that address unmet market needs. Our biosurgical product line
includes products and product candidates that are used or are
intended to be used for the control of bleeding, or hemostasis,
and other surgical applications. We compete in the advanced
biosurgical hemostats market, which we believe is the fastest
growing segment of the surgical sealant market. We believe that
the advanced biosurgical hemostats market in the
U.S.&nbsp;currently represents approximately $275&nbsp;million
of the worldwide $1&nbsp;billion surgical sealant market and,
based on market trends, we expect these markets to grow
substantially.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our passive immunotherapy product line includes antibody-rich
products and product candidates for the treatment of immune
deficiencies and infectious diseases, including potential
biodefense applications. We provide passive immunotherapy
products for the treatment of patients with immune deficiencies
and smallpox vaccine-related complications, and for the
prevention of reinfection of transplanted livers in liver
transplant patients with hepatitis B virus, or HBV.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OUR PRODUCTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our core competency is applying our proprietary protein
purification technology and our manufacturing know-how to
develop and commercialize protein-based products. We develop and
market biosurgical and passive immunotherapy products.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Biosurgical products and product candidates</B>
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Crosseal/ Quixil</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Crosseal/ Quixil is our marketed fibrin sealant product used for
hemostasis in surgical procedures. It is marketed as Crosseal in
the U.S. and as Quixil outside the U.S.&nbsp;by Ethicon, Inc., a
Johnson and Johnson company, or Ethicon, under our supply and
distribution agreement with them. Ethicon has been marketing
Quixil as an adjunct to hemostasis in liver and orthopedic
surgeries in the EU and several other European countries since
2003 and Crosseal as an adjunct to hemostasis in liver surgery
in the U.S.&nbsp;since 2004. In addition, we have been marketing
Quixil directly in Israel since 1998 for similar indications and
through local distributors in Mexico since 2000 as an adjunct to
hemostasis for general surgical use. We recently received
approval for Quixil as an adjunct to hemostasis for general
surgical use, and regulatory licenses have been issued for this
indication by Germany, the United Kingdom, France, Italy and
Brazil.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 1</B>
</DIV>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We believe that Crosseal/ Quixil has several competitive
advantages over other liquid fibrin sealants on the market.
Crosseal/ Quixil:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">is readily available for spraying
    and dripping because it can be prepared from thawed product in
    approximately one minute in the operating room;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">contains a suite of naturally
    occurring proteins in its biological active component, or BAC,
    which results in a clot that we believe has better adherence to
    tissue and greater elasticity;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">avoids the possibility of an
    adverse reaction associated with bovine (cow)&nbsp;proteins
    because it does not contain animal-derived components;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">can be refrigerated in a liquid
    form, thereby avoiding waste of unused product, for up to
    30&nbsp;days after thawing.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In 2004, Frost&nbsp;&#38; Sullivan awarded the Product
Differentiation Leadership Award to Ethicon as a result of
Ethicon&#146;s inclusion of Quixil in its product portfolio. The
award is presented each year to a company that best demonstrates
the ability to develop or advance products with more innovative
capabilities than competing companies and products.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
For the year ended December&nbsp;31, 2004 and the nine months
ended September&nbsp;30, 2005, we recognized $5.2&nbsp;million
and $5.0&nbsp;million, respectively, in revenues from our direct
commercial sales and sales to Ethicon and our other distributors
of Crosseal/Quixil, including revenues recognized from upfront
fees and milestone payments.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Crosseal&nbsp;II/Quixil&nbsp;II</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
We are developing our second generation fibrin sealant,
Crosseal&nbsp;II/Quixil&nbsp;II, in collaboration with Ethicon.
It differs from our current fibrin sealant in that it
incorporates our second generation BAC, or BAC&nbsp;II, and as a
result, does not require a stabilizing agent. The presence of
this stabilizing agent resulted in Crosseal/Quixil being
contraindicated for neurosurgery. We expect that this
contraindication will be removed upon approval of Crosseal
II/Quixil II. We are seeking to obtain approval for
Crosseal&nbsp;II/Quixil&nbsp;II as an adjunct to hemostasis for
general surgical use in the U.S. and the EU. To obtain this
approval for Crosseal&nbsp;II/Quixil&nbsp;II in the U.S., we
must demonstrate effective hemostasis in two types of surgical
procedures. In July 2005, we began a multi-center Phase&nbsp;III
clinical trial with Crosseal&nbsp;II/Quixil&nbsp;II for
hemostasis in peripheral vascular surgery in 150&nbsp;patients
in the U.S. and the EU. We expect to add a multi-center
Phase&nbsp;III trial with Crosseal&nbsp;II/Quixil&nbsp;II for
hemostasis in kidney surgery in the U.S.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Hemostatic bio-device</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
We are developing, in collaboration with Ethicon, a novel
hemostatic bio-device that builds on our
Crosseal&nbsp;II/Quixil&nbsp;II technology. This hemostatic
bio-device product candidate is designed for the management and
rapid control of bleeding, including severe or brisk bleeding,
and for use on active bleeding sites. This type of bleeding is
difficult to control and is characterized by fast flow and high
pressure. There is no surgical sealant currently marketed to
induce the rapid formation of a clot at a brisk bleeding site
because the volume and pressure of the bleeding in these
situations displaces the clot formed with traditional fibrin
sealants. Our hemostatic bio-device product candidate, comprised
of our BAC&nbsp;II and thrombin embedded in a biodegradable
device, is designed to address this unmet market need. We are
conducting pre-clinical tests with this product candidate in
laboratory animals. Upon completing these tests, we expect to
conduct a Phase&nbsp;I/II clinical pilot study in Israel, which
will be followed by clinical trials in the U.S.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Thrombin stand-alone and flowable thrombin</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
We are developing our thrombin stand-alone product with Ethicon
for general surgical use, primarily for use in neurosurgery.
Consistent with our strategy of developing product extension
candidates to address market demand, our thrombin stand-alone
product candidate is derived from human plasma
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 2</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
and is a product extension of our fibrin sealant. It is intended
for cases, such as certain types of neurosurgery, where the
physician desires a more gradual onset of clotting than that
provided by standard fibrin sealants. Our product candidate is a
liquid that is poured directly on the site or onto an applicator
device. It is designed to provide effective hemostasis without
the risk of adverse reactions associated with the bovine
thrombin contained in other available thrombin stand-alone
products. We are conducting a multi-center Phase&nbsp;III
clinical trial with thrombin stand-alone as an adjunct to
hemostasis for general surgical use in approximately
300&nbsp;patients in the U.S.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are also developing a flowable thrombin product, which is a
product extension that combines our thrombin stand-alone product
candidate with a medical device provided by Ethicon. This
product candidate is designed to be delivered as part of a
complete and
<FONT style="white-space: nowrap">easy-to</FONT>-use application
kit. It is being developed primarily for cases in which more
control in application is desired. We plan to file a 510(k)
Premarket Notification with the FDA for our flowable thrombin
after obtaining approval of our thrombin stand-alone product
candidate in the U.S.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Passive immunotherapy products and product candidates</B>
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>VIG</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Vaccinia immunoglobulin, or VIG, is a product that is designed
to treat smallpox vaccine-related complications. We supply VIG
to government organizations. To date, we have sold VIG to three
governments, including to the United Kingdom Department of
Health under a contract we were awarded by the United Kingdom in
December 2005. Under this agreement, we expect to receive
approximately $20&nbsp;million by the end of the third quarter
of 2006.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>HT-VIG</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
High titer VIG, or HT-VIG, is a more concentrated form of VIG
that can be used in smaller volumes for the same indication and
we believe can also be used for the treatment of smallpox.
Unlike VIG, which can only be administered intravenously, HT-VIG
can also be administered intramuscularly by non-specialized
medical personnel, which allows for treatment of more patients
in urgent situations. We produced HT-VIG using our proprietary
high titer, or HT, technology. We expect to begin testing HT-VIG
in animals in the first quarter of 2006. In 2003, the
U.S.&nbsp;National Institutes of Health, or NIH, awarded us a
grant for the development of this product candidate.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>IVIG</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Intravenous immunoglobulin, or IVIG, is a product that is
primarily used to provide ongoing treatment for primary immune
deficiencies by providing a broad selection of antibodies that
mimic a healthy immune system. We market IVIG in Israel for
immune deficiency indications. For the year ended
December&nbsp;31, 2004 and the nine months ended
September&nbsp;30, 2005, we recognized $8.7&nbsp;million and
$7.8&nbsp;million in revenues, respectively, from sales of IVIG
in Israel.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>HBIG</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Hepatitis B immunoglobulin, or HBIG, is a product that is used
to prevent reinfection of a transplanted liver with HBV in
patients with chronic HBV infection. Reinfection with HBV can
destroy the transplanted liver and, to prevent reinfection,
these patients require lifelong treatment for HBV. We market
HBIG in Israel, and for the year ended December&nbsp;31, 2004
and the nine months ended September&nbsp;30, 2005, we recognized
$1.8&nbsp;million and $1.9&nbsp;million in revenues,
respectively, from sales of HBIG in Israel.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>WNIG</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
West Nile virus immunoglobulin, or WNIG, is a product we are
developing to treat severe infection with the West Nile virus.
We have received orphan drug designation for WNIG from the FDA
for this indication. The NIH is currently enrolling
approximately 100&nbsp;patients for a multi-center Phase&nbsp;I/
II clinical trial that they are conducting in the U.S.&nbsp;for
the treatment of severe West Nile virus infection
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 3</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
with our WNIG product candidate. In September 2005, we received
a grant from the NIH for the development of this product
candidate.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OUR PROTEIN PURIFICATION TECHNOLOGY</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our proprietary protein purification technology is designed to
purify proteins from human plasma while maintaining their
natural structure to preserve their full range of biological
activities. This technology is used to manufacture our
biosurgical and passive immunotherapy products and product
candidates. We can employ this technology on a commercial scale
to either isolate proteins of interest or remove unwanted
proteins from raw materials such as human plasma or plasma
fractions. Both the remaining plasma fractions and the proteins
we selectively remove can be used in our products and product
candidates.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OUR COMPETITIVE STRENGTHS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We believe that our key competitive strengths include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT style="font-size: 10pt">Commercial Application of our
    Protein Purification Technology and
    Know-How.</FONT></I><FONT style="font-size: 10pt"> Our core
    competency is applying our proprietary protein purification
    technology and our manufacturing know-how to develop and
    commercialize protein-based, plasma-derived products. We have
    years of experience in employing our technology on a commercial
    scale and utilizing our manufacturing know-how in sourcing and
    selecting our raw materials. In addition, we utilize the same
    technology across our biosurgical and passive immunotherapy
    product lines, thereby generating economies of scale.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT style="font-size: 10pt">Easy-to-Use, Effective and Safe
    Products.</FONT></I><FONT style="font-size: 10pt"> We apply our
    protein purification technology and manufacturing know-how to
    provide <FONT style="white-space: nowrap">easy-to</FONT>-use,
    effective and safe products to hospitals and clinics.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT style="font-size: 10pt">Flexible and Scaleable
    Manufacturing
    Capability.</FONT></I><FONT style="font-size: 10pt"> We
    capitalize on the versatility of our protein purification
    technology and the depth of our manufacturing know-how to
    deliver products to markets where we have identified unmet needs
    that match our field of expertise. In addition, the design of
    our manufacturing facility allows us to accommodate different
    volume production batches, enabling us to efficiently produce
    the various quantities required by our customers. For example,
    our small-volume batch production capabilities enable us to
    rapidly address emerging market needs and capitalize on these
    opportunities.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT style="font-size: 10pt">Broad Collaboration with
    Ethicon.</FONT></I><FONT style="font-size: 10pt"> Through our
    relationship with Ethicon, we have gained access to their
    extensive sales, distribution and marketing infrastructure for
    our biosurgical products and product candidates. We also benefit
    from their technological and financial support in the research
    and clinical development of our biosurgical product candidates.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OUR BUSINESS STRATEGY</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our strategy is to utilize our core competencies to develop and
market innovative products that address important unmet medical
needs. We aim to make our biosurgical products the treatment of
choice in surgical hemostasis, and our passive immunotherapy
products the treatment of choice for immune deficiencies and for
existing and emerging infectious disease, including potential
bioterrorism threats. To achieve these goals, our strategy
includes the following key elements:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">Focus on additional indications
    for existing products and product extensions;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">Develop and launch products that
    integrate biological components and medical devices for the
    biosurgical market;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">Expand our core
    technology;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">Utilize strategic collaborations
    to develop new products and enter new geographic markets.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 4</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>RISKS RELATED TO OUR BUSINESS AND BUSINESS STRATEGY</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our business is subject to numerous risks that could prevent us
from successfully implementing our business strategy. These
risks are highlighted in the section entitled &#147;Risk
factors&#148; immediately following this prospectus summary. We
have incurred significant losses since our inception, and as of
September&nbsp;30, 2005, we had an accumulated deficit of
$92.2&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OUR CORPORATE INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We were founded in July 1995 as Omrix Biopharmaceuticals S.A., a
Belgian company, which is currently our wholly owned subsidiary.
In December 1998, we were incorporated in the state of Delaware.
Our principal executive offices are located at 708 Third Avenue,
New York, New York 10017, and our telephone number is
(212)&nbsp;209-3902. We have a manufacturing facility in Kiryat
Ono, near Tel Aviv, Israel as well as a research and development
facility in Rechovot, Israel. Our European regulatory affairs,
marketing and logistics support offices are located in Brussels,
Belgium. As of December&nbsp;31, 2005, we had approximately
150&nbsp;employees. We maintain an Internet website at
www.omrix.com. We have not incorporated by reference into this
prospectus the information on our website, and you should not
consider it to be a part of this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 5</B>
</DIV>
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<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Offering
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    Common stock we are offering</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Common stock to be outstanding after this offering</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Use of proceeds</TD>
    <TD></TD>
    <TD valign="top">
    We estimate that the net proceeds to us from this offering after
    expenses will be approximately
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    or approximately
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;if
    the underwriters exercise their over-allotment option in full,
    assuming an initial public offering price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share. We intend to use the net proceeds from this offering to
    expand our manufacturing capabilities, fund our plan to
    penetrate the market for biosurgical products in Japan and other
    countries, and for working capital and other general corporate
    purposes. For additional information, see the section of this
    prospectus entitled &#147;Use of proceeds.&#148;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Risk factors</TD>
    <TD></TD>
    <TD valign="top">
    See &#147;Risk factors&#148; beginning on page&nbsp;9 of this
    prospectus for a discussion of factors you should carefully
    consider before deciding to invest in shares of our common stock.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Proposed Nasdaq National Market symbol</TD>
    <TD></TD>
    <TD valign="top">
    OMRI</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The number of shares of our common stock outstanding after this
offering is based on 29,916,892&nbsp;shares outstanding as of
December&nbsp;31, 2005 and excludes, as of that date:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">2,026,796&nbsp;shares of our
    common stock issuable upon exercise of outstanding options at
    exercise prices ranging from $1.00 to $7.76 per share, with a
    weighted average exercise price of $3.07 per share;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of our common stock issuable upon conversion of approximately
    $2&nbsp;million principal amount of our new convertible
    promissory notes, which we describe in the section of this
    prospectus entitled &#147;Management&#146;s discussion and
    analysis of financial condition and results of operations&#151;
    Liquidity and capital resources,&#148; at a conversion price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share (which would be determined based on the price of the
    shares sold to the public in this offering);
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">1,968,507&nbsp;shares of our
    common stock available for future grant under our 2004 Equity
    Incentive Plan and 2005 Equity Incentive Plan for Israeli
    Employees;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">888,623&nbsp;shares of our common
    stock issuable upon exercise of warrants outstanding as of
    December&nbsp;31, 2005, at a weighted average exercise price of
    $5.03 per share.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Unless otherwise indicated, all information in this prospectus
assumes the underwriters do not exercise their option to
purchase up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock to cover over-allotments.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 6</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Summary consolidated financial data
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following summary consolidated statement of operations data
for the years ended December&nbsp;31, 2002, 2003 and 2004 is
derived from our audited consolidated financial statements,
which are included elsewhere in this prospectus. The following
summary consolidated statement of operations data for the nine
months ended September&nbsp;30, 2004 and 2005 and consolidated
balance sheet data as of September&nbsp;30, 2005 is derived from
our unaudited interim condensed consolidated financial
statements, which are included elsewhere in this prospectus.
Operating results for the nine months ended September&nbsp;30,
2005 are not necessarily indicative of the results that may be
expected for the year ending December&nbsp;31, 2005. This
information is only a summary, and you should read these data
together with &#147;Management&#146;s discussion and analysis of
financial condition and results of operations&#148; and with our
consolidated financial statements, the related notes and other
financial information included in this prospectus.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Nine months ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>Consolidated statement of operations data:</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="21" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>




<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="14">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>(in thousands, except percentages and per share data)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,019</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Development services and grants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,939</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,152</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,947</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,171</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,598</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,622</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Development services and grants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,641</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total cost of revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,263</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,908</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and development, clinical and regulatory expenses, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,014</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, marketing, general and administrative expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,717</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total operating expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,577</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,731</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,669</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,946</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,364</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,643</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,823</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Financial expenses,
    net<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,982</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income (expenses), net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,513</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,566</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,604</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,302</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,805</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued dividend and induced conversion of preferred stock and
    warrants<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(121</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(61</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,491</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss for common stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,513</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6,566</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6,725</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(7,363</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(21,314</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic net loss per share of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.58</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.69</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.70</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.77</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.74</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted net loss per share of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.58</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.69</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.70</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.77</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.90</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average number of shares of common stock
    outstanding-basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,556,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,765,222</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average number of shares of common stock
    outstanding-diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,556,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,822,917</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other data:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Biosurgical product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,991</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Passive immunotherapy product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,857</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,748</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross margin of product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="right" style="font-size: 10pt;color: #000000; background: #ffffff;">
<I>(Footnotes on following page)</I>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 7</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>For the nine months ended September&nbsp;30, 2005, includes
    $20,932 in connection with our recapitalization which we
    describe in the section of this prospectus entitled
    &#147;Management&#146;s discussion and analysis of financial
    conditions and results of operations&nbsp;&#151; Results of
    operations&nbsp;&#151; Nine months ended September&nbsp;30, 2004
    and 2005&nbsp;&#151; Financial expenses, net.&#148;</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><I>(2)</I></TD>
    <TD align="left">
    <I>For the nine months ended September&nbsp;30, 2005, represents
    the excess of the carrying amount of preferred stock and
    warrants over the value of the common stock received by the
    holders upon conversion under the recapitalization agreement.</I></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>As of September&nbsp;30, 2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Consolidated balance sheet data:</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Actual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>As adjusted<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="8" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(in thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Working capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,375</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated deficit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(92,165</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholders&#146; equity (deficiency)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,121</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>As adjusted to give effect to our sale of shares of common
    stock in this offering at an assumed initial public offering
    price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share, after deducting underwriting discounts and commissions
    and estimated offering expenses to be paid by us, and our
    receipt of the net proceeds therefrom.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 8</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Risk factors
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Investing in our common stock involves a high degree of risk.
You should carefully consider and evaluate all of the
information in this prospectus, including the risk factors
listed below, before you decide to purchase our common stock.
Our business, financial condition or results of operations could
be affected adversely by any of these risks. The trading price
of our common stock could decline due to any of these risks, and
you might lose all or part of your investment in our common
stock.</I>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>RISKS RELATED TO OUR BUSINESS AND INDUSTRY</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>We have a history of operating losses and might never achieve
or maintain profitability.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have experienced significant operating losses since our
inception in 1995. We recognized an operating loss of
$5.4&nbsp;million and a net loss of $6.6&nbsp;million on total
revenues of $19.9&nbsp;million in the year ended
December&nbsp;31, 2004 and an operating loss of
$2.8&nbsp;million and a net loss of $27.8&nbsp;million on total
revenues of $19.2&nbsp;million for the nine-month period ended
September&nbsp;30, 2005. As of September&nbsp;30, 2005, we had
an accumulated deficit of $92.2&nbsp;million and total
stockholders&#146; deficiency of $6.1&nbsp;million. Our losses
may increase in the future as we expand our manufacturing
capabilities, fund our research and development activities and
seek additional regulatory approvals. These losses, among other
things, have had and will continue to have an adverse effect on
our working capital, total assets and stockholders&#146; equity.
We may not generate sufficient revenues from product sales in
the future to achieve or maintain profitable operations. Even if
we do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis. If we are
unable to achieve and maintain profitability, the market value
of our common stock will decline.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>We have an exclusive relationship with Ethicon relating to
the distribution and development of our fibrin sealant and other
hemostasis products, and our resulting dependence on Ethicon
exposes us to significant product commercialization and
development risks.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In September 2003, we entered into a distribution and supply
agreement and a development agreement with Ethicon. Under the
distribution and supply agreement, we granted to Ethicon the
exclusive right, in certain territories, to market, sell and
distribute Crosseal/ Quixil, our current fibrin sealant product,
and other fibrin sealant and hemostasis products that are being
developed under the development agreement, for use in
professional medical settings for hemostasis and sealing
indications. Under the distribution and supply agreement, we are
required to supply finished products to Ethicon, and they are
required to purchase a minimum amount of these products from us.
Additionally, under the development agreement we are developing
new products with Ethicon, including Crosseal&nbsp;II/
Quixil&nbsp;II and our hemostatic bio-device product candidate.
As part of the development agreement, Ethicon has agreed to
devote internal resources to the development of products
included in the collaboration and to pay all of the agreed to
development costs as well as half of our development-related
labor costs.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our revenues from the sale of Crosseal/ Quixil, and the revenues
for any other product that Ethicon distributes under the
agreement, will depend heavily on the efforts of Ethicon.
Ethicon has significant discretion in determining the efforts
and resources it applies to sales of our products. Furthermore,
regardless of the effort and resources it invests, Ethicon may
not be effective in marketing our products. In addition, Ethicon
is a large medical device company with global operations and its
own corporate agenda, which may not be consistent with our best
interests. For example, Ethicon may change its strategic focus
or pursue alternative technologies in a manner that results in
reduced revenues to us.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The initial terms of the distribution and supply agreement and
the development agreement expire in September 2013. The
development agreement is subject to earlier termination if work
has been
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 9</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
completed and milestone payments made, or if there is a material
breach by either party and such breach has not been cured, or
upon the bankruptcy or insolvency of either party. The
development agreement is also subject to automatic termination
if the distribution and supply agreement is terminated. Ethicon
may terminate the distribution and supply agreement:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">for any or no reason at any time
    after March&nbsp;23, 2006 by providing us with at least six
    months prior written notice and complying with certain other
    conditions;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">upon our material breach or
    non-compliance with applicable law and if such breach or
    non-compliance is not cured;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">upon our bankruptcy or similar
    insolvency event.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Further, we are required under the distribution and supply
agreement to supply Ethicon with minimum product quantities
based on forecasts provided to us by Ethicon. If we are unable
to satisfy these supply obligations, we will be obligated to pay
to Ethicon a liquidated damages penalty and Ethicon may
terminate the agreement.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If our relationship with Ethicon were to terminate, we would
have to either enter into a marketing and distribution
arrangement with another party or market and distribute these
products ourselves. We may not be able to enter into such an
agreement with another company with similar resources to
commercialize these products and perform these functions on
acceptable terms or at all. To market and distribute these
products on our own, we would first have to develop a sales and
marketing organization and a distribution infrastructure,
neither of which we currently have. Developing these resources
would be an expensive and lengthy process and would have a
material adverse effect on our revenues and profitability.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Moreover, a termination of our relationship with Ethicon would
seriously compromise the development program for our hemostasis
product candidates. For example:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">we would experience significant
    delays in the development of any product candidate then in
    development, including our hemostatic bio-device;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">we would have to assume full
    responsibility for further development, including funding these
    programs;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">we would lose access to Ethicon
    intellectual property that relates to products covered by the
    development agreement, and as a result we might be unable to
    develop these products at all.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Any of these outcomes would result in delays in our ability to
distribute our products and commercialize our product candidates
and would increase our expenses, all of which would have a
material adverse effect on our business, results of operations
and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our collaboration with Ethicon is multi-faceted and involves a
complex sharing of control over decisions, responsibilities,
costs and benefits. There are numerous potential sources of
disagreement between us and Ethicon, including with respect to
product development, marketing strategies, manufacturing and
supply issues and rights relating to intellectual property. For
example, the distribution and supply agreement provides that we
and Ethicon are to negotiate the transfer price at which we will
supply the hemostatic bio-device to Ethicon. We expect that if
this product candidate is successfully developed and
commercialized, it will be an important element of our
relationship with Ethicon and a source of significant revenues
to us. However, we have not yet reached agreement with Ethicon
on pricing, and we may be unable do so. Ethicon has
significantly greater financial and managerial resources than we
do, which it could draw upon in the event of a dispute. A
disagreement between Ethicon and us could lead to lengthy and
expensive dispute resolution proceedings as well as to extensive
financial and operational consequences to us, and have a
material adverse effect on our business, results of operations
and financial condition.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 10</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>If our products do not achieve market acceptance, we will be
unable to generate significant revenues from them.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The commercial success of our products will depend primarily on
convincing surgeons, physicians, hospital pharmacists and other
medical practitioners to use our products. To accomplish this,
we, together with our collaborators, such as Ethicon and any
other marketing or distribution collaborators, will have to
convince members of the medical community of the benefits of our
products through, for example, published papers, presentations
at scientific conferences and additional clinical trials.
Medical providers will not use our products unless we can
demonstrate that they consistently produce results comparable or
superior to existing products and have acceptable safety
profiles and costs. If we are not successful in these efforts,
market acceptance of our products could be limited.
Additionally, we do not have long-term safety data for many of
our products, particularly our fibrin sealant products. If
long-term patient studies suggest that the use of our products
or similar products produced by others are associated with
adverse side effects, our products may not achieve market
acceptance. Even if we demonstrate the safety and effectiveness
of our products, surgeons, physicians and other medical
practitioners may continue to use other products simply because
those products are already widely accepted or are based on
established technologies. Additional factors that might
influence market acceptance of our products include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">convenience and ease of use;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">availability of alternative and
    competing products or therapies;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">effectiveness of our or our
    collaborators&#146; marketing, distribution and pricing
    strategies;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">publicity concerning our products
    as well as our competitors&#146; products.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If, due to any of these factors, our products do not achieve
broad market acceptance, we will be unable to generate
significant revenues from them, which would have a material
adverse effect on our business, cash flows and results of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>We may not be able to successfully develop and commercialize
our product candidates, including our Crosseal&nbsp;II/
Quixil&nbsp;II or hemostatic bio-device.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our future growth will depend in large part on our ability to
develop successfully, obtain regulatory approval for and
commercialize our product candidates, including our:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">second generation fibrin sealant,
    Crosseal&nbsp;II/ Quixil&nbsp;II, for expanded indications;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">hemostatic bio-device, for the
    management and rapid control of bleeding, including severe or
    brisk bleeding, and for use on active bleeding sites;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">thrombin stand-alone and a
    flowable thrombin, for general hemostasis;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">HT-VIG for smallpox
    vaccine-related complications and treatment of smallpox.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We will have to conduct significant additional tests with
respect to these product candidates, including clinical trials,
and obtain regulatory approval before we can commercialize them.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
To market a product for the treatment of a disease or for
surgical use, we must demonstrate to the applicable regulatory
authorities, such as the FDA and the European Medicines Agency,
or EMEA, that the product is safe and effective for its intended
use. Product development is a long, expensive and uncertain
process and entails both preclinical testing, which consists of
laboratory testing using chemical and animal models, as well as
clinical testing, which consists of using the product candidate
in humans in a clinical setting.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 11</B>
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are currently conducting clinical trials on three product
candidates and preclinical studies on two product candidates,
and we expect to conduct additional trials and studies in the
future. It takes several years to complete regulatory testing
for a product candidate, and failure can occur at any stage. We
may suffer significant setbacks in advanced clinical trials,
even after obtaining promising results in earlier studies. At
any point during clinical trials, undesirable side effects could
be detected. These side effects could interrupt, delay or halt
clinical trials of the product candidate being tested and
related product candidates and could result in the FDA, the EMEA
or other regulatory authorities denying approval of such product
candidates for any or all targeted indications.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Based on results at any stage of product development, we may
decide to repeat or redesign preclinical studies or clinical
trials, conduct entirely new studies or discontinue development
of one or more of our product candidates. In addition, our
product candidates may not demonstrate sufficient safety and
efficacy in pending or any future preclinical testing or
clinical trials to obtain the requisite regulatory approvals and
even if such approvals are obtained for a product candidate, it
may never become a viable commercial product.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>If the third parties with which we contract for preclinical
studies and clinical trials do not perform in an acceptable
manner, or if we suffer setbacks in these clinical trials, we
may be unable to develop and commercialize our product
candidates as anticipated.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We rely on third parties, including Ethicon, contract research
organizations and outside consultants, to assist us in managing
and monitoring all of our preclinical studies and clinical
trials. These third parties may not successfully carry out their
contractual obligations, meet expected deadlines or follow
regulatory requirements, including clinical, laboratory and
manufacturing guidelines. Our reliance on these third parties
may result in delays in completing, or in failing to complete,
these trials if they fail to perform with the speed and
competency we expect. If clinical testing of our product
candidates is delayed for any of the above-mentioned reasons, we
will be unable to meet our anticipated development or
commercialization timelines, which would have a material adverse
effect on our business.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>If the limited number of suppliers on which we rely fail to
supply us with the raw materials and other components we use in
manufacturing our products, we might be unable to satisfy
product demand.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We depend on third parties for the supply of certain raw
materials we use to produce our products as well as for
important components of our products. The raw materials we use
in our production processes consist primarily of plasma,
synthetic materials and chemicals and other disposable
materials. We purchase each of the following raw materials and
disposables for our marketed products from single suppliers:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">nanofiltration filters, which we
    use for virus removal and purchase from Asahi Kasei Pharma
    Corporation;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">a resin, which we use to remove
    plasminogen and produce BAC&nbsp;II, and purchase from Amersham
    Biosciences AB;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the specialized application
    device, which we sell as part of our Crosseal/ Quixil product
    package and purchase from PlastMed Ltd., or Plastmed; and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">tranexamic acid, which we use as a
    stabilizing agent in the current version of Crosseal/ Quixil and
    purchase from Daiichi Pharmaceuticals Co., Ltd.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 12</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our reliance on these suppliers exposes us to significant risks.
These third parties might:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">be unable or unwilling to provide
    us with sufficient materials to meet our demands;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">fail to meet our standards of
    quality or other specifications;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">increase significantly the prices
    they charge us for materials;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">not carry out their contractual
    duties or meet anticipated deadlines, which could result in
    delays in obtaining or maintaining regulatory approvals or in
    satisfying customer orders.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If our sole suppliers are unwilling or unable to timely supply
us with materials meeting our specifications, we may not be able
to locate any alternative suppliers or enter into commercially
reasonable agreements with suppliers in a timely manner or at
all. Even if we are able to locate, qualify and enter into an
agreement with a new supplier, it would take approximately six
to twelve months to obtain regulatory clearance before a new
supplier could begin supplying the relevant product to us. If we
are delayed in establishing a secondary supply source for any
raw material or component that we purchase from a single source,
or cannot do so at an acceptable cost, we may suffer a shortage
of commercial supply of that product or a higher cost of
procuring the product, either of which would have a material
adverse effect on our revenues, business and financial
prospects.&nbsp;We have long-term agreements with all of our
sole suppliers, except for Daiichi
Pharmaceuticals&nbsp;Co.,&nbsp;Ltd.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>A shutdown at our sole manufacturing site would significantly
interrupt our production capabilities, which could have drastic
consequences to us, including threatening our financial
viability.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We currently manufacture all of our products at our sole
commercial manufacturing facility, which is located near Tel
Aviv, Israel. Accordingly, we face risks inherent in operating a
single manufacturing facility, since any disaster, such as a
fire, terrorist attack or military action, could significantly
interrupt our manufacturing capability. These risks are
exacerbated by the facility&#146;s location in Israel, an area
that has historically experienced significant geopolitical
instability. We currently do not have alternative production
plans in place or disaster-recovery facilities available. In
case of a disaster or a shutdown, we will have to establish
alternative manufacturing sources. This would require
substantial capital on our part, which we may not be able to
obtain on commercially acceptable terms or at all. Additionally,
we would likely experience months or years of production delays
as we build or locate replacement facilities and seek and obtain
necessary regulatory approvals. If this occurs, we will be
unable to satisfy customer orders on a timely basis, if at all.
Also, operating any new facilities may be more expensive than
operating our current facility. Further, our business
interruption insurance may not adequately compensate us for any
losses that may occur and we would have to bear the additional
cost of any disruption. For these reasons, a significant
disruptive event at our manufacturing facility could have
drastic consequences on us, including threatening our financial
viability.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As described below, we are currently planning to establish a
second manufacturing facility, also to be located in Israel.
Once this facility is operational we may close the original
facility. Even if we maintain both facilities, we would still be
subject to a significant risk of disruption if either facility
experiences a disaster or shutdown.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>If we are unable to expand our manufacturing capacity as
planned, we may be unable to satisfy demand for our products.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We believe we will have to expand our manufacturing capacity to
meet anticipated demand for our products. We are currently
planning to increase production capacity for fibrin sealant
products at our existing facility to meet anticipated demand
through 2008 and to construct a new facility in Jerusalem,
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 13</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Israel to meet our needs thereafter. We may not be able to
obtain the requisite regulatory approvals for the increase in
production capacity at our existing facility on a timely basis,
or at all, and while we believe that our new facility will be
completed in 2009, we may not be able to complete the
construction of this facility within our anticipated time frame
or budget. Even if we complete the construction in a timely
manner, we may not be able to obtain the requisite regulatory
approvals for the facility on a timely basis, or at all. If we
cannot obtain necessary approvals for these contemplated
expansions, or complete the planned construction, in a timely
manner, our ability to meet demand for our products would be
adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Additionally, under our distribution and supply agreement with
Ethicon, we are required to supply their anticipated demand for
the fibrin sealant products covered by the agreement. This may
require that we develop additional manufacturing capacity on a
timely basis to meet those demands. To the extent that we are
unable to expand our manufacturing capacity as anticipated, our
ability to meet product demands by Ethicon could be impaired or
delayed and we would be in breach of our agreement with them.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>If our competitors develop and market products faster than we
do or if those products are more effective than our products,
our commercial opportunities will be reduced or eliminated.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The biopharmaceutical industry is characterized by intense
competition and rapidly evolving technology. Many of our
competitors have significantly greater resources and expertise
than we do in research and development, manufacturing,
preclinical testing and clinical trials, regulatory matters and
marketing and sales. These organizations also compete with us in
recruiting and retaining qualified scientific and management
personnel, establishing clinical trial sites and patient
registration for clinical trials and acquiring and licensing
technologies.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If we, in collaboration with Ethicon or any other marketing
partner we may have, cannot successfully compete with new or
existing products or technologies, sales of our products and our
profitability will suffer. Competitors may use their extensive
resources to develop products that are more effective, safer,
more convenient or less costly than any that we are developing.
Our ability to compete effectively will depend in part on our
ability to continually enhance and introduce new indications for
our existing products and develop or acquire and market new
products.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Our products are derived from human plasma, and are therefore
subject to the risk of biological contamination inherent in
plasma-derived products. This risk could adversely affect our
ability to obtain raw materials and market our products.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our fibrin sealants and passive immunotherapy products are
derived from donated human plasma. Many disease-causing viruses,
bacteria and other pathogens are present in the plasma of
infected individuals. If infected individuals donate plasma, the
plasma would likely contain those pathogens. As a result, the
sourcing of plasma, and the production of products derived from
plasma, is regulated extensively by the FDA, EMEA and other
medical product and health care regulatory agencies. We rely on
our suppliers to maintain compliance with regulations
promulgated by such agencies. The failure to comply with these
regulations or the accidental contamination of plasma could
adversely affect our ability to source plasma at commercially
reasonable prices. Moreover, public perception about the safety
of plasma-derived products could adversely affect the market for
our products.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Concern over the safety of plasma-derived products, driven in
part by past screening failures in the industry and the
appearance of new infectious agents like HIV, has resulted in
the adoption of rigorous screening procedures by regulatory
authorities, and screening procedures are likely to become
stricter and more involved over time. As screening procedures
have become more rigorous, potential donors have been
disqualified and other potential donors have been discouraged
from donating due to
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 14</B>
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
their reluctance to undergo the required screening procedures.
Increasingly stringent measures could adversely affect plasma
supplies, with a corresponding adverse effect on our ability to
obtain raw materials at a commercially acceptable price or at
all.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The safety concerns associated with plasma-derived products also
affect our ability to market our products. Medical events or
studies that raise or substantiate concerns about the safety of
our or other similar products would negatively impact public
perception of all plasma-derived products and of the plasma
donation process. Further, any failure in screening, whether by
us or by other manufacturers of these products, could adversely
affect our reputation, the support we receive from the medical
community and overall demand for our products.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>A shortfall in the availability of smallpox vaccine could
adversely affect our ability to manufacture an adequate amount
of our VIG or to fulfill contractual obligations.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We manufacture VIG from the plasma of donors that have been
vaccinated with the smallpox vaccine. If there is a shortfall in
the available supply of the smallpox vaccine, or in plasma
donors who are willing to be vaccinated with the smallpox
vaccine, the availability of plasma for this product will be
reduced. In such an event, we may not have access to sufficient
amounts of plasma from donors vaccinated with the smallpox
vaccine to meet our obligations under existing or future supply
agreements for VIG and may be subject to claims for breach under
our supply agreements. If we are unable to purchase such plasma
at all, we would be forced to stop manufacturing VIG, which
would eliminate the revenues we receive from this product, and
the development of our HT-VIG product candidate would be delayed
or halted.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>If our sole supplier of plasma for manufacture of our WNIG
product candidate on which we rely fails to supply us with
plasma, we might be unable to manufacture our WNIG product
candidate.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The development of our WNIG product candidate requires the
purchase of donated plasma that contains antibodies against the
West Nile fever virus. We purchase this plasma from a single
source in Israel. If this third party is unable or unwilling to
provide us with sufficient quantities of plasma to meet our
demands or fails to meet our standards of quality or other
specification, we may not be able to locate any alternative
suppliers or enter into commercially reasonable agreements with
suppliers in a timely manner or at all. Consequently, even if we
are able to get appropriate regulatory approvals for our WNIG
product candidate, but are unable to obtain sufficient
quantities of plasma for commercial manufacturing, we may not be
able to manufacture our WNIG product candidate.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Our international operations expose us to the risk of
fluctuations in currency exchange rates.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We operate in international markets. We generate significant
revenues and incur operating expenses outside the
U.S.&nbsp;principally in New Israeli Shekels, or NIS, and Euros.
However, the amount of our revenues denominated in a particular
currency typically varies from the amount of expenses
denominated in that currency, which exposes us to losses
resulting from currency fluctuations. In 2004, the percentages
of our revenues and expenses denominated in U.S.&nbsp;dollars,
NIS and Euros were as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Currency</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Revenues</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Expenses</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="8" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    U.S.&nbsp;dollars</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>64%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    NIS</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Euros</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19%</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 15</B>
</DIV>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our NIS and Euro denominated expenses consist principally of
salaries and related personnel expenses, as well as lease
payments. We anticipate that a material portion of our expenses
will continue to be denominated in NIS and Euros. In addition,
we expect to be paid in British pounds under the contract we
were awarded by the United Kingdom to provide VIG to the United
Kingdom Department of Health. If the U.S.&nbsp;dollar weakens
against the NIS or Euro, there will be an adverse impact on our
profit margins. Similarly, if the U.S.&nbsp;dollar strengthens
against a currency in which we record revenues, the
dollar-denominated amount of those revenues would be reduced.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, our financial statements are stated in
U.S.&nbsp;dollars while the intercompany balances of our Belgian
subsidiary&#146;s financial reports are denominated in Euros.
This difference creates financial expenses or income related to
intercompany balances that are recorded in our consolidated
financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Also currency fluctuations will increase or decrease our cost
structure relative to those of our competitors, which could
affect the demand for our products and affect our competitive
position. We currently do not undertake any hedging activities
to address these fluctuations.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>If we lose the services of our key management or scientific
personnel, scientific collaborators or other advisors, our
business would suffer.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The success of our business is highly dependent on our
management as well as our senior manufacturing and scientific
personnel. We also rely on our scientific collaborators and
other advisors, particularly with respect to our research and
development efforts. In addition, we require additional skilled
personnel in areas such as business and clinical development. We
do not maintain key-person life insurance on any of our
officers, employees or consultants. In addition, although we
have employment agreements with key members of management, each
of our employees, subject to applicable notice requirements, may
terminate his or her employment at any time. The pool of
individuals with relevant experience in biopharmaceuticals is
limited, and retaining and training personnel with the skills
necessary to operate our business effectively is challenging,
costly and time-consuming. If we lose the services of any key
personnel, our business, financial condition and results of
operations could be materially and adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>If product liability lawsuits are brought against us, we
might incur substantial liabilities and could be required to
limit the commercialization of our products.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are exposed to the risk of product liability claims inherent
in businesses that test, manufacture, market and sell
biopharmaceutical products. We may be subject to claims against
us even if the injury is due to the actions of others. For
example, if the medical personnel that use our products on
patients are not properly trained or are negligent in the use of
our products, the patient may be injured through the use of our
product, which may subject us to claims. In addition, because
our products are derived from human plasma, they may be
contaminated by viruses, bacteria or other pathogens despite our
screening, virus removal and other safety procedures. Should
this occur, patients could become infected by these pathogens
through the use of our products. Moreover, our safety procedures
have been designed based on our knowledge of known pathogens.
Occasionally, new pathogens appear and contaminate blood
supplied prior to their being identified as a health threat, as
was the case with HIV. Our safety procedures might be inadequate
to guard against any such new pathogen.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If we are involved in any product liability litigation, such
litigation would consume substantial amounts of our financial
and managerial resources and might result in adverse publicity,
regardless of the ultimate outcome of the litigation. Although
we believe we have appropriate insurance coverage, we may not be
able to maintain our clinical trial insurance or product
liability insurance at an acceptable cost or at all. In any
event, liability insurance is subject to deductibles and coverage
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 16</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
limitations and may not provide adequate coverage against
potential claims or losses. A successful product liability claim
brought against us could cause us to incur substantial
liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Our operations involve biological and hazardous materials
that may cause injury for which we could be liable for
damages.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our manufacturing and research and development activities
sometimes involve the controlled use and disposal of potentially
harmful biological materials, hazardous materials, chemicals and
infectious disease agents. Although we believe that our safety
procedures for handling, storing and disposing of such materials
comply with the standards prescribed by applicable regulations,
we cannot completely eliminate the risk of contamination or
injury from these materials. We also occasionally contract with
third parties for the disposal of some of these materials. In
addition, our collaborators and service providers may be working
with these types of materials in connection with our
collaborations. In the event of an accident or contamination, we
could be held responsible for any injury caused to persons or
property by exposure to, or release of, these materials and
could be held liable for significant damages, civil penalties or
fines, which may not be covered by or may exceed our insurance
coverage.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Additionally, we are subject on an ongoing basis to a variety of
laws and regulations governing the use, storage, handling and
disposal of these materials and specified waste products. The
cost of continued compliance with current or new laws and
regulations might be significant and could negatively affect our
profitability, and current or future environmental regulation
may impair our ongoing research, development or manufacturing
efforts.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Variable demand by governments for passive immunotherapy
products for biodefense applications or our inability to obtain
additional government contracts for such products may reduce our
revenues from this area of our passive immunotherapy product
line.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We provide passive immunotherapy products to governments to meet
potential bioterrorism threats. Revenues from our passive
immunotherapy products for biodefense applications are
unpredictable and are driven by a number of factors, many of
which are beyond our control, including:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">fluctuations in government demand
    for passive immunotherapy products for biodefense applications
    influenced by budgetary preference and shifts in the perception
    of the relevance of a bioterrorism threat;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the termination of key government
    contracts;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">our success in obtaining
    additional government contracts through a bidding
    process;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the development of new biodefense
    products that are superior to or eliminate the need for our
    products.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Even if our products are in demand, we may not be able to obtain
follow-on and additional government contracts. Our inability to
obtain such contracts may be significant because during certain
periods these contracts may account for a substantial portion of
our revenues. For example, in December 2005, we were awarded an
approximately $20&nbsp;million contract by the United Kingdom to
provide VIG to the United Kingdom Department of Health, under
which we will be paid through the third quarter of 2006. If
contracts of such volume are not issued by governments or we are
unable to obtain them, our revenues from this area of our
passive immunotherapy product line will be reduced.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 17</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>RISKS RELATED TO GOVERNMENT REGULATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>The regulatory approval process for our product candidates is
lengthy, and we may not be able to obtain all of the regulatory
approvals required to manufacture and commercialize our product
candidates.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Many of our products are still under development, and we will
not be able to commercialize these products until we have
obtained the requisite regulatory approvals from federal, state
and local government authorities, including the FDA and EMEA. To
obtain regulatory approval of a product candidate, we or our
collaboration partners must demonstrate to the satisfaction of
the applicable regulatory agency that such product candidate is
safe and effective for its intended uses. In addition, we must
show that the facilities used to produce the product candidate
are in compliance with applicable manufacturing regulations,
which under FDA regulations are called current Good
Manufacturing Practices, or cGMP. In general, these requirements
mandate that manufacturers follow elaborate design, testing,
control, documentation and other quality assurance procedures
throughout the entire manufacturing process. The process of
obtaining regulatory approvals typically takes several years and
requires the expenditure of substantial capital and other
resources. Despite the time, expense and resources invested by
us in the approval process, we may not be able to demonstrate
that our product candidates are safe and effective, in which
event we would not receive the regulatory approvals required to
market them.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The FDA, EMEA and other regulatory authorities generally approve
products for particular indications. For example, Crosseal has
only received approval in the U.S.&nbsp;as an adjunct to
hemostasis in liver surgery. Our product candidates may not be
approved for all of the indications that we request, which would
limit the indications for which we can promote them and
adversely impact our ability to generate revenues. If the
approvals we obtain are limited, we may choose to conduct
costly, post-marketing
<FONT style="white-space: nowrap">follow-up</FONT> studies to
expand the product indications, but those studies may not
produce data sufficient to permit approval for an expanded
product indication.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The type and magnitude of the testing required for regulatory
approval varies depending on the product candidate and the
disease or condition for which it is being developed. Regulatory
agencies can delay, limit or deny approval of a product for many
reasons, including:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">regulatory officials might
    interpret data from pre-clinical and clinical testing in
    different ways than we and our collaboration partners interpret
    it and conclude that the product candidate is not safe and
    effective;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">regulatory agencies might not
    approve our manufacturing processes or facilities or the
    processes or facilities of our collaboration partners;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">regulatory agencies might change
    their approval polices or adopt new regulations which can delay
    approval and add significant additional costs.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Any delay or failure by us or our collaboration partners to
obtain regulatory approvals for our product candidates would
adversely affect our ability to generate revenues from them and
could impose significant additional costs on us. Regulatory
approval in one country does not ensure regulatory approval in
another, but a failure or delay in obtaining regulatory approval
in one country may negatively impact the regulatory approval
process in others.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Moreover, we cannot predict the impact of new government
regulations that might adversely affect the discovery,
development, production of our product candidates and the
manufacturing and marketing of our products. We may be required
to incur significant costs to comply with future laws or
regulations.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 18</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Post-approval manufacturing and marketing of our products is
subject to substantial government regulation and failure to
comply with such regulation could result in fines and withdrawal
of approvals.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Even after our products receive regulatory approvals, we and any
collaboration partner of ours are subject to extensive ongoing
government regulation regarding commercial activities. The FDA,
EMEA or other regulatory authorities may impose additional
limitations on the indicated uses for which a product may be
marketed, subsequently withdraw approval or take other actions
against us or our products for many reasons, including
subsequent discoveries of previously unknown problems or safety
issues with the product. Also, based on subsequent events or
other circumstances that may come to our attention, we may
voluntarily take action to limit the marketing or use of one or
more of our products. For example, in 1999, subsequent to Quixil
being licensed as an adjunct to hemostasis in liver surgery in
the United Kingdom, there were two reported fatal adverse
reactions suspected to be associated with its use in
neurosurgical procedures. In order not to delay the ongoing
mutual recognition process throughout Europe, we requested that
a contraindication for use in neurosurgery be added to the label
for Crosseal/ Quixil.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, as described below, manufacturing activities are
also heavily regulated. Failure to comply with applicable
regulatory requirements could result in warning letters, fines,
civil penalties, injunctions, recall or seizure of products,
total or partial suspension of production, withdrawal of
approvals and criminal prosecution.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>We and our partners are prohibited from marketing our
products for indications other than those specifically approved
by regulatory agencies. We could be subject to enforcement
actions if we fail to adhere to these restrictions.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are subject to inspection and market surveillance by the FDA,
EMEA and other regulatory authorities for compliance with
regulations that prohibit the promotion of a medical product for
a purpose or indication other than those for which approval has
been granted. While a medical product manufacturer may not
promote a product for such &#147;off label&#148; use, doctors
are allowed, in the exercise of their professional judgment in
the practice of medicine, to use a product in ways not approved
by regulatory authorities. In particular, while we have received
regulatory approval to promote the use of Crosseal as an adjunct
to hemostasis in liver surgery only and Quixil as an adjunct to
hemostasis for general surgical use in certain European
countries and as an adjunct to hemostasis in liver and
orthopedic surgeries in other European countries, we are aware
that Crosseal/ Quixil is also used by doctors for hemostasis in
other types of surgery. Further, in addition to regulatory
prohibitions against off-label use, there are safety concerns
associated with the practice, since off-label use is generally
not supported by the rigorous clinical trials required to
support approved uses. A pattern of widespread off-label use
could cause the FDA, the EMEA or other regulatory authorities to
scrutinize our and Ethicon&#146;s marketing activities regarding
Crosseal/ Quixil.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Off-label marketing regulations are subject to varying evolving
interpretations. Regulatory authorities have broad enforcement
power, and a failure by us or our collaboration partners to
comply with these regulations can result in penalties, including
warning letters, fines, product recalls or seizures,
injunctions, withdrawals of previously approved marketing
applications and criminal prosecutions. For example, in May
2004, we received a warning letter from the FDA regarding the
failure of a convention poster for Crosseal to provide
sufficient information regarding risks associated with Crosseal
and its contraindications and to accurately describe its
indication as an adjunct to hemostasis in liver surgery. In
response to the letter, we undertook a number of corrective
actions. Furthermore, because Crosseal/ Quixil is marketed in
the U.S. and the EU primarily by Ethicon, we are exposed to the
risk that Ethicon&#146;s promotional activities will not fully
comply with regulatory requirements.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 19</B>
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>If we and our third-party suppliers do not maintain high
standards of manufacturing in accordance with cGMP and other
manufacturing regulations, our development and commercialization
activities could suffer significant interruptions or delays.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We and any third-party suppliers on which we currently or may in
the future rely, including the supplier of the application
device for Crosseal/ Quixil, must continuously adhere to cGMP
and corresponding manufacturing regulations of regulatory
authorities outside of the U.S.&nbsp;In complying with these
regulations, we and our third-party suppliers must expend
significant time, money and effort in the areas of design and
development, testing, production, record-keeping and quality
control to assure that our products meet applicable
specifications and other regulatory requirements. The failure to
comply with these requirements could result in an enforcement
action against us, including the seizure of products and
shutting down of production. Any of these third-party suppliers
and we also may be subject to audits by the FDA, EMEA and other
regulatory agencies. If any of our third-party suppliers or we
fail to comply with cGMP or other applicable manufacturing
regulations, our ability to develop and commercialize our
products could suffer significant interruptions.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>RISKS RELATED TO OUR INTELLECTUAL PROPERTY</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>We are dependent in part on our patents. The validity,
enforceability and commercial value of our rights under our
patents are highly uncertain.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our success is dependent in part on obtaining, maintaining and
enforcing patent and other intellectual property rights. We seek
to obtain and maintain patents and other intellectual property
rights to restrict the ability of others to market products that
compete with our products. However, the patent position of
biopharmaceutical firms is highly uncertain and involves many
complex legal and technical issues. There is no clear policy
involving the breadth of claims allowed under, or the degree of
protection afforded to, patents in this area.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Patent applications we file or license from others may not
result in the issuance of a patent. Moreover, the issuance of a
patent is not conclusive as to its validity or enforceability.
Patents, if issued, may be challenged and either invalidated
altogether or substantially narrowed as to scope or determined
to be unenforceable. Consequently, we do not know how much
protection, if any, patents will provide to us if we attempt to
enforce them.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our patents may not contain claims that are sufficiently broad
to prevent others from practicing our technologies or developing
competing products. Competitors may be able to use technologies
in competing products that perform substantially the same as our
technologies but avoid infringing our patent claims. Under such
circumstances, our patents would be of little commercial value
to us.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We may not be able, alone or with our collaborators and
licensors, to prevent misappropriation of our proprietary
rights, particularly in countries where the laws may not protect
such rights as fully as in the U.S.&nbsp;Thus, any patents that
we own or license from third parties may not provide
commercially meaningful protection from competition.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>For many of the technologies we employ in our business, we
rely on maintaining competitively sensitive know-how and other
information as trade secrets, which may not sufficiently protect
this information. Disclosure of this information could impair
our competitive position.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As to many technical aspects of our business, we have concluded
that competitively sensitive information is either not
patentable or that for competitive reasons it is not
commercially advantageous to seek patent protection. In these
circumstances, we seek to protect this know-how and other
proprietary information by maintaining it in confidence as a
trade secret. For example, some of
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 20</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
the intellectual property we have developed in relation to our
core protein purification technology is not patented but instead
is maintained by us in the form of know-how and trade secrets.
To maintain the confidentiality of our trade secrets, we
generally enter into confidentiality agreements with our
employees, consultants and collaborators upon the commencement
of their relationships with us. These agreements require that
all confidential information developed by the individual or made
known to the individual by us during the course of the
individual&#146;s relationship with us be kept confidential and
not disclosed to third parties. Our agreements with employees
also provide that inventions conceived by the individual in the
course of rendering services to us shall be our exclusive
property. However, we may not obtain these agreements in all
circumstances, and individuals with whom we have these
agreements may not comply with the terms of these agreements.
The disclosure of our trade secrets would impair our competitive
position. Adequate remedies may not exist in the event of
unauthorized use or disclosure of our confidential information.
Further, to the extent that our employees, consultants or
contractors use trade secret technology or know-how owned by
others in their work for us, disputes may arise as to the
ownership of related inventions.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Our commercial success depends significantly on our ability
to operate without infringing the patents and other proprietary
rights of third parties.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In the event that our technologies infringe or violate the
patent or other proprietary rights of third parties, we may be
prevented from pursuing product development, manufacturing or
commercialization of our products that utilize such
technologies. There may be patents held by others of which we
are unaware that contain claims that our products or operations
infringe. In addition, given the complexities and uncertainties
of patent laws, there may be patents of which we know that we
may ultimately be held to infringe, particularly if the claims
of the patent are determined to be broader than we believe them
to be. Adding to this uncertainty, in the U.S., patent
applications filed in recent years are confidential for
18&nbsp;months, while older applications are not publicly
available until the patent issues. As a result, avoiding patent
infringement may be difficult.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If a third party claims that we infringe its patents, any of the
following may occur:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">we may become liable for
    substantial damages for past infringement if a court decides
    that our technologies infringe upon a competitor&#146;s patent;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">a court may prohibit us from
    selling or licensing our product without a license from the
    patent holder, which may not be available on commercially
    acceptable terms or at all, or which may require us to pay
    substantial royalties or grant cross-licenses to our
    patents;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">we may have to redesign our
    product so that it does not infringe upon others&#146; patent
    rights, which may not be possible or could require substantial
    funds or time.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, employees, consultants, contractors and others may
use the trade secret information of others in their work for us
or disclose our trade secret information to others. Either of
these events could lead to disputes over the ownership of
inventions derived from that information or expose us to
potential damages or other penalties.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If any of these events occurs, our business will suffer and the
market price of our common stock will likely decline.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>We may incur substantial costs as a result of litigation or
other proceedings relating to patent and other intellectual
property rights.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
There has been substantial litigation and other proceedings
regarding patent and intellectual property rights in the
biopharmaceutical industry. We may be forced to defend claims of
infringement brought by our competitors and others, and we may
institute litigation against others who we believe are
infringing our intellectual property rights. The outcome of
intellectual property litigation is subject to
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 21</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
substantial uncertainties and may, for example, turn on the
interpretation of claim language by the court, which may not be
to our advantage, or on the testimony of experts as to technical
facts upon which experts may reasonably disagree. Our
involvement in intellectual property litigation could result in
significant expense to us. Some of our competitors have
considerable resources available to them and a strong economic
incentive to undertake substantial efforts to stop or delay us
from commercializing products. We, on the other hand, are a
relatively small company with comparatively few resources
available to us to engage in costly and protracted litigation.
Moreover, regardless of the outcome, intellectual property
litigation against or by us could significantly disrupt our
development and commercialization efforts, divert our
management&#146;s attention and quickly consume our financial
resources.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, if third parties file patent applications or issue
patents claiming technology that is also claimed by us in
pending applications, we may be required to participate in
interference proceedings with the U.S.&nbsp;Patent Office or in
other proceedings outside the U.S., including oppositions, to
determine priority of invention or patentability. Even if we are
successful in these proceedings, we may incur substantial costs,
and the time and attention of our management and scientific
personnel will be diverted in pursuit of these proceedings.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>There is no established trading market for our common stock,
and the price of our common stock may be highly volatile or may
decline regardless of our operating performance.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Prior to this offering, there has been no public market for our
common stock. We cannot predict the extent to which a trading
market for our common stock will develop or be sustained after
this offering. The initial public offering price will be
determined by negotiations between us and the representatives of
the underwriters, based on factors that may not be indicative of
future performance, and may not bear any relationship to the
price at which our common stock will trade upon completion of
this offering. You may be unable to sell your shares of common
stock at or above the initial public offering price.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The trading price of our common stock could be highly volatile
in response to various factors, many of which are beyond our
control, including:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">developments concerning
    Crosseal&nbsp;II/ Quixil&nbsp;II, the hemostatic bio-device or
    any of our product candidates;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">new products introduced or
    announced by us or our competitors;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">announcements of technological
    innovations by us or our competitors;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">expiration or termination of
    licenses, research contracts or other collaboration agreements;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">conditions or trends in the
    regulatory climate in the biopharmaceutical industry;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">intellectual property, product
    liability or other litigation against us;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">actual or anticipated variations
    in our operating results;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">changes in financial estimates by
    securities analysts;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">changes in the market valuations
    of similar companies;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">sales of shares of our common
    stock, particularly sales by our officers, directors and
    significant stockholders.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 22</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, equity markets in general, and the market for small
biopharmaceutical companies in particular, have experienced
substantial price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of
companies traded in those markets. Changes in economic
conditions in the U.S., the EU or globally could also impact our
ability to grow profitably. These broad market and industry
factors may materially affect the market price of our common
stock, regardless of our business or operating performance. In
the past, following periods of volatility in the market price of
a company&#146;s securities, securities class-action litigation
has often been instituted against that company. Such litigation,
if instituted against us, could cause us to incur substantial
costs and divert management&#146;s attention and resources,
which could have a material adverse effect on our business,
financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>You will experience immediate and substantial dilution as a
result of this offering and may experience additional dilution
in the future.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If you purchase common stock in this offering, you will pay more
for your shares than the amounts paid by existing stockholders
for their shares. In addition, you will experience immediate and
substantial dilution insofar as the initial public offering
price will be substantially greater than the tangible book value
per share of our outstanding common stock after giving effect to
this offering. In the past, we issued options to acquire shares
of common stock at prices significantly below the initial public
offering price. To the extent these options are ultimately
exercised, you will incur further dilution. For additional
information, see the section of this prospectus entitled
&#147;Dilution.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>The ownership interests of our officers, directors and
largest stockholders could conflict with the interests of our
other stockholders.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Following completion of this offering, our directors, executive
officers and holders of 5% or more of our outstanding common
stock will beneficially own
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our common stock (assuming no exercise of the
underwriters&#146; over-allotment option and no exercise of
outstanding options or warrants). In particular, MPM BioVentures
I LLC and its affiliates will
own &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our common stock and Robert Taub will
own &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our common stock. As a result, our directors, executive
officers and holders of 5% or more of our outstanding common
stock, acting together, or MPM BioVentures I LLC and its
affiliates, or Robert Taub, may be able to significantly
influence all matters requiring approval by our stockholders,
including the election of directors and approval of mergers or
other significant corporate transactions. The interests of this
group of stockholders may not always coincide with our interests
or the interests of other stockholders. This concentration of
ownership could also have the effect of delaying, deferring or
preventing a change in our control or impeding a merger or
consolidation, takeover or other business combination that could
be favorable to you.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>We have broad discretion in the use of the net proceeds from
this offering and our use of the offering proceeds may not yield
a favorable return on your investment.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We expect to use the net proceeds from this offering to expand
our manufacturing capabilities, fund our plan to penetrate the
market for biosurgical products in Japan and other countries,
and for working capital and other general corporate purposes,
including acquiring businesses, products or technologies that
are complementary to our current or future business and product
lines. However, our management has broad discretion over how
these proceeds are used and could spend the proceeds in ways
with which you may not agree. We may not invest the proceeds of
this offering effectively or in a manner that yields a favorable
or any return, and consequently, this could result in financial
losses that could have a material adverse effect on our
business, cause the price of our common stock to decline or
delay the development of our product candidates.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 23</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Certain provisions of Delaware law and our organizational
documents could delay or discourage takeover attempts that
stockholders may consider favorable.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Certain provisions of our second amended and restated
certificate of incorporation, which we refer to as our
certificate of incorporation, and second amended and restated
bylaws, which we refer to as our bylaws, both of which will
become effective upon the closing of this offering, and
applicable provisions of Delaware corporate law may make it more
difficult for or prevent a third party from acquiring control of
us or changing our board of directors and management. These
provisions:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">allow the authorized number of
    directors to be changed only by resolution of our board of
    directors,
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">allow our board of directors to
    designate the terms of and issue, without stockholder approval,
    series of preferred stock with voting or other rights or
    preferences that could operate to dilute the stock ownership of
    a potential hostile acquirer to prevent an acquisition that is
    not approved by our board of directors;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">require that stockholder action
    must be effected at a duly called stockholder meeting and
    prohibit stockholder action by written consent;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">limit who may call meetings of our
    stockholders;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">require our stockholders to comply
    with advance notice procedures to nominate candidates for
    election to our board of directors or to place
    stockholders&#146; proposals on the agenda for consideration at
    meetings of stockholders;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">require the approval of the
    holders of 80% of the outstanding shares of our capital stock
    entitled to vote to amend certain provisions of our certificate
    of incorporation and bylaws.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, Section&nbsp;203 of the Delaware General
Corporation Law, or DGCL, generally prohibits us from engaging
in any business combination with certain persons who own 15% or
more of our outstanding voting stock without the approval or our
board of directors. These provisions could make it difficult for
a third party to acquire us, or for members of our board of
directors to be replaced, even if doing so would be beneficial
to our stockholders. Any delay or prevention of a change of
control transaction or changes in our board of directors or
management could deter potential acquirers or prevent the
completion of a transaction in which our stockholders could
receive a substantial premium over the then current market price
for their shares.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Future sales of our common stock may cause the market price
of our common stock to fall.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Sales of a substantial number of shares of our common stock in
the public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of
our common stock. After this offering, we will have
outstanding &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock based on the number of shares outstanding as
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2006. This includes the shares that we are selling in this
offering, which may be resold in the public market immediately.
The
remaining &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
are currently restricted as a result of securities laws or
<FONT style="white-space: nowrap">lock-up</FONT> agreements but
will be able to be sold in the near future. Moreover, after the
expiration of the
<FONT style="white-space: nowrap">lock-up</FONT> period
described in the section of this prospectus entitled
&#147;Shares eligible for future sale&#151;
<FONT style="white-space: nowrap">Lock-up</FONT>
agreements&#148; the holders
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock
and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock issuable upon the exercise of outstanding
warrants, will have rights, subject to certain conditions, to
require us to file registration statements to permit the resale
of their shares in the public market or to include their shares
in registration statements that we may file for ourselves or
other stockholders. We also intend to register all shares of
common stock that we may
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 24</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
issue under our stock plans. For additional information, see the
section of this prospectus entitled &#147;Shares eligible for
future sale.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>We have never operated as a public company and fulfilling our
obligations incident to being a public company will be expensive
and time consuming.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As a private company with limited resources, we have maintained
a small finance and accounting staff. As a public company, the
Sarbanes-Oxley Act of 2002 and the related rules and regulations
of the SEC, as well as the rules of the Nasdaq National Market,
will require us to implement additional corporate governance
practices and adhere to a variety of reporting requirements and
complex accounting rules. Compliance with these public company
obligations will increase our legal and financial compliance
costs and place significant additional demands on our finance
and accounting staff and on our financial, accounting and
information systems.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In particular, as a public company, our management will be
required to conduct an annual evaluation of our internal
controls over financial reporting and include a report of
management on our internal controls in our annual reports on
<FONT style="white-space: nowrap">Form&nbsp;10-K.</FONT> In
addition, we will be required to have our independent public
accounting firm attest to and report on management&#146;s
assessment of the effectiveness of our internal controls over
financial reporting. Under current rules, we will be subject to
these requirements beginning with our annual report on
<FONT style="white-space: nowrap">Form&nbsp;10-K</FONT> for our
fiscal year ending December&nbsp;31, 2007. If we are unable to
conclude that we have effective internal controls over financial
reporting or, if our independent auditors are unable to provide
us with an attestation and an unqualified report as to the
effectiveness of our internal controls over financial reporting,
investors could lose confidence in the reliability of our
financial statements, which could result in a decrease in the
value of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>RISKS RELATED TO OUR OPERATIONS IN ISRAEL</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Political and military instability and other factors may
adversely affect our operations in Israel.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
All of our manufacturing and research and development facilities
and personnel and a substantial portion of our administrative
facilities and personnel are located in Israel. Accordingly,
political, economic and military conditions in Israel directly
affect our operations. Since the establishment of the State of
Israel in 1948, a number of armed conflicts have taken place
between Israel and its Arab neighbors. Although Israel has
entered into various agreements with Egypt, Jordan and the
Palestinian Authority, there has been an increase in unrest and
terrorist activity, which began in September 2000 and which has
continued with varying levels of severity into 2005. Any armed
conflict, political instability or continued violence in the
region may have an adverse effect on our business and our
results of operations and adversely affect the share price of
companies with significant Israeli operations such as us.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, since we do not have a detailed disaster recovery
plan that would allow us to quickly resume business activity, we
could experience serious disruptions if events associated with
this conflict result in any serious damage to our sole
manufacturing facility, which is located in Israel, and our
business interruption insurance may not adequately compensate us
for any losses that may occur. Any losses or damages incurred by
us could have a material adverse effect on our business.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Our operations could be disrupted as a result of the
obligation of key personnel in Israel to perform military
service.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Generally, all male adult citizens and permanent residents of
Israel under the age of 54 are, unless exempt, obligated to
perform military reserve duty annually. Additionally, all
Israeli residents of this age are subject to being called to
active duty at any time under emergency circumstances. Many of
our
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 25</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Risk factors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
officers and employees are currently obligated to perform annual
reserve duty. In response to the increase in terrorist activity
and the Palestinian uprising, there have been, at times,
significant call-ups of military reserves, and it is possible
that there will be additional call-ups in the future. Our
operations could be disrupted by the absence for a significant
period of one or more of our executive officers or key employees
due to military service, which could have a material adverse
effect on our business and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>The Israeli government programs and tax benefits in which we
have participated and in which we currently participate, or from
which we may receive benefits, require us to meet certain
conditions. These programs or benefits may be terminated or
reduced in the future, which could increase our costs.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Part of our investment in fixed assets at our manufacturing
facility near Tel Aviv, Israel has been granted Approved
Enterprise status under the Israeli Law for Encouragement of
Capital Investments, 1959, or the Investments Law. As a result,
we are eligible to receive tax benefits. These benefits are
conditioned upon our fulfilling certain requirements stipulated
in the Investments Law and its regulations, and the criteria set
forth in the specific certificate of approval, including making
specified investments in fixed assets and equipment and
financing a percentage of those investments with our share
capital. If we do not meet these requirements in the future, our
tax benefits may be reduced or canceled and we could be required
to refund any tax benefits already received at that time.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, these programs and tax benefits may not be
continued in the future at their current levels or at all, and
our requests for future participation in these programs for any
future expansion of our manufacturing facilities may not be
approved. Changes in the policy of the Israeli Government in
particular, and the termination or reduction of these programs
and tax benefits specifically, could increase our tax rates,
thereby reducing our net profits or increasing our net losses,
or otherwise materially adversely affect us.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>It may be difficult to enforce a U.S.&nbsp;judgment against
us, our officers and the Israeli experts named in this
prospectus outside the U.S., or to assert U.S.&nbsp;securities
laws claims outside of the U.S.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The majority of our executive officers are not residents of the
U.S., and the majority of our assets and the assets of these
persons are located outside the U.S.&nbsp;Therefore, it may be
difficult to enforce a U.S.&nbsp;court judgment based upon the
civil liability provisions of the U.S.&nbsp;federal securities
laws against us or any of these persons in a U.S.&nbsp;or
foreign court, or to effect service of process upon these
persons in the U.S.&nbsp;Additionally, it may be difficult to
assert U.S.&nbsp;securities law claims in actions originally
instituted outside of the U.S.&nbsp;Foreign courts may refuse to
hear a U.S.&nbsp;securities law claim because foreign courts may
not be the most appropriate forums in which to bring such a
claim. Even if a foreign court agrees to hear a claim, it may
determine that the law of the jurisdiction in which the foreign
court resides, and not U.S.&nbsp;law, is applicable to the
claim. Further, if U.S.&nbsp;law is found to be applicable, the
content of applicable U.S.&nbsp;law must be proved as a fact,
which can be a time-consuming and costly process, and certain
matters of procedure would still be governed by the law of the
jurisdiction in which the foreign court resides. As a result of
the difficulty associated with enforcing a judgment against us,
you may not be able to collect any damages awarded by either a
U.S.&nbsp;or foreign court.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 26</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Special note regarding forward-looking statements
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
This prospectus contains forward-looking statements. The
forward-looking statements are contained principally in, but not
limited to, the sections entitled &#147;Risk factors,&#148;
&#147;Management&#146;s discussion and analysis of financial
condition and results of operations&#148; and
&#147;Business.&#148; Forward-looking statements provide our
current expectations or forecasts of future events.
Forward-looking statements include statements about our
expectations, beliefs, plans, objectives, intentions,
assumptions and other statements that are not historical facts.
Words or phrases such as &#147;anticipate,&#148;
&#147;believe,&#148; &#147;continue,&#148; &#147;ongoing,&#148;
&#147;estimate,&#148; &#147;expect,&#148; &#147;intend,&#148;
&#147;may,&#148; &#147;plan,&#148; &#147;potential,&#148;
&#147;predict,&#148; &#147;project&#148; or similar words or
phrases, or the negatives of those words or phrases, may
identify forward-looking statements, but the absence of these
words does not necessarily mean that a statement is not
forward-looking.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Forward-looking statements are subject to known and unknown
risks and uncertainties and are based on potentially inaccurate
assumptions that could cause actual results to differ materially
from those expected or implied by the forward-looking
statements. Our actual results could differ materially from
those anticipated in forward-looking statements for many
reasons, including the factors described in the section entitled
&#147;Risk factors&#148; in this prospectus. Accordingly, you
should not unduly rely on these forward-looking statements,
which speak only as of the date of this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Unless required by law, we undertake no obligation to publicly
revise any forward-looking statement to reflect circumstances or
events after the date of this prospectus or to reflect the
occurrence of unanticipated events. You should, however, review
the factors and risks we describe in the reports we will file
from time to time with the Securities and Exchange Commission,
or the SEC, after the date of this prospectus.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 27</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='104'></A>
</DIV>

<!-- link1 "Use of proceeds" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Use of proceeds
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We estimate that we will receive approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
in net proceeds from the sale of our common stock in this
offering, assuming an initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
after deducting underwriting discounts and commissions and
estimated offering expenses. Each $1.00 increase (decrease) in
the assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share would increase (decrease) the net proceeds to us from this
offering by
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
assuming that the number of shares offered by us, as set forth
on the cover page of this prospectus, remains the same. If the
underwriters exercise their over-allotment option in full, we
estimate that our net proceeds will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We currently expect to use the net proceeds of this offering as
follows:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">approximately
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
    to expand our manufacturing capabilities;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">approximately
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
    to fund our plan to penetrate the market for biosurgical
    products in Japan and other countries;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the balance for working capital
    and other general corporate purposes.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, we may use a portion of the net proceeds from this
offering to acquire businesses, products or technologies that
are complementary to our current or future business and product
lines, but we currently have no commitments, agreements, or
understandings relating to any of these types of transactions.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We believe that the net proceeds from this offering, together
with our existing cash, cash equivalents and short-term
investments, will be sufficient to meet our projected operating
requirements for at least the next 12&nbsp;months.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The allocation of the net proceeds of this offering described
above represents our best current estimate of our projected
operating requirements. Our management will have broad
discretion in the application of the net proceeds and we reserve
the right to change the use of these proceeds in response to
certain contingencies such as the results of our
commercialization activities, competitive developments,
opportunities to acquire or in-license products, technologies or
businesses and other factors.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 28</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='105'></A>
</DIV>

<!-- link1 "Dividend policy" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Dividend policy
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have not declared or paid any cash dividends to date. We
currently intend to retain future earnings, if any, to fund the
development and expansion of our business and do not anticipate
paying cash dividends on our common stock in the foreseeable
future. Any future determination to pay dividends will be at the
discretion of our board of directors and will depend on a number
of factors, including our financial condition, results of
operations, capital requirements, restrictions contained in
future financing instruments and other factors that our board of
directors may deem relevant. Under our senior loan and security
agreement with Hercules Technology Growth Capital, Inc., we
agreed to not declare or pay any cash dividends without
Hercules&#146; prior written consent. We expect to repay any
outstanding amounts under this agreement in 2006, at which time
this agreement will terminate.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 29</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='106'></A>
</DIV>

<!-- link1 "Capitalization" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Capitalization
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table sets forth our cash, cash equivalents,
short-term investments and capitalization as of
September&nbsp;30, 2005:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">on an actual basis;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">on an as adjusted basis to give
    effect to the sale of the shares of common stock by us in this
    offering at an assumed initial public offering price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share, after deducting underwriting discounts and commissions
    and estimated offering expenses to be paid by us.
    </FONT></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="68%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>As of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30, 2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Actual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>As adjusted</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap><B>(in thousands, except</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap><B>share and per share data</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash
    equivalents<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholders&#146; equity (deficiency):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Common stock, $0.01&nbsp;par value per share;
    40,000,000&nbsp;shares authorized; 29,896,059&nbsp;shares issued
    and outstanding,
    actual; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    issued and outstanding, as adjusted</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional paid in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other components of stockholders&#146; deficiency</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,037</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated deficit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(92,165</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholders&#146; equity (deficiency)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,121</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total capitalization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,091</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>Each $1.00 increase (decrease) in the assumed initial public
    offering price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share would result in an increase (decrease) in adjusted cash
    and cash equivalents, additional paid-in capital, total
    stockholders&#146; equity (deficiency) and total capitalization
    by
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
    assuming that the number of shares offered by us, as set forth
    on the cover page of this prospectus, remains the same. The as
    adjusted information is illustrative only, and following the
    completion of this offering, will be adjusted based on the
    actual initial public offering price and other terms of this
    offering determined at pricing.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The table above should be read in conjunction with our
consolidated financial statements and related notes included in
this prospectus. This table is based on 29,916,892&nbsp;shares
of our common stock outstanding as of December&nbsp;31, 2005 and
excludes, as of that date:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">2,026,796&nbsp;shares of our
    common stock issuable upon exercise of outstanding options at
    exercise prices ranging from $1.00 to $7.76 per share, with a
    weighted average exercise price of $3.07 per share;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of our common stock issuable upon conversion of approximately
    $2&nbsp;million principal amount of our new convertible
    promissory notes at a conversion price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share (which would be determined based on the price of the
    shares sold to the public in this offering);
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">1,968,507&nbsp;shares of our
    common stock available for future grant under our 2004 Equity
    Incentive Plan and 2005 Equity Incentive Plan for Israeli
    Employees;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">888,623&nbsp;shares of our common
    stock issuable upon exercise of warrants outstanding as of
    December&nbsp;31, 2005 at a weighted average exercise price of
    $5.03 per share.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 30</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='107'></A>
</DIV>

<!-- link1 "Dilution" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Dilution
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If you invest in our common stock, your interest will be diluted
immediately to the extent of the difference between the initial
public offering price per share you pay in this offering and the
as adjusted net tangible book value per share of our common
stock immediately after this offering.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our historical net tangible book value (deficiency) as of
September&nbsp;30, 2005 was approximately $(6.7)&nbsp;million,
or approximately $(0.22) per share of common stock. Net tangible
book value (deficiency) per share is equal to our total tangible
assets minus total liabilities, divided by the number of shares
of common stock outstanding as of September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
After giving effect to the sale of
the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock we are offering at an assumed initial public
offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, and after deducting underwriting discounts and
commissions and our estimated offering expenses, our as adjusted
net tangible book value (deficiency) would have been
approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
or approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock. This represents an immediate increase in
net tangible book value (deficiency) of approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to existing stockholders and an immediate dilution of
approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to new investors. The following table illustrates this
calculation on a per share basis:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Assumed initial public offering price per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Historical net tangible book value (deficiency) per share as of
    September&nbsp;30, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.22</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increase per share attributable to the offering</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As adjusted net tangible book value per share after this offering</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dilution per share to new investors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Each $1.00 increase (decrease) in the assumed initial public
offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share would increase (decrease) our as adjusted net tangible
book value by
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
$&nbsp;per share and the dilution in net tangible book value per
share to investors in this offering by
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, assuming that the number of shares offered by us, as set
forth on the cover page of this prospectus, remains the same.
The as adjusted information is illustrative only, and following
the completion of this offering, will be adjusted based on the
actual initial public offering price and other terms of this
offering determined at pricing.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If the underwriters exercise their over-allotment option in
full, the as adjusted net tangible book value as of
September&nbsp;30, 2005 will increase to approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, representing an increase to existing stockholders of
approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, and there will be an immediate dilution of approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to new investors.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table summarizes, on an as adjusted basis as of
September&nbsp;30, 2005, after giving effect to this offering,
the total number of shares of our common stock purchased from us
and the total consideration and average price per share paid by
existing stockholders and by new investors:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shares purchased</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Total consideration</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Average price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>%</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>%</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>per share</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="21" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Existing stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,896,059</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>54,649,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.83</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    New investors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 31</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Dilution</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Each $1.00 increase (decrease) in the assumed initial public
offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share would increase (decrease) total consideration paid by new
investors, total consideration paid by all stockholders and the
price per share paid by new stockholders by
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
respectively, assuming that the number of shares offered by us,
as set forth on the cover page of this prospectus, remains the
same. The as adjusted information is illustrative only, and
following the completion of this offering, will be adjusted
based on the actual initial public offering price and other
terms of this offering determined at pricing.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If the underwriters exercise their over-allotment option in
full, the following will occur:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the as adjusted percentage of
    shares of our common stock held by existing stockholders will
    decrease to
    approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
    of the total number of as adjusted shares of our common stock
    outstanding after this offering;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the number of shares of our common
    stock held by new public investors will increase
    to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    or
    approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
    of the total number of shares of our common stock outstanding
    after this offering.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The tables and calculations above are based on
29,916,892&nbsp;shares outstanding as of December&nbsp;31, 2005
and exclude:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">2,026,796&nbsp;shares of our
    common stock issuable upon exercise of outstanding options at
    exercise prices ranging from $1.00 to $7.76 per share, with a
    weighted average exercise price of $3.07 per share;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of our common stock issuable upon conversion of approximately
    $2&nbsp;million principal amount of our new convertible
    promissory notes at a conversion price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share (which would be determined based on the price of the
    shares sold to the public in this offering);
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">1,968,507&nbsp;shares of our
    common stock available for future grant under our 2004 Equity
    Incentive Plan and 2005 Equity Incentive Plan for Israeli
    Employees;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">888,623&nbsp;shares of our common
    stock issuable upon exercise of warrants outstanding as of
    December&nbsp;31, 2005, at a weighted average exercise price of
    $5.03 per share.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 32</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='108'></A>
</DIV>

<!-- link1 "Selected consolidated financial data" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Selected consolidated financial data
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following selected consolidated statement of operations data
for the years ended December&nbsp;31, 2002, 2003 and 2004 and
the balance sheet data as of December&nbsp;31, 2003 and 2004 is
derived from our audited consolidated financial statements,
which are included elsewhere in this prospectus. The selected
consolidated statements of operations data for the years ended
December&nbsp;31, 2000 and 2001 and the balance sheet data as of
December&nbsp;31, 2000, 2001 and 2002 is derived from our
unaudited consolidated financial statements not included in this
prospectus. The following selected consolidated statement of
operations data for the nine months ended September&nbsp;30,
2004 and 2005 and consolidated balance sheet data as of
September&nbsp;30, 2005 is derived from our unaudited interim
condensed consolidated financial statements, which are included
elsewhere in this prospectus. Operating results for the nine
months ended September&nbsp;30, 2005 are not necessarily
indicative of the results that may be expected for the year
ending December&nbsp;31, 2005.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Nine months ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>Year ended December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2" align="left" nowrap><B>Consolidated statement of operations</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD align="right" nowrap><B>data:</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2000</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2001</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="29" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="26" align="center" nowrap><B>(in thousands, except per share data)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,019</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Development services and grants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,939</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,152</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,947</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,171</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,598</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,622</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Development services and grants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,641</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total cost of revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,263</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,908</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and development, clinical and regulatory expenses, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,014</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, marketing, general and administrative expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,717</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total operating expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,747</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,577</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,731</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,060</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,568</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,669</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,946</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,364</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,643</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,823</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Financial expenses,
    net<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,982</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income (expenses), net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(13,703</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,878</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,513</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,566</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,604</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,302</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,805</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued dividend and induced conversion of preferred stock and
    warrants<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(121</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(61</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,491</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss for common stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(13,703</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(14,878</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,513</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6,566</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6,725</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(7,363</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(21,314</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic net loss per share of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1.43</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1.56</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.58</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.69</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.70</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.77</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.74</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted net loss per share of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1.43</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1.56</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.58</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.69</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.70</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.77</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.90</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average number of shares of common stock
    outstanding-basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,549,687</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,558,767</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,556,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,765,222</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average number of shares of common stock
    outstanding-diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,549,687</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,558,767</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,556,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,822,917</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>For the nine months ended September&nbsp;30, 2005, includes
    $20,932 in connection with our recapitalization which we
    describe in the section of this prospectus entitled
    &#147;Management&#146;s discussion and analysis of financial
    conditions and results of operations&#151;Results of
    operations&#151;Nine months ended September&nbsp;30, 2004 and
    2005&#151;Financial expenses, net.&#148;</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><I>(2)</I></TD>
    <TD align="left">
    <I>For the nine months ended September&nbsp;30, 2005, represents
    the excess of the carrying amount of preferred stock and
    warrants over the value of the common stock received by the
    holders upon conversion under the recapitalization agreement.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 33</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Selected consolidated financial data</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 26pt; ">

<TR style="font-size: 1pt;">
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>As of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>As of December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Consolidated balance sheet data:</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2000</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2001</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap><B>(in thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,929</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,038</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Working capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,090</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,517</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,564</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,375</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,852</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,629</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,845</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,610</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,945</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,442</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,212</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Temporary equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,019</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated deficit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(35,444</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(50,322</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(57,560</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(64,126</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(70,851</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(92,165</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholders&#146; equity (deficiency)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,388</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(16,715</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,809</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(37,689</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(46,146</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,121</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 34</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Management&#146;s discussion and analysis of financial condition
and results of operations
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with &#147;Selected consolidated financial
data&#148; and our consolidated financial statements and the
related notes appearing elsewhere in this prospectus. This
discussion and analysis may contain forward-looking statements
based on assumptions about our future business. Our actual
results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors,
including but not limited to those set forth under &#147;Risk
factors&#148; and elsewhere in this prospectus.</I>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OVERVIEW</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are a commercial-stage biopharmaceutical company that
develops and markets innovative biological products. We utilize
our proprietary protein purification technology and
manufacturing know-how to develop biosurgical and passive
immunotherapy products. Our biosurgical product line includes
products and product candidates that are used or are intended to
be used for hemostasis and other surgical applications. Our
passive immunotherapy product line includes antibody-rich
products and product candidates for the treatment of immune
deficiencies and infectious diseases, including potential
biodefense applications.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our current biosurgical product is a fibrin sealant used for
hemostasis in surgical procedures, marketed as Crosseal in the
U.S. and as Quixil outside of the U.S.&nbsp;It is sold in the
U.S., the EU and several other European countries under a
distribution and supply agreement we have with Ethicon. We sell
Quixil in several other countries directly or through local
distributors.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our passive immunotherapy products include: IVIG, marketed in
Israel for the treatment of patients with immune deficiency;
VIG, supplied under government contracts for the treatment of
smallpox vaccine-related complications; and HBIG, marketed in
Israel for the prevention of reinfection of transplanted livers
in liver transplant patients with HBV.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our revenues are derived from two sources: (a) product sales,
comprised of unit sales and revenue recognition of upfront fees
and milestone payments, and (b) development services and grants.
We derive product sales revenues and development services and
grants revenues from both our biosurgical and passive
immunotherapy product lines. Our biosurgical product sales
revenues are comprised of unit sales and revenue recognition of
upfront fees and milestone payments under our collaboration
agreements. For the nine months ended September&nbsp;30, 2004
and 2005, 90% and 85%, respectively, of our biosurgical product
sales were generated from unit sales. Our passive immunotherapy
product sales revenues are generated primarily from product
sales. Our biosurgical product line generates development
services revenues from our collaborators in connection with our
research and development services, while the passive
immunotherapy product line generates these revenues from
government grants. Revenues are recognized in our financial
statements as described in &#147;Significant accounting
policies.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
During 2004, our biosurgical product line and our passive
immunotherapy product line generated approximately 36% and 54%,
respectively, of our revenues. In 2004, approximately 10% of
revenues were generated by sales of other plasma-derived
products, such as Factor VII and albumin, that we produced prior
to 2005; revenues from these products are not included in either
our biosurgical or passive immunotherapy revenues. Beginning in
2004, we began to reduce production of these products due to
price erosion. Currently, we do not manufacture these products.
For the nine months ended September&nbsp;30, 2004 and 2005, 8.3%
and 7% of our revenues, respectively, were generated by sales of
other products.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 35</B>
</DIV>
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<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 17pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our functional currencies are the U.S.&nbsp;dollar and the Euro,
which are the primary currencies of the economic environments in
which we operate. Our consolidated financial statements include
the financial statements of our Belgian subsidiary, Omrix
Biopharmaceuticals S.A., which are translated into dollars in
accordance with the principles set forth in Statement of
Financial Accounting Standards, or SFAS, No.&nbsp;52,
&#147;Foreign Currency Translation.&#148; Omrix
Biopharmaceuticals S.A. is primarily engaged in European
regulatory affairs, marketing and logistics support. Because our
reporting currency is the dollar, fluctuations in the
Euro-dollar exchange rates have an impact on our operating
results. In addition, we expect to be paid in British pounds
under the contract we were awarded by the United Kingdom to
provide VIG to the United Kingdom Department of Health.
Therefore, we expect to be exposed to fluctuations in the
British pound-dollar exchange rate through the third quarter of
2006.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>FACTORS AFFECTING RESULTS OF OPERATIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Revenues</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We derive our revenues from two sources: (a)&nbsp;product sales,
comprised of unit sales and revenue recognition of upfront fees
and milestone payments, and (b)&nbsp;development services and
grants. The majority of our revenues are generated by product
sales.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Product sales</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Product sales revenues consist of product sales, comprised of
unit sales and revenue recognition of upfront fees and milestone
payments. We sell our products both directly to the market and
to our distributors, depending on the product and market. Our
sales are generally made on the basis of a per unit price
charged to the health care service provider.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In our biosurgical product line, beginning in October 2002 and
prior to our current distribution and supply agreement with
Ethicon, we had a distribution agreement with the American Red
Cross to market Crosseal in the U.S. and Canada. This agreement
was terminated in 2004, and our distribution and supply
agreement with Ethicon was subsequently amended to include the
U.S. and Canada as part of Ethicon&#146;s exclusive distribution
territory. Under our distribution and supply agreement with
Ethicon, we are entitled to payment for each unit Ethicon
purchases from us in each quarter. The transfer price paid to us
for the units purchased in a quarter is calculated based on the
average price at which units are sold by Ethicon in that quarter
multiplied by a percentage that is fixed for each specific
product in the relevant year. The transfer price is adjusted
depending on the dollar amount and our scheduled percentage of
Ethicon&#146;s net sales during the quarter, subject to
specified minimum and maximum transfer price amounts. The
minimum transfer price is also subject to periodic readjustments
designed to preserve our gross profit margin for the particular
product in the event of regulatory changes that cause an
increase in the unit costs of our cost variables or in our
manufacturing costs for that product. These prices are also
subject to readjustment upon extraordinary increases in our raw
materials or supply costs. In each event, the extent of any
price increase is to be agreed upon between the parties.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, under our distribution and supply and development
agreements with Ethicon, we are entitled to receive
non-refundable upfront fees upon the grant of distribution
rights. We are also entitled to receive payments upon achieving
specified milestones. Both upfront fees and milestone payments
are recognized as revenues ratably over the remaining life of
the contract under which the payments are made, in accordance
with Staff Accounting Bulletin, or SAB, 104, &#147;Revenue
Recognition in Financial Statements.&#148; Prior to their being
recognized, the payments are classified based on time to
recognition either as other long-term liabilities or current
liabilities (accruals).
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In our passive immunotherapy product line, we recognize revenues
upon delivery of the products and, where applicable, acceptance.
We derive revenues from sales of our passive immunotherapy
products for biodefense applications from government contracts.
As government demand for these products and our success in
obtaining additional government contracts fluctuates, our
revenues from sales of these
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 36</B>
</DIV>
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<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
products can fluctuate. For example, we expect the final payment
under the contract we were awarded by the United Kingdom to
provide VIG to be made in the third quarter of 2006.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Development services and grants</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In both of our product lines, we recognize revenues in
connection with research and development services we render for
our collaborators, such as Ethicon, and reimbursement of
expenses by governmental agencies, such as the NIH, which we
incur in connection with the performance of research and
development under the terms of our grants.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Cost of revenues and gross margin</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our cost of revenues consists of cost of product sales and cost
of development services and grants.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Cost of product sales and gross margin</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Cost of product sales for both of our product lines includes
direct costs, such as raw material costs, labor, fixed overhead,
and auxiliary material, such as the Crosseal/ Quixil application
device, and services, such as sterilization, provided by third
parties. Most of the raw materials we utilize are common to both
of our product lines and include plasma and auxiliary supplies,
such as filters and chemicals, used in our manufacturing
processes. Our indirect costs include lease payments,
maintenance and depreciation of manufacturing equipment and
utilities, and labor and overhead expenses.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our gross margin is impacted by two main factors:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">Sales price: the dollar amount we
    receive for sales of products in each of our product lines is
    determined by the per unit price charged to the health care
    provider. The transfer price paid to us by Ethicon is computed
    as a percentage of the sales price that Ethicon charges its
    customers, as we describe in the section of this prospectus
    entitled &#147;&#151;Factors affecting results of
    operations&#151;Revenues&#148; above. Our gross margin on our
    biosurgical product sales to Ethicon should be considered with
    the understanding that we do not bear selling and marketing
    expenses in connection with such sales.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">Cost of production:
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="2%"></TD>
    <TD width="2%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    Production efficiency (measured as the cost of a saleable unit),
    which increases or decreases as a result of either (a)&nbsp;a
    change in batch size because the fixed costs associated with the
    manufacturing process (such as direct labor costs and quality
    control) are allocated over all of the saleable units in a batch
    or (b)&nbsp;a change in the number of batches we produce in a
    given period because plant overhead costs (such as rent and
    maintenance) are allocated over all of the batches produced in
    such period. We expect the annual number of batches we produce
    to increase to the extent that demand for our products grows.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    Raw material costs, primarily plasma or plasma fractions, which
    we purchase at market prices. We endeavor to increase the cost
    efficiency of our raw materials and therefore we constantly make
    decisions regarding purchasing either plasma or plasma fractions
    based on manufacturing economics. These purchasing decisions are
    driven by the cost of the raw material unit (either plasma or
    plasma fractions), the processing costs and the total sales
    value that can be generated from the different products that we
    can manufacture from a single unit of raw material. Our ability
    to use specific raw materials depends, in part, on regulatory
    approvals obtained by suppliers.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 37</B>
</DIV>
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<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Cost of development services and grants</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Cost of development services and grants includes research,
development and clinical trial expenses that we incur in
connection with projects under contracts with collaborators,
such as Ethicon, or under grants from government organizations,
such as the NIH.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Research and development, clinical and regulatory expenses,
net</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our research and development, clinical and regulatory expenses
include costs of personnel, including third party consultants,
materials and expenses incurred in connection with the conduct
of research and development and clinical trials. These expenses
do not include research and development, clinical and regulatory
expenses that we incur under contracts with collaborators, such
as Ethicon, or under grants from governmental agencies, such as
the NIH. Such third party financed expenses are included in cost
of development services and grants. The net adjustment to this
line item is immaterial. We expect our research and development,
clinical and regulatory expenses to increase as we increase
development of non-partnered product candidates.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Selling, marketing, general and administrative expenses</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
For the marketing of our biosurgical products, we utilize the
sales and marketing capabilities of our collaborators, in
particular, Ethicon, and as a result we do not expect our sales
and marketing expenses for this product line to increase
significantly in the near future in the U.S. and the EU. Our
selling and marketing expenses relate to our sales and marketing
personnel in Israel and Europe. These expenses consist primarily
of internal sales personnel salaries and commissions, their
travel and related marketing costs, such as trade shows and
marketing materials, as well as subcontractors fees and related
overhead expenses. Our administrative and general expenses
consist of management and administrative salaries and consulting
fees, travel costs and legal and accounting fees. Selling and
marketing expenses have historically been lower than
administrative and general expenses. We expect that our
administrative and general expenses will increase significantly
due to the regulatory obligations associated with being a public
company and our intention to increase our business development
activities.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Financial expenses, net</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Financial expenses consist of interest and fees payable on
outstanding loans from banks and other financial institutions.
Financial income includes interest income, which is interest
earned on deposits we maintain with banks. In addition,
financial expenses and income include expenses and income
related to the impact of fluctuations in the Euro-dollar
exchange rates, as to our Belgian subsidiary&#146;s operations
and intercompany balances, and the NIS-dollar exchange rate, as
to our Israeli subsidiary&#146;s operations. Expenses related to
the effect of fluctuations in exchange rates on intercompany
balances are charged or added directly to income and to
stockholders&#146; equity with no effect on cash flow.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Other income (expenses), net</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Other income includes non-operating income resulting from the
sale of fixed assets or certain non-operational transactions
such as the termination of our distribution agreement with the
American Red Cross in 2004 and represents the recognition of
previously deferred income and other compensation received on
termination, which is net of certain costs related to the
termination.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>CRITICAL ACCOUNTING POLICIES AND ESTIMATES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The preparation of financial statements in conformity with
U.S.&nbsp;generally accepted accounting principles requires
management to make estimates and assumptions that affect both
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 38</B>
</DIV>
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<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
financial statements and the reported amounts of revenues and
expenses during the reporting period. These estimates and
judgments are subject to an inherent degree of uncertainty. Our
significant accounting policies are more fully described in
Note&nbsp;2 to our consolidated financial statements, included
in this prospectus. However, certain of our accounting policies
are particularly important to the portrayal of our financial
position and results of operations. In applying these critical
accounting policies, our management uses its judgment to
determine the appropriate assumptions to be used in making
certain estimates. Those estimates are based on our historical
experience, the terms of existing contracts, our observance of
trends in our industry, information provided by our customers
and information available from other outside sources, as
appropriate. Accounting policies that, in their application to
our business, involve the greatest amount of subjectivity by way
of management judgments and estimates are those relating to:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">revenue recognition;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">income taxes;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">inventory reserves;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">accounting for stock-based
    compensation and fair value of our common stock.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Revenue recognition</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We recognize revenues from product sales in accordance with
SAB&nbsp;104. SAB&nbsp;104 requires recognition of revenues from
product sales that require no continuing performance on our part
if four basic criteria have been met:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">there is persuasive evidence of an
    arrangement;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">delivery has occurred and title
    has passed to our customer;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the fee is fixed and determinable
    and no further obligation exists;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">collectibility is reasonably
    assured.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
EITF No.&nbsp;00-21, &#147;Revenue Agreements with Multiple
Deliverables,&#148; or
<FONT style="white-space: nowrap">EITF&nbsp;00-21,</FONT>
addresses whether for revenue recognition purposes there is one
or several elements in an arrangement. Our distribution,
licensing, supply and collaborative agreements generate
significant upfront fees and/or milestone payments earned upon
completion of certain milestones. We concluded that under
<FONT style="white-space: nowrap">EITF&nbsp;00-21</FONT> these
arrangements should be accounted for as one unit of accounting
because we could not establish fair value for each of the
undelivered elements in the transaction. The upfront fees and
milestone payments are recognized as product revenues on a
straight-line basis over the period of the last deliverable for
which there are continuing commitments to perform under the
relevant agreements. If it is determined that the application of
<FONT style="white-space: nowrap">EITF&nbsp;00-21</FONT> is not
required, our revenues would change substantially.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
When the sale price of one of our products is subject to
adjustments based on our distributor&#146;s actual sales price
to its end users, we recognize revenues based on the estimated
sale price to the end user at the end of each quarter. The
estimates are based on historical sales data and information
available from our distributor at that time. Adjustments are
made in the following quarter reflecting the difference between
our estimates and actual reported sales prices. To date,
adjustments have not been significant. To the extent timely
information from our distributor is not available to us, we may
be unable to recognize revenues from that distributor until such
information is available to us. In that case, we would need to
account for the sale price of our products based on the
contractual minimum sale price and recognize the difference to
revenues upon the availability of actual sale price from our
distributor. We do not grant the right of return to our
distributors.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Income taxes</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are required to calculate and account for income taxes in
each jurisdiction in which we or our subsidiaries operate. This
involves estimating the current tax exposure in each
jurisdiction as well as
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 39</B>
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
making judgments regarding the recoverability of deferred tax
assets. Our estimates regarding the valuation allowance for
deferred tax assets require that we make significant estimates
and judgments regarding our future operating results. Our
ability to realize deferred tax assets depends on our future
taxable income as well as limitations on their utilization. A
deferred tax asset is reduced by a valuation allowance if it is
more likely than not that some portion or all of the deferred
tax asset will not be realized. The projections of our operating
results on which the establishment of a valuation allowance are
based involve significant estimates regarding future demand for
our products, competitive conditions, product development
efforts, approvals of regulatory agencies and product costs. If
actual results differ from these projections, or if our
expectations of future results change, it may be necessary for
us to adjust the valuation allowance. We expect that during the
period in which our net operating loss carryforwards in Israel
are utilized, our income in Israel will be substantially tax
exempt. Although we believe that our estimates and judgments
about the tax contingencies and valuation allowance are
reasonable, actual results could differ, and we may be exposed
to income tax expenses that could be material.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Inventory reserves</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We value our inventories at the lower of cost or estimated
market value. We estimate market value based on our current
pricing and market conditions. Inventory write-offs are taken
for products that will expire within six months, based upon
assumptions about future demand and market conditions and when
market prices are lower than cost. The estimates we use for
future demand are also used for near-term capacity planning and
inventory purchasing. If our estimates regarding demand are
inaccurate, we may be exposed to losses or gains in excess of
our established markdown reserve that could be material.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Accounting for stock-based compensation and fair value of our
common stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We account for our stock-based employee compensation plans using
the intrinsic-value method of accounting set forth in Accounting
Principles Board Opinion, or APB, No.&nbsp;25, &#147;Accounting
for Stock Issued to Employees.&#148; In accordance with
APB&nbsp;25 and related interpretations, compensation expense
for stock options is recognized based on the excess, if any, of
the fair value of the stock at the grant date of the award or
other measurement date over the amount an employee must pay to
acquire the shares. We disclose the pro forma effects on net
loss had the fair value of the options been expensed in
Note&nbsp;2 to our financial statements, included in this
prospectus. Generally, the exercise price for stock options
granted to employees equals the fair market value of the shares
at the date of grant, thereby resulting, under APB&nbsp;25, in
no recognition of compensation expense. For awards that generate
compensation expense as defined under APB&nbsp;25, we calculate
the amount of compensation expense and recognize the expense
over the vesting period of the award.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
On each grant date, we determine the fair market value of the
underlying common stock. In making that determination, we
consider several factors, including transactions in our
securities between unaffiliated third parties; the issuance to
third parties of our convertible promissory notes, convertible
notes and Series&nbsp;A and Series&nbsp;B Preferred Stock; the
liquidation preference and other superior rights of the
convertible notes and preferred stock; our operating and
financial performance and other company-specific milestones; and
market trends for public companies involved in similar
businesses.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Management assessed its prior fair value estimates for the
twelve months preceding this offering, based on the factors
discussed above, the valuation approaches set forth in the
AICPA&#146;s Practice Aid Valuation of Privately-Held-Company
Equity Securities Issued as Compensation, and an assessment of
market considerations, including the likelihood of completing an
initial public offering, the uncertainties inherent in a public
offering and discussions with the underwriters. As a result,
management determined retrospectively that the fair value of the
underlying common stock
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 40</B>
</DIV>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
immediately following our recapitalization was $2.25&nbsp;per
share. The financial expense resulting from the recapitalization
of $20.9&nbsp;million recorded in our financial statements for
the nine months ended September&nbsp;30, 2005 was determined
with this share price.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>RESULTS OF OPERATIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Nine months ended September&nbsp;30, 2004 and 2005</B>
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Revenues</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Our revenues increased by $4.8&nbsp;million, or 33%, from
$14.4&nbsp;million for the nine months ended September&nbsp;30,
2004 to $19.2&nbsp;million for the nine months ended
September&nbsp;30, 2005. This increase is the result of a 29%
increase in product sales revenues and a 63% increase in
development services and grants revenues.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our revenues for each of our product lines for the nine months
ended September&nbsp;30, 2004 and 2005 are presented in the
table below, as well as revenues from other plasma-derived
products.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="71%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Nine months</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(in millions)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Biosurgical products:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Development services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Passive immunotherapy products:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Grants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Biosurgical</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<I>General.</I> Revenues from our biosurgical product line
increased by $3.2&nbsp;million, or 70%, from $4.6&nbsp;million
in the nine months ended September&nbsp;30, 2004 to
$7.8&nbsp;million in the nine months ended September&nbsp;30,
2005.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Product sales.</I> Biosurgical product sales revenues
increased by $1.6&nbsp;million, or 47%, from $3.4&nbsp;million
in the nine months ended September&nbsp;30, 2004 to
$5.0&nbsp;million in the nine months ended September&nbsp;30,
2005. This increase was primarily due to an increase in the
volume of unit sales of Crosseal in the U.S.&nbsp;after the
January 2005 re-launch by Ethicon, and to an increase in
milestone payments recognized in that period, from $314,000 in
the nine months ended September&nbsp;30, 2004 to $728,000 in the
nine months ended September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Development services.</I> Biosurgical development services
revenues increased by $1.6&nbsp;million, or 133%, from
$1.2&nbsp;million in the nine months ended September&nbsp;30,
2004 to $2.8&nbsp;million in the nine months ended
September&nbsp;30, 2005. This increase was due to increased
development activity related to our biosurgical product
candidates partnered with Ethicon.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 41</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 29pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Passive immunotherapy</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<I>General.</I> Revenues from our passive immunotherapy product
line increased by $1.5&nbsp;million, or 17%, from
$8.6&nbsp;million in the nine months ended September&nbsp;30,
2004 to $10.1&nbsp;million in the nine months ended
September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Product sales.</I> Passive immunotherapy product sales
revenues increased by $1.8&nbsp;million, or 23%, from
$7.9&nbsp;million in the nine months ended September&nbsp;30,
2004 to $9.7&nbsp;million in the nine months ended
September&nbsp;30, 2005. This increase was due to an increase in
the total number of units sold.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Grants.</I> Passive immunotherapy grants revenues decreased
by $300,000, or 42%, from $712,000 in the nine months ended
September&nbsp;30, 2004 to $412,000 in the nine months ended
September&nbsp;30, 2005. These amounts were recognized in
connection with grants from the NIH for the development of our
HT-VIG project. This decrease reflects a reduction in NIH funded
activities for this project, but does not reflect the increase
in overall development activity in this project.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Cost of revenues</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Our cost of revenues increased by $1.9&nbsp;million, or 15%,
from $13.3&nbsp;million in the nine months ended
September&nbsp;30, 2004 to $15.3&nbsp;million in the nine months
ended September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Cost of product sales and gross margin</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Our cost of product sales increased by $1.0&nbsp;million, or 9%,
from $11.6&nbsp;million in the nine months ended
September&nbsp;30, 2004 to $12.6&nbsp;million in the nine months
ended September&nbsp;30, 2005. Gross sales margin improved from
7% to 21% as a result of an increase in both the total number of
batches manufactured and the Crosseal batch size, in the second
half of 2005.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Cost of development services and grants</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Cost of development services and grants increased by $890,000,
or 51%, from $1.8&nbsp;million in the nine months ended
September&nbsp;30, 2004 to $2.6&nbsp;million in the nine months
ended September&nbsp;30, 2005. This increase reflects an
increase in the level of our activity in the Ethicon partnered
projects.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Research and development, clinical and regulatory expenses,
net</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Research and development, clinical and regulatory expenses
decreased by $657,000, or 25%, from $2.7 in the nine months
ended September&nbsp;30, 2004 to $2.0&nbsp;million in the nine
months ended September&nbsp;30, 2005. While our research and
development activities were relatively unchanged over these
periods, in 2005 a greater portion of these activities were in
connection with the development of our biosurgical product
candidates with Ethicon, funded through our development
agreements and grants. Expenses related to partnered activities
are included in cost of development services and grants rather
than research and development, clinical and regulatory expenses,
resulting in the period-over-period decrease.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Selling, marketing, general and administrative expenses</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Our selling, marketing, general and administrative expenses
increased by $1.7&nbsp;million, or 57%, from $3.0&nbsp;million
in the nine months ended September&nbsp;30, 2004 to
$4.7&nbsp;million in the nine months ended September&nbsp;30,
2005. This increase was due mainly to increased business
development activities in Japan and additional marketing and
management employment costs. Our selling and marketing expenses
were 21% and 17% of total selling, marketing, administrative and
general expenses for the nine months ended September&nbsp;30,
2004 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Financial expenses, net</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Our financial expenses, net increased by $21.1&nbsp;million, or
543%, from $3.9&nbsp;million in the nine months ended
September&nbsp;30, 2004 to $25.0&nbsp;million in the nine months
ended September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 42</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 17pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Included in financial expenses, net for the nine months ended
September&nbsp;30, 2005 are expenses of $20.9&nbsp;million
resulting from the recapitalization that closed on
January&nbsp;13, 2005. In the recapitalization, certain
convertible promissory notes and convertible notes were
converted and we accounted for the difference between the fair
value of the common stock received by the participating
investors, and the fair value of the common stock that these
investors should have received under the original terms of the
converted securities, as financial expenses. The
$20.9&nbsp;million financial expenses related to the
recapitalization were non-cash expenses credited to
stockholders&#146; equity.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Interest expenses, net (including discount and issuance cost
amortizations) decreased by $2.0&nbsp;million, or 62%, from
$3.2&nbsp;million in the nine months ended September&nbsp;30,
2004 to $1.2&nbsp;million in the nine months ended
September&nbsp;30, 2005. This decrease was largely due to the
elimination of debt as a result of the conversion of the
majority of our convertible promissory notes and all of our
convertible notes into shares of our common stock as part of the
recapitalization described above.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Currency exchange expenses increased by $2.1&nbsp;million, from
$681,000 to $2.8&nbsp;million for these periods, respectively.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Other income (expenses), net</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Other income (expenses), net was $1.2&nbsp;million in the nine
months ended September&nbsp;30, 2004 and $0.0 in the nine months
ended September&nbsp;30, 2005. The amount recorded in the 2004
period reflects the terms of the termination of our distribution
agreement with the American Red Cross and represents the
recognition of previously deferred income and other compensation
received on termination, which is net of certain costs related
to the termination.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Years ended December&nbsp;31, 2002, 2003 and 2004</B>
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Revenues</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Our revenues increased by $2.7&nbsp;million, or 22%, from
$12.2&nbsp;million in 2002 to $14.9&nbsp;million in 2003 and by
$5.0&nbsp;million, or 34%, to $19.9&nbsp;million in 2004.
Year-over-year product sales increases were 20% in 2003 and 23%
in 2004, and year-over-year development services and grants
increases were 77% in 2003 and 233% in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our revenues for each of our product lines as well as revenues
from other plasma-derived products for the years ended
December&nbsp;31, 2002, 2003 and 2004 are presented in the table
below.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>(in millions)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Biosurgical products:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Development services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Passive immunotherapy products:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Grants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>*&nbsp;</TD>
    <TD align="left">
    Represents amounts less than $100,000.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 43</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 23pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The year-over-year decrease of 13% in 2003 and 32% in 2004 in
revenues from other plasma-derived products reflects our
decision to exit this market due to price erosion.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Biosurgical</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<I>General.</I> Revenues from our biosurgical product line
increased by $2.0&nbsp;million, or 182%, from $1.1&nbsp;million
in 2002 to $3.1&nbsp;million in 2003 and by $4.1&nbsp;million,
or 132%, to $7.2&nbsp;million in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Product sales.</I> Biosurgical product sales revenues
increased by $1.8&nbsp;million, or 256%, from $693,000 in 2002
to $2.5&nbsp;million in 2003 and by $2.7&nbsp;million, or 111%,
to $5.2&nbsp;million in 2004. Of these amounts, revenues
reflecting milestone payments were $0, $75,000 and $559,000 in
2002, 2003 and 2004, respectively. The increase from 2002 to
2003 was due to commencement of sales after obtaining regulatory
approval for Crosseal in the U.S.&nbsp;in 2003, and its
introduction in the EU and the U.S.&nbsp;under the distribution
agreements we entered into in 2003 with Ethicon, in Europe, and
in October 2002 with the American Red Cross, in the U.S. Prior
to entering into our distribution agreements with the American
Red Cross and Ethicon, we sold Quixil directly to the market and
through local distributors. Under these arrangements, we began
to share a larger percentage of per unit revenues with our
distributors than prior to 2003. Although the total amount of
product revenues increased, this resulted in a reduction in our
average revenues per unit of the product. The increase from 2003
to 2004 reflects a complete year of sales of our products under
our distribution agreements. This increase was offset in part by
the termination of our distribution agreement with the American
Red Cross in July&nbsp;2004 and the lag between this termination
and the re-launch of Crosseal in the U.S.&nbsp;in January 2005
by Ethicon under our distribution and supply agreement with them.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Development services and grants.</I> Biosurgical development
services revenues increased by $255,000, or 63%, from $404,000
in 2002 to $659,000&nbsp;million in 2003 and by
$1.4&nbsp;million, or 196%, to $2.0&nbsp;million in 2004. The
year-over-year increases during these periods were primarily due
to the additional services we performed in connection with the
development of our product candidates under our development
agreement with Ethicon.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Passive immunotherapy</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<I>General.</I> Revenues from our passive immunotherapy product
line increased by $1.0&nbsp;million, or 14%, from
$7.9&nbsp;million in 2002 to $9.0&nbsp;million in 2003 and by
$1.8&nbsp;million, or 20%, to $10.8&nbsp;million in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Product sales.</I> Passive immunotherapy product sales
revenues increased by $1.1&nbsp;million, or 13%, from
$7.9&nbsp;million in 2002 to $9.0&nbsp;million in 2003 and by
$1.5&nbsp;million, or 16%, to $10.4&nbsp;million in 2004. The
increase from 2002 to 2003 can be attributed to an increase in
the per unit price facilitated by increased market demand. The
increase from 2003 to 2004 was due to a 38% increase in IVIG
unit sales despite a 16% decrease in average per unit price as a
result of aggressive price reduction demanded by our primary
purchaser.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Grants.</I> We did not recognize passive immunotherapy grant
revenues in 2002. Passive immunotherapy grant revenues increased
by $375,000, or 670%, from $56,000 in 2003 to $431,000 in 2004.
We recognized $431,000 in 2004 in grants from the NIH in
connection with the development of our HT-VIG product candidate.
The grant of $3.0&nbsp;million which we were awarded in
connection with the development of this product candidate has
been completely funded to date and $900,000 has been recognized
as revenue as of September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Cost of revenues</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Our cost of revenues increased by $4.5&nbsp;million, or 46%,
from $9.8&nbsp;million in 2002 to $14.3&nbsp;million in 2003 and
by $3.2&nbsp;million, or 22%, to $17.5&nbsp;million in 2004.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 44</B>
</DIV>
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<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 29pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Cost of product sales and gross margin</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Our cost of product sales increased by $3.8&nbsp;million, or
39%, from $9.8&nbsp;million in 2002 to $13.6&nbsp;million in
2003 and by $1.8&nbsp;million, or 13%, to $15.4&nbsp;million in
2004. Gross sales margin decreased from 18% in 2002 to 4% in
2003 and increased to 12% in 2004. The decrease in the gross
sales margin between 2002 and 2003 was due to a reduction in the
sale price of other plasma-derived products, in particular
Factor VIII, and the sharing of per unit revenues of Quixil and
Crosseal under our agreements with Ethicon and the American Red
Cross, respectively. The increase in our gross sales margin in
2004 was largely due to increased volume production of our IVIG
product, which offset reductions in the per unit revenues of
IVIG and Crosseal/ Quixil and the decline in sales of other
plasma-derived products.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Cost of development services and grants</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
We did not have any development services and grants expenses in
2002. Cost of development services and grants increased by
$1.4&nbsp;million, or 194%, from $715,000 in 2003 to
$2.1&nbsp;million in 2004. This increase primarily reflects the
increased development activity in connection with our
biosurgical product candidates under our agreement with Ethicon.
In addition, we increased development activities in connection
with our HT-VIG project for which we received a grant from the
NIH.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Research and development, clinical and regulatory expenses,
net</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Research and development, clinical and regulatory expenses, net
decreased by $690,000, or 20%, from $3.4&nbsp;million in 2002 to
$2.8&nbsp;million in 2003 and increased by $229,000, or 8%, to
$3.0&nbsp;million in 2004. The year-over-year changes resulted
from our allocation of resources to our funded research and
development projects. The total costs of research and
development, clinical and regulatory expenses, including those
incurred in connection with funded projects, were
$3.4&nbsp;million, $3.4&nbsp;million and $5.1&nbsp;million in
2002, 2003 and 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Selling, marketing, general and administrative expenses</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Our selling, marketing, general and administrative expenses
increased by $125,000, or 3%, from $3.7&nbsp;million in 2002 to
$3.8&nbsp;million in 2003 and by $1.0&nbsp;million, or 26%, to
$4.8&nbsp;million in 2004. The increase in 2004 was primarily
due to an increase in our general and administrative expenses
resulting from additional management and legal fees incurred in
connection with the negotiation of our agreements with Ethicon
and the related termination of our agreement with the American
Red Cross. Our selling and marketing expenses were 20%, 26% and
18% of total selling, marketing, administrative and general
expenses for the years ended 2002, 2003 and 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Financial expenses, net</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Our financial expenses, net decreased by $178,000, or 22%, from
$805,000 in 2002 to $627,000 in 2003 and increased by
$1.8&nbsp;million, or 293%, to $2.5&nbsp;million in 2004.
Interest expenses, net (including discount and issuance cost
amortization) included in financial expenses were
$2.8&nbsp;million, $4.4&nbsp;million and $4.1&nbsp;million in
2002, 2003 and 2004, respectively. Interest expenses were offset
in part by foreign exchange income, due in part to intercompany
balances between us and our Belgian subsidiary, and the
strengthening of the Euro relative to the dollar in those years
in the net amount of $2.0&nbsp;million in 2002,
$3.8&nbsp;million in 2003 and $1.5&nbsp;million in 2004.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Other income (expenses), net</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Other income (expenses), net were insignificant in 2002 and
2003. Other income (expenses), net was $1.2&nbsp;million in
2004, reflecting the termination of the distribution agreement
with the American Red Cross and recognition of previously
deferred income and other compensation received on termination,
which is net of certain costs related to the termination.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 45</B>
</DIV>
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<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 29pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>LIQUIDITY AND CAPITAL RESOURCES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
From our inception through September&nbsp;30, 2005, we have
accumulated deficit of $92.2&nbsp;million, of which
$20.9&nbsp;million recorded in 2005 were non-cash expenses
related to our recapitalization which closed on January&nbsp;13,
2005. As of September&nbsp;30, 2005, we had cash and cash
equivalents of $6.0&nbsp;million. We have financed our
operations with:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">unsecured convertible notes and
    secured convertible promissory notes and other secured and
    unsecured third party debt consisting mainly of loans and credit
    lines;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">private sales of our equity
    securities;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">a combination of cash from product
    sales, upfront fees and milestone payments from our
    collaborators, revenues for performance of development services
    and government grants;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">interest earned on cash and
    investments.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have raised approximately $58.1&nbsp;million in gross
proceeds from the sale of our common stock, warrants, preferred
stock, convertible notes and convertible promissory notes in
financings in 1998, 1999, 2001, 2002 and 2004. We paid
$3.7&nbsp;million, consisting of principal plus accrued
interest, to holders of convertible promissory notes in August
2004. As a result of our January 2005 recapitalization, all
existing preferred stock and convertible notes and certain
warrants were converted to common stock. Subsequent to the
recapitalization, an aggregate principal amount of approximately
$1.5&nbsp;million, plus accrued and unpaid interest, of our
convertible promissory notes were renegotiated and new notes
were issued, which we refer to as the new convertible promissory
notes. There was outstanding as of September&nbsp;30, 2005
approximately $2&nbsp;million aggregate principal amount of new
convertible promissory notes. These notes bear 10% interest and
are due on December&nbsp;31, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As a result of our January 2005 recapitalization and the related
conversion of our outstanding notes and shares of preferred
stock into shares of our common stock, pursuant to
SFAS&nbsp;No.&nbsp;84, &#147;Induced Conversions of Convertible
Debt,&#148; and APB Opinion&nbsp;26, &#147;Early Extinguishment
of Debt,&#148; in the first quarter of 2005, we recognized
$20.9&nbsp;million in financial expenses. These expenses
represent the excess of the fair value of the common stock
issued upon the conversion of our convertible notes over the
fair value of the common stock issuable under their original
conversion terms, and the excess of the fair value of the common
stock issued to the holders of our convertible promissory notes
over the book value of these convertible promissory notes as of
the recapitalization date. We describe the accounting effects of
this recapitalization more fully in Note&nbsp;13b to our
consolidated financial statements, included in this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Cash flows</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As of September&nbsp;30, 2005, our cash and cash equivalents
were $6.0&nbsp;million compared to $5.5&nbsp;million as of
December&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Net cash used in operating activities was $4.9&nbsp;million for
the nine months ended September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Net cash provided by financing activities was $6.2&nbsp;million
for the nine months ended September&nbsp;30, 2005. Cash provided
by financing activities for the nine months ended
September&nbsp;30, 2005 resulted mainly from a $7.1&nbsp;million
increase in long term debt, including a loan of
$5.0&nbsp;million aggregate principal amount from Hercules
Technology Growth Capital.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Net cash used for investing activities was $870,000 for the nine
months ended September&nbsp;30, 2005. These activities consisted
primarily of investment in property, plant and equipment and
purchase of a perpetual royalty-free license for a component of
the Crosseal/ Quixil application device.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 46</B>
</DIV>
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<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 23pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As of December&nbsp;31, 2004, our cash and cash equivalents were
$5.5&nbsp;million compared to $1.8&nbsp;million as of
December&nbsp;31, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Net cash provided by operating activities was $2.4&nbsp;million
for the year ended December&nbsp;31, 2004. The net cash provided
by operating activities in 2004 reflects cash received from
Ethicon as upfront fees and milestone payments in the amount of
approximately $6.8&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Net cash provided by financing activities was $4.0&nbsp;million
for the year ended December&nbsp;31, 2004. Net cash provided by
financing activities in 2004 consisted of $4.9&nbsp;million in
net proceeds received from the sale of our Series&nbsp;B
Convertible Preferred Stock in July 2004, $1.4&nbsp;million in
net short-term credit from banks as well as $0.5&nbsp;million in
long-term loans received, which were offset by a partial
repayment in August 2004 of $2.5&nbsp;million of principal on
our 10% secured convertible promissory notes issued in August
2002 and repayment of long-term loans in the amount of
$0.3&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Net cash used for investing activities was $2.7&nbsp;million in
2004. These activities consisted primarily of investment in
fixed assets.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our expected sources of liquidity include revenues from product
sales, milestone payments under our collaborations and
government grants, as well as revolving credit arrangements with
Israeli banks, our cash reserves and the proceeds from this
public offering.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As a result of the contract we were awarded in December 2005 by
the United Kingdom to provide VIG to the United Kingdom
Department of Health, we expect to receive an aggregate of
approximately $20&nbsp;million, based on the prevailing exchange
rate, to be paid in British pounds through the third quarter of
2006.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our agreements with Ethicon provide for certain upfront fees and
milestone payments received in connection with the completion of
certain milestones. We may receive additional milestone payments
if we obtain certain regulatory approvals for product candidates
we are developing under our collaboration and if we achieve
certain levels of sales of our products. In addition, under our
development agreement, Ethicon bears all costs of development
and clinical studies of the products to be developed under that
agreement, other than 50% of our labor costs, for which we are
responsible.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under our license and development agreement with Symphony
Medical Inc., we may receive up to an aggregate amount of
approximately $4&nbsp;million in milestone payments from
Symphony if we achieve specified development and regulatory
milestones. To date, we have received no milestone payments
under this agreement.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
From our inception through September&nbsp;30, 2005, we received
an aggregate of approximately $3&nbsp;million in grants from the
NIH. We are not entitled to any further payments from the NIH
under our current grants.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We believe that the net proceeds from this offering, together
with our cash from operations, cash reserves and available
credit lines, will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures for the
foreseeable future. However, if, in the future, cash generated
from operations is insufficient to satisfy our liquidity
requirements, or if our estimates of revenues, expenses or
capital or liquidity requirements change or are inaccurate, we
may need to raise additional funds. We may also need to raise
additional funds, or may seek to take advantage of capital
raising opportunities, to finance expansion plans, develop or
acquire new products or technologies, enhance our existing
products or respond to competitive pressures. We cannot be
certain that we will be able to obtain additional financing on
commercially reasonable terms or at all, which could limit our
ability to grow and carry out our business plan.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 47</B>
</DIV>
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<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 29pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Obligations and commitments</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition to approximately $2&nbsp;million aggregate principal
amount of debt outstanding in new convertible promissory notes,
we have borrowed amounts from banks and other financial
institutions under short-term credit lines and long-term loans.
As of September&nbsp;30, 2005, we had available from banks,
short-term credit lines providing for borrowings of up to
$2.6&nbsp;million, of which we had borrowed $1.9&nbsp;million as
of that date. At September&nbsp;30, 2005, we also had
outstanding long-term borrowings of $7.2&nbsp;million and
current maturities of long-term borrowings of $2.7&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Of these borrowings, $5.0&nbsp;million had been borrowed from
Hercules Technology Growth Capital Inc. under our senior loan
and security agreement. The borrowings from Hercules bear
interest at an annual rate of 11.45%. Under the agreement with
Hercules, we are required to make monthly installments of
accrued interest through October 1, 2005 followed by
30&nbsp;monthly installments of principal plus accrued interest.
While we have the right to make early repayment upon advance
notice, we are required to pay an early repayment premium of
2.5%, 1.25% and 0.5% of the principal being repaid, until the
first, second and third anniversaries, respectively, of the loan
agreement date, which is March&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under our agreement with Hercules, we granted Hercules certain
security interests in our assets, other than our intellectual
property, and the stock of all of our subsidiaries. We are
allowed to transfer any of the collateral in the ordinary course
of business and collateral with a value of up to
$100,000&nbsp;per year outside of the ordinary course of
business. In addition, a sale of the intellectual property
related to our biosurgical product line is subject to
Hercules&#146; consent or to repayment of any outstanding
amounts (this payment is not subject to the early repayment
premium). The agreement with Hercules also contains various
restrictions including restrictions on our ability to issue
secured notes to investors in an aggregate principal amount
exceeding $2.0&nbsp;million maturing earlier than
December&nbsp;31, 2007 and restrictions on our ability to enter
into any new loan agreements granting security interest ranking
senior to or on par with Hercules&#146; security interest. In
connection with our entry into this agreement, we granted
Hercules a warrant to purchase&nbsp;149,552&nbsp;shares of our
common stock at an exercise price of $4.18&nbsp;per share.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Israel Discount Bank credit facility.</I> Our Israeli
subsidiary currently has a NIS 20&nbsp;million (approximately
$4.3&nbsp;million, based on the
<FONT style="white-space: nowrap">NIS-dollar</FONT> prevailing
exchange rate, which was NIS 4.603 to $1.00 on December&nbsp;31,
2005) credit facility with Israel Discount Bank. Under this
credit facility, this subsidiary may borrow up to NIS
20&nbsp;million on a revolving basis. Borrowings under the
arrangement may be long-term loans up to an aggregate principal
amount of NIS 10&nbsp;million, with maturities of one to three
years at either fixed or floating interest rates, with the
balance being short-term borrowings with maturities of one year
or less. Interest rates will be determined when amounts are
borrowed.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Any outstanding amounts owed under this arrangement are secured
by a pledge on all current and future receivables of our
subsidiary and on all securities, negotiable and non-negotiable
instruments and cash held by the subsidiary. Certain receivables
and inventories are specifically excluded from this pledge. In
addition, we have agreed to maintain minimum net equity capital
and stockholders&#146; loans of at least NIS 20&nbsp;million for
the Israeli subsidiary.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As of December&nbsp;31, 2005, our Israeli subsidiary had an
aggregate principal amount of NIS 9.3&nbsp;million outstanding
under this arrangement, consisting of the following long-term
loans:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    a four-year loan in an initial principal amount of NIS
    2&nbsp;million maturing in January 2006 and bearing interest at
    a fixed 7.10% rate, of which a principal amount of NIS 50,000
    was outstanding;</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 48</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 23pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    a three-year loan in an initial principal amount of NIS
    5&nbsp;million maturing in May 2008 and bearing interest at a
    fixed 7.32% rate with a quarterly repayment schedule, of which a
    principal amount of NIS&nbsp;4.20&nbsp;million was outstanding;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    a three-year loan in an initial principal amount of NIS
    5&nbsp;million maturing in May 2008 and bearing interest at a
    floating rate of the Israeli prime rate plus 1.20% with a
    quarterly repayment schedule, of which a principal amount of NIS
    4.2&nbsp;million was outstanding;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    two two-year loans each in an initial principal amount of NIS
    1&nbsp;million, each maturing in September 2006, each of which
    is linked to the Israeli Consumer Price Index and bears interest
    at a fixed 5.00% rate with monthly repayment schedules, and each
    of which had a principal amount of NIS 0.4&nbsp;million
    outstanding.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As of December&nbsp;31, 2005, our Israeli subsidiary had two
short-term loans outstanding each in an initial principal amount
of NIS 5.4&nbsp;million and NIS 3.0&nbsp;million, respectively,
each bearing interest at a floating rate of the Israeli prime
rate plus 1.2%, and an overdraft facility in a principal amount
of NIS&nbsp;1.7&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
This subsidiary also had a principal amount of NIS
2.5&nbsp;million in restricted cash and deposits in connection
with supplier letters of credit.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Bank Leumi facility.</I> In addition, our Israeli subsidiary
has an overdraft facility in a principal amount of
NIS&nbsp;2.0&nbsp;million in respect of our account at Bank
Leumi of which NIS&nbsp;900,000 is available. This subsidiary
has never incurred indebtedness under this facility; however, it
has used $250,000 (approximately NIS 1.1&nbsp;million) of this
facility to support a guaranty issued by the bank.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our long-term liabilities as of December&nbsp;31, 2004 included
$7.4&nbsp;million in deferred revenues. Deferred revenues
consists of upfront fees and milestone payments from
collaborations. Recognition of these payments as revenues is
deferred and the revenues are recognized ratably over the
remaining life of the contract under which the payments are made
in accordance with SAB&nbsp;104. The amounts received, which are
non-refundable but not yet recognized, are classified as
deferred revenues on our balance sheet.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The outstanding balances, including accrued interest, of
convertible promissory notes and convertible notes were in the
aggregate principal amount of $13.6&nbsp;million,
$35.7&nbsp;million as of December&nbsp;31, 2003 and 2004,
respectively. In 2003, this amount included $2.5&nbsp;million of
principal that was paid to holders of convertible promissory
notes in August 2004. As a result of our January 2005
recapitalization, all of our convertible notes existing prior to
the recapitalization and the majority of our convertible
promissory notes were retired. An aggregate principal amount of
approximately $1.5&nbsp;million, plus accrued and unpaid
interest, of the convertible promissory notes were renegotiated
subsequent to the recapitalization and new notes were issued,
which we refer to as the new convertible promissory notes, in
the amount of $2.0&nbsp;million. These new convertible
promissory notes remain outstanding and bear interest at 10%. As
of September&nbsp;30, 2005, $2.1&nbsp;million aggregate
principal amount plus accrued interest was outstanding under the
new convertible promissory notes.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 49</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 23pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table summarizes our contractual obligations as of
December&nbsp;31, 2004, and the expected amounts of these
obligations in future periods.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>Minimum payments due by period</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Less than</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>More than</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>Contractual obligations</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Total</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>1 year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>1-3&nbsp;years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>3-5&nbsp;years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>5&nbsp;years</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="21" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>(in millions)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term
    liabilities<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating
    leases<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase
    obligations<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>36.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>26.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>Consists of long-term principal repayment of loans and the
    convertible promissory notes.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><I>(2)</I></TD>
    <TD align="left">
    <I>Consists of operating leases for our facilities and motor
    vehicles and assumes no exercise of any option to extend these
    leases.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><I>(3)</I></TD>
    <TD align="left">
    <I>The amounts included in open purchase order commitments are
    subject to performance under the purchase order by the supplier
    of the goods or services and do not become our obligation until
    such performance is rendered. The amount shown is principally
    for the purchase of certain raw materials under long-term
    agreements only.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Off-balance sheet arrangements</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As of December&nbsp;31, 2005, we did not have any off-balance
sheet financing arrangements.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Capital requirements</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our capital requirements are dependent on many factors,
including the projected level of our manufacturing activities,
market acceptance of our products and allocation of resources to
our research and development and business development efforts.
Currently, our primary capital requirements are for the
financing of our ongoing operations, for research and
development and for investments in capital equipment used both
in our manufacturing and research and development activities. In
the future, we intend to increase our capital expenditures
consistent with our anticipated growth. In particular, we intend
to invest substantial amounts in constructing a new
manufacturing facility in Israel that is scheduled to be
operational by 2009. As of December&nbsp;31, 2005, we have paid
$1.0&nbsp;million in connection with the design of this
facility. Other than financing this construction, we anticipate
that our cash resources will be used primarily to fund our
operating activities.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>CORPORATE TAXATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Due to the existence and operations of our Israeli and Belgian
subsidiaries, our consolidated corporate tax rate reflects the
combined impact of our U.S., Israeli and Belgian tax status. We
have incurred net operating losses since our inception and have
consequently not paid any federal, state or foreign income
taxes. However, some of our intercompany payments may be subject
to withholding tax at varying rates, depending on the
jurisdiction involved and the nature of the payment.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As of December&nbsp;31, 2004, our net operating loss
carryforwards for U.S.&nbsp;federal income tax purposes were
$18.5&nbsp;million. These net operating loss carryforwards may
be generally available to offset our future U.S.&nbsp;taxable
income, subject to applicable expiration dates and as discussed
below. If not utilized or otherwise limited as discussed below,
these net operating loss carryforwards will begin to expire in
2019 and continue through 2024. The Internal Revenue Code places
certain limitations on the sources of income against which net
operating loss carryforwards may be offset and therefore we
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 50</B>
</DIV>

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<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 17pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
may not be able to utilize our net operating loss carryforwards
in relation to some or all of our income.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are currently undertaking an analysis to determine whether
the use of our net operating loss carryforwards and other tax
attributes are limited as a result of having undergone an
&#147;ownership change&#148; within the meaning of
Section&nbsp;382 of the Internal Revenue Code. In addition, we
are further determining whether we will undergo an ownership
change as a result of this offering or any other transaction
involving the sale or other transfer of our stock. If we undergo
an &#147;ownership change,&#148; our ability to use our net
operating loss carryforwards and other tax attributes to offset
future U.S.&nbsp;taxable income, and thereby reduce our tax
liability, would be severely limited. In general, an
&#147;ownership change&#148; occurs for these purposes if the
percentage of stock ownership of any group of &#147;5-percent
stockholders&#148; (determined under Federal income tax
regulations) increases by more than fifty percentage points over
a three-year period. For this purpose, the term &#147;5-percent
stockholder&#148; includes the group of public stockholders who
individually own less than 5&nbsp;percent of our stock. If, as a
result of our analysis, we conclude that we have not undergone
an &#147;ownership change&#148; in the past or as a result of
this offering, it is likely that this offering, in tandem with
other transactions involving the sale or transfer of our stock,
will nevertheless significantly increase the likelihood that we
will undergo an &#147;ownership change&#148; in the future and
that our net operating loss carryforwards and other tax
attributes will be lost or subject to severe limitation at that
time. It is impossible for us to ensure that such loss or
limitation will not occur.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Currently, Israeli companies are generally subject to income tax
at the corporate rate of 31%. The income tax rate will be
gradually reduced to 29% by 2007. However, we have been granted
&#147;approved enterprise&#148; status under the tax benefit
track, as provided by the Israeli Law for the Encouragement of
Capital Investments, 1959. The tax benefit track provides us
with a tax exemption on undistributed earnings derived from
assets included in the approved enterprise investment program
for the first four years of the ten-year benefit period and a
tax rate of 10% to 20% for the remaining three to six years of
the benefit period or through 2009, whichever is earlier,
depending on the level of non-Israeli investment in our Israeli
subsidiary. The ten year benefit period starts with the first
year in which we generate taxable income from the approved
enterprise. In any event, the period is limited to the earlier
of 12&nbsp;years from the first year defined as the
&#147;operational year&#148; under Israeli tax law or
14&nbsp;years from the respective year our program received
&#147;approved enterprise&#148; status, which is 2009. The
availability of the Israeli tax benefits is subject to certain
requirements, including making specified investments in property
and equipment and financing a percentage of investments with
share capital. If we do not meet these requirements in the
future, the tax benefits may be cancelled and we could be
required to refund any tax benefits that we have already
received, plus interest and penalties thereon. To date, we have
not received any tax benefits under the approved enterprise
status.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As of December&nbsp;31, 2004, we had $17.4&nbsp;million of net
operating loss carryforwards for Israeli tax purposes, which we
expect to use upon generating taxable income. These net
operating loss carryforwards have no expiration date.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Belgian companies are currently generally subject to income tax
at the corporate rate of 33.99%. As of December&nbsp;31, 2004,
we had $18.5&nbsp;million of net operating loss carryforwards
for Belgian tax purposes that we expect to use upon generating
taxable income. These net operating loss carryforwards have no
expiration date.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We do not use derivative financial instruments in our investment
portfolio and have no foreign exchange contracts. However, under
the terms of the contract we were awarded by the United
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 51</B>
</DIV>
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<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 17pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Kingdom to provide VIG to the United Kingdom Department of
Health, we expect to be paid on specified dates in British
pounds.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our financial instruments consist of cash, cash equivalents,
short-term investments, accounts payable and long-term
obligations. We consider investments that, when purchased, have
a remaining maturity of 90&nbsp;days or less, to be cash
equivalents. We invest in marketable securities in accordance
with our investment policy. The primary objectives of our
investment policy are to preserve principal, maintain proper
liquidity to meet operating needs and maximize yields. Our
investment policy specifies credit quality standards for our
investments.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As of December&nbsp;31, 2004, a substantial majority of our cash
was in money market accounts. We did not have any cash invested
in short-term investment instruments.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
On September&nbsp;29, 2005, the audit committee of the board of
directors and the entire board of directors of Omrix
Biopharmaceuticals, Inc., (the &#147;Company&#148;), approved
the engagement of Kost, Forer, Gabbay&nbsp;&#38; Kasierer, a
member of Ernst&nbsp;&#38; Young Global, or Kost Forer, to audit
the Company&#146;s consolidated financial statements for the
fiscal years ended December&nbsp;31, 2004 and 2005. In addition,
on January&nbsp;12, 2006, the audit committee of the board of
directors of the Company ratified the engagement of Ziv Haft, a
BDO member firm, or Ziv Haft, to audit the Company&#146;s
consolidated financial statements for the fiscal years ended
December&nbsp;31, 2002 and 2003.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
For the years ended December&nbsp;31, 2003 and 2004, Kesselman
&#38; Kesselman, a member firm of PricewaterhouseCoopers
International Limited, or Kesselman&nbsp;&#38; Kesselman,
reported on the consolidated financial statements of the Company
pursuant to generally accepted auditing standards in Israel and
was not engaged to audit the Company&#146;s consolidated
financial statements in accordance with standards of the Public
Company Accounting Oversight Board in the United States of
America or under generally accepted auditing standards in the
U.S. As a result of the Company&#146;s decision to seek an
initial public offering in the U.S., Kesselman &#38; Kesselman
resigned due to exceptions under the U.S. Securities and
Exchange Commission independence rules.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Kesselman&nbsp;&#38; Kesselman reports on the Company&#146;s
consolidated financial statements for the years ended
December&nbsp;31, 2003 and 2004 did not contain an adverse
opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
During the years ended December&nbsp;31, 2003 and 2004 and
through September&nbsp;29, 2005, there were no disagreements
with Kesselman&nbsp;&#38; Kesselman on any matter of accounting
principle or practice, financial statement disclosure or
auditing scope or procedure, which disagreements, if not
resolved to Kesselman&nbsp;&#38; Kesselman&#146;s satisfaction,
would have caused Kesselman&nbsp;&#38; Kesselman to make
reference thereto in its report on the Company&#146;s
consolidated financial statements for such years.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
During the years ended December&nbsp;31, 2003 and 2004 and
through September&nbsp;29, 2005, there were no reportable events
pursuant to Item&nbsp;304(a)(1)(v) of
<FONT style="white-space: nowrap">Regulation&nbsp;S-K.
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
During the years ended December&nbsp;31, 2003 and 2004 and for
the period January&nbsp;1, 2005 to September&nbsp;29, 2005, and
the years ended December&nbsp;31, 2004 and 2005 and for the
period January&nbsp;1, 2006 to January&nbsp;12, 2006, the
Company has not consulted with either Kost Forer or Ziv Haft,
respectively, regarding either (i)&nbsp;the application of
accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might
be rendered on our consolidated
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 52</B>
</DIV>
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<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management&#146;s discussion and analysis of financial
condition and results of operations</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 17pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
financial statements, or (ii)&nbsp;any matter that was either
the subject of a disagreement, as that term is defined in
Item&nbsp;304(a)(1)(iv) of
<FONT style="white-space: nowrap">Regulation&nbsp;S-K</FONT> and
the related instructions to Item&nbsp;304 of
<FONT style="white-space: nowrap">Regulation&nbsp;S-K,</FONT> or
a reportable event, as that term is defined in Item&nbsp;304
(a)(1)(v) of
<FONT style="white-space: nowrap">Regulation&nbsp;S-K.
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>RECENT ACCOUNTING PRONOUNCEMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
On December&nbsp;16, 2004, the Financial Accounting Standards
Board, or FASB, issued Statement No.&nbsp;123 (revised 2004),
&#147;Share-Based Payment,&#148; or Statement&nbsp;123(R), which
is a revision of FASB Statement No.&nbsp;123, &#147;Accounting
for Stock-Based Compensation. Statement&nbsp;123(R) requires all
share-based payments to employees to be recognized based on
their fair market value. Statement&nbsp;123(R) also revises,
clarifies and expands upon guidance in several areas, including
determining fair value, classifying an award as equity or as a
liability and attributing compensation cost to reporting
periods. The new standard will be effective for us for the year
beginning after January&nbsp;1, 2006. The adoption of
Statement&nbsp;123(R) is not expected to have a material effect
on our results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In March 2005, the SEC released SAB&nbsp;107, &#147;Share-Based
Payment,&#148; or SAB&nbsp;107. SAB&nbsp;107 provides the SEC
staff&#146;s position regarding the application of
Statement&nbsp;123(R), &#147;Accounting for Stock Based
Compensation,&#148; including interpretive guidance related to
the interaction between Statement&nbsp;123(R) and certain SEC
rules and regulations, and to the valuation of share-based
payment arrangements for public companies. SAB&nbsp;107
highlights the importance of disclosures made relating to the
accounting for share-based payment transactions. We are
currently reviewing the effect of SAB&nbsp;107; however, we do
not believe that SAB&nbsp;107 will have a material effect on our
financial position, results of operations or cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In November 2004, the FASB issued Statement of Financial
Accounting Standard No.&nbsp;151, &#147;Inventory Costs, an
Amendment of ARB No.&nbsp;43, Chapter&nbsp;4,&#148; or
SFAS&nbsp;151. SFAS&nbsp;151 amends Accounting Research
Bulletin, or ARB No.&nbsp;43, Chapter&nbsp;4, to clarify that
abnormal amounts of idle facility expense, freight handling
costs and wasted materials (spoilage)&nbsp;should be recognized
as current-period charges. In addition, SFAS&nbsp;151 requires
that the allocation of fixed production overheads to the costs
of conversion be based on the normal capacity of the production
facilities. SFAS&nbsp;151 is effective for inventory costs
incurred during fiscal years beginning after June&nbsp;15, 2005.
We do not expect that the adoption of SFAS&nbsp;151 will have a
material effect on our financial position or results of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In May 2005, the FASB issued Statement of Financial Accounting
Standard No.&nbsp;154, or SFAS&nbsp;154, &#147;Accounting
Changes and Error Corrections,&#148; a replacement of APB
No.&nbsp;20, &#147;Accounting Changes,&#148; or APB No. 20 and
SFAS&nbsp;No.&nbsp;3, &#147;Reporting Accounting Changes in
Interim Financial Statements.&#148; SFAS&nbsp;154 provides
guidance on the accounting for and reporting of accounting
changes and error corrections. APB No.&nbsp;20 previously
required that most voluntary changes in accounting principles be
recognized by including in net income for the period of the
change the cumulative effect of changing to the new accounting
principle. SFAS&nbsp;154 requires retroactive application to
voluntary changes in accounting principles in prior
periods&#146; financial statements unless it is impracticable to
do so. SFAS&nbsp;154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December&nbsp;15, 2005.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 53</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Business
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OVERVIEW</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are a commercial-stage biopharmaceutical company that
develops and markets innovative biological products. We utilize
our proprietary protein purification technology and
manufacturing know-how to develop biosurgical and passive
immunotherapy products derived from human plasma. Our
biosurgical product line includes products and product
candidates that are used or are intended to be used for
hemostasis and other surgical applications. Our passive
immunotherapy product line includes antibody-rich products and
product candidates for the treatment of immune deficiencies and
infectious diseases, including potential biodefense
applications. In each of our product lines, we are developing
novel and <FONT style="white-space: nowrap">easy-to</FONT>-use
products that address unmet market needs.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our core competency is applying our proprietary protein
purification technology and our manufacturing know-how to
develop and commercialize protein-based products. We employ our
technology on a commercial scale to either isolate proteins of
interest or remove unwanted proteins from raw materials such as
human plasma or plasma fractions. Our biosurgical and passive
immunotherapy products and product candidates are plasma
fractions either enriched for, or depleted of, selected proteins.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Biosurgical products and product candidates</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our current biosurgical product is a fibrin sealant used for
hemostasis in surgical procedures, marketed as Crosseal in the
U.S. and as Quixil outside of the U.S.&nbsp;It is sold in the
U.S., the EU and several other European countries under a
distribution and supply agreement we have with Ethicon. We sell
Quixil in several other countries directly or through local
distributors.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We believe that Crosseal/ Quixil has several competitive
advantages over other liquid fibrin sealants on the market.
Crosseal/ Quixil:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    is readily available for spraying and dripping because it can be
    prepared from thawed product in approximately one minute in the
    operating room;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    results in a clot that we believe has better adherence to tissue
    and greater elasticity;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    avoids the possibility of an adverse reaction associated with
    bovine proteins because it does not contain animal-derived
    components; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    can be refrigerated in a liquid form, thereby avoiding waste of
    unused product, for up to 30&nbsp;days after thawing.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
For the nine months ended September&nbsp;30, 2005, we recognized
$5.0&nbsp;million in revenues from our direct commercial sales
and sales to Ethicon and our other distributors of Crosseal/
Quixil, including revenues recognized from upfront fees and
milestone payments.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are also developing the following biosurgical product
candidates:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    Crosseal&nbsp;II/ Quixil&nbsp;II, a second generation fibrin
    sealant, for expanded indications in hemostasis;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    thrombin stand-alone and flowable thrombin, for specific
    surgical applications;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    a hemostatic bio-device, comprised of our BAC&nbsp;II and
    thrombin embedded in a biodegradable device, designed for the
    management and rapid control of bleeding, including severe or
    brisk bleeding, and for use on active bleeding sites in trauma
    and surgical patients.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 54</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, we have entered into agreements with third parties
to collaborate in the development of product candidates with
potential applications in site-specific treatment of tissue and
tissue regeneration.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Passive immunotherapy products and product candidates</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We market and supply passive immunotherapy products in selected
geographic markets. These products provide passive immunity to
patients who lack the ability to generate an effective level of
antibodies on their own. Our passive immunotherapy products and
product candidates include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
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    IVIG, marketed in Israel primarily for the treatment of patients
    with immune deficiencies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    VIG, supplied under government contracts for the treatment of
    smallpox vaccine-related complications;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    HBIG, marketed in Israel for the prevention of reinfection of
    transplanted livers in patients with HBV;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    HT-VIG, a more concentrated form of VIG, which we are developing
    for the treatment of smallpox vaccine-related complications and
    treatment of smallpox;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    WNIG, which we are developing for the treatment of severe
    infection with West Nile virus.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
For the nine months ended September&nbsp;30, 2005, we recognized
$10.1&nbsp;million in revenues from commercial sales of passive
immunotherapy products.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>INDUSTRY OVERVIEW</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Biosurgical products market</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Biosurgical products are used for a wide variety of
applications, including wound closure. The wound closure market
consists of products used in various surgical procedures to
achieve hemostasis and wound healing. In its January 2005
report, MedMarket Diligence&#146;s industry analysts estimated
the worldwide wound closure market at approximately
$5.6&nbsp;billion. This market has two components, the first is
conventional hemostats, including sutures, staples, tapes and
other products that work through mechanical action. We estimate
the conventional hemostats market at approximately
$4.6&nbsp;billion. The other component of the wound closure
market is surgical sealants, including biosurgical hemostats and
synthetic glues. In its January 2005 report, MedMarket
Diligence&#146;s industry analysts estimated the worldwide
surgical sealants market at $1&nbsp;billion, with three million
procedures using surgical sealants annually. Surgical sealants
are used in a broad range of surgical settings to promote
hemostasis, close incisions and seal and secure skin flaps. End
users include surgeons in specialties such as orthopedic,
cardiothoracic, vascular, transplant, spinal and neurosurgery,
ear-nose-and-throat, cosmetic, and general surgery.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We compete in the advanced biosurgical hemostats market, which
we believe is the fastest growing segment of the surgical
sealant market, a part of the wound closure market.
Traditionally, biosurgical hemostats have included collagen,
cellulose, gelatin and other inert materials, which are derived
from natural sources and act by binding to tissue. Over time,
more technologically advanced biosurgical hemostats have been
developed that work by amplifying the body&#146;s natural
hemostatic processes. Advanced biosurgical hemostats are often
used in combination with conventional hemostats and traditional
biosurgical hemostats, depending on the type of surgery, the
amount of bleeding and the specific needs and preferences of
physicians. We believe that the advanced biosurgical hemostats
market in the U.S.&nbsp;currently represents approximately
$275&nbsp;million of the worldwide $1&nbsp;billion surgical
sealant market and, based on market trends, we expect these
markets to grow substantially.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

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<B> 55</B>
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<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Fibrin sealants are the most commonly used advanced biosurgical
hemostats. The major components of fibrin sealants are two
proteins, fibrinogen and thrombin, that are naturally found in
plasma. As part of the natural clotting process, thrombin
cleaves the fibrinogen molecule, transforming fibrinogen into
fibrin. Individual fibrin proteins then cross-link to each other
to form a mesh that traps red blood cells, forming a clot which
results in hemostasis. Fibrin sealants are commonly used, by
dripping or spraying, in a wide variety of surgical procedures
where significant blood loss is common, including
cardiovascular, lung and liver surgeries. However, there are no
surgical sealants currently indicated for the control of brisk
bleeding.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We believe that market penetration rates for fibrin sealants are
quite low compared to their potential for use in surgical
settings. According to 2004 Frost&nbsp;&#38; Sullivan reports,
penetration rates of tissue sealants, which include, fibrin
sealants and synthetic sealants, were only approximately at 13%
and 36% of potential surgical use in the U.S.&nbsp;in 2003 and
the EU in 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We believe that market penetration of existing fibrin sealants
has been limited by the following factors:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD width="1%"></TD>
    <TD width="99%"></TD>
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    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Ease-of-Use.</I> Many fibrin sealants take approximately 20
    minutes to prepare, thus limiting the availability of the
    product to a surgeon on an immediate basis. They can also be
    opaque, making it difficult for the surgeon to see the
    underlying surface after the sealant has been applied.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Efficacy.</I> Most fibrin sealants contain only purified
    fibrinogen and thrombin, and lack certain naturally occurring
    clotting-related proteins that aid in the natural clotting and
    healing process. We believe the lack of such proteins results in
    slower hemostasis and a clot that has less elasticity and
    adherence to tissue.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, certain safety concerns related to the use of
animal-derived components, due to the risk of severe immune
reaction upon re-exposure to animal-derived components, and the
possible transmission of disease, have been associated with the
use of fibrin sealants. We believe these limitations create
market opportunities for new products that provide solutions in
these areas.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Passive immunotherapy industry</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Passive immunization occurs when a patient is supplied with
antibodies derived from the plasma of donors. Passive
immunotherapy can provide ongoing protection and treatment to
patients with immune deficiencies by providing them with the
spectrum of antibodies normally present in healthy adult human
plasma. When an infection is already present, hyperimmune
products, which contain high levels of antibodies specific to
the pathogen causing that infection, can be used. The passive
immunotherapy market includes products directed to meeting the
ongoing needs of the medical community and products provided to
governments for stockpiling to meet potential bioterrorism and
existing and emerging infectious disease threats. We provide and
develop passive immunotherapy products that address these needs
and concerns. Our current immunotherapy products address a
variety of diseases and conditions.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Smallpox</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Smallpox is a serious disease with high mortality rates that was
declared globally eradicated in 1980. Recently, however, there
has been concern that the smallpox virus may be used as a
bioweapon. In response to this concern, governments have begun
to stockpile smallpox vaccine and VIG. The smallpox vaccine is
made using a live vaccinia virus, which is closely related to,
but not nearly as virulent as, the smallpox virus. Because the
smallpox vaccine is made from live viruses, a small percentage
of vaccinated individuals develop complications. VIG is used to
treat these complications. An industry analysis prepared for us
by the Frankel Group in June 2005 estimated that the combined
U.S. and EU government expenditure for VIG and HT-VIG will be
approximately $435&nbsp;million in 2007.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

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<B> 56</B>
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<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Hepatitis B virus</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
HBV, which attacks the liver, is a major global health concern
for which there is no known cure. HBV can cause lifelong
infection, scarring of the liver, liver cancer, liver failure
and death. Many patients with chronic HBV infection require a
liver transplant. After liver transplant surgery, there is a
high risk that the transplanted liver will be reinfected with
HBV, which can destroy the organ. To prevent reinfection, these
patients require lifelong treatment for HBV. HBIG is one of the
treatments used to prevent reinfection of the transplanted liver
in HBV-positive liver transplant patients.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>West Nile fever</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
West Nile fever is endemic in Africa and was first detected in
the U.S.&nbsp;in New York City in 1999. Since then, cases have
been reported in many states including California and Florida.
In the majority of infections with West Nile virus, a
patient&#146;s symptoms are limited to headache, fever, fatigue
and rash. However, in some cases it can infect the brain and the
central nervous system and become potentially fatal. There is
currently no treatment for West Nile fever other than
investigational anti-viral drugs.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Immune deficiency</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
IVIG has been in use since the 1980s to treat patients suffering
from primary immune deficiencies. IVIG contains the spectrum of
antibodies normally found in healthy adult human plasma. It is
used as replacement antibody therapy, both prophylactically and
in response to a specific infection for immuno-compromised
patients. These patients are characterized by the inability to
mount a normal antibody response against the viruses, bacteria
and other pathogens that routinely challenge an
individual&#146;s health.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OUR COMPETITIVE STRENGTHS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We believe that our key competitive strengths include:
</DIV>

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    <TD width="1%"></TD>
    <TD width="99%"></TD>
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<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Commercial Application of our Protein Purification Technology
    and Know-How.</I> Our core competency is applying our
    proprietary protein purification technology and our
    manufacturing know-how to develop and commercialize
    protein-based, plasma-derived products. Using this technology,
    we purify proteins from plasma while maintaining their natural
    structure to preserve their full range of biological activities.
    We have years of experience in employing our technology on a
    commercial scale and utilizing our manufacturing know-how in
    sourcing and selecting our raw materials. This allows us to
    select raw materials containing the highest level of proteins
    and antibodies and to efficiently produce our products and
    product candidates. In addition, we utilize the same technology
    across our biosurgical and passive immunotherapy product lines,
    thereby generating economies of scale by allowing us to
    manufacture different products in the same plant.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Easy-to-Use, Effective and Safe Products.</I> We apply our
    protein purification technology and manufacturing know-how to
    provide <FONT style="white-space: nowrap">easy-to</FONT>-use,
    safe and effective products to hospitals and clinics. We believe
    Crosseal/ Quixil has several competitive advantages over other
    liquid fibrin sealants on the market. It is readily available
    for spraying and dripping because it can be prepared from thawed
    product in approximately one minute in the operating room; it
    results in a clot that we believe has better adherence to tissue
    and greater elasticity; it avoids the possibility of an adverse
    reaction associated with bovine proteins because it contains no
    animal-derived components; and it can be refrigerated in a
    liquid form, thereby avoiding waste of unused product, for up to
    30&nbsp;days after thawing. Likewise, our HT-VIG product
    candidate is designed to be delivered in a single, small-volume
    vial or pre-filled syringe for faster administration by
    non-specialized medical personnel.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Flexible and Scaleable Manufacturing Capability.</I> We
    capitalize on the versatility of our protein purification
    technology and the depth of our manufacturing know-how to
    deliver products to</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

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<B> 57</B>
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<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD></TD>
    <TD align="left">
    markets where we have identified unmet needs that match our
    field of expertise. In addition, the design of our manufacturing
    facility allows us to accommodate different volume production
    batches, thus enabling us to efficiently produce the various
    quantities required by our customers. For example, our
    small-volume batch production capabilities enable us to rapidly
    address emerging market needs and capitalize on these
    opportunities.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Broad Collaboration with Ethicon.</I> Our broad collaboration
    with Ethicon provides several benefits. Through this
    relationship we have gained access to their extensive sales,
    distribution and marketing infrastructure for our biosurgical
    products and product candidates, which would be costly for us to
    build independently. We also benefit from their technological
    and financial support in research and clinical development of
    our biosurgical product candidates. Together with Ethicon, we
    are developing four new product candidates, including our
    hemostatic bio-device.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OUR PROTEIN PURIFICATION TECHNOLOGY</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our proprietary protein purification technology includes both
chemical and physical processes designed to purify proteins from
human plasma or plasma fractions while maintaining their natural
structure to preserve their full range of biological activities.
This technology is used to manufacture our biosurgical and
passive immunotherapy products and product candidates. We can
employ this technology on a commercial scale to either isolate
proteins of interest or remove unwanted proteins from raw
materials such as human plasma or plasma fractions. Both the
remaining plasma fractions and the proteins we selectively
remove can be used in our products and product candidates. We
utilize a multi-step biochemical separation process, which
includes binding a synthetic chemical to the protein that is to
be separated from the plasma, separating the complex from the
plasma and then disbanding the protein from that chemical. This
process uses novel reagents, including a resin that we use for
protein removal, and takes place under highly controlled
temperature, pH and manufacturing flow levels, which vary for
each of the proteins that we select.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We use our purification technology to produce our fibrin
sealants, including Crosseal/ Quixil, which is comprised of
thrombin and BAC. BAC contains naturally occurring
clotting-related proteins, including fibrinogen, Factor XIII,
Factor VIII, fibronectin and van Willebrand factor antigen,
which we believe lead to a faster and more efficient clotting
and healing process. This suite of proteins is not present in
other fibrin sealant products because they use purified
fibrinogen. Moreover, our manufacturing process allows this
suite of proteins to interact in the vial, rather than at the
later stage of application to the wound. We believe that this
interaction in the BAC leads to the clot forming more
effectively when thrombin is added to BAC than when thrombin is
added to purified fibrinogen. Further, we believe that the
resulting clot has greater elasticity and adherence to tissue.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We seek to adapt our purification process to expand the market
opportunities for our products. For example, all currently
marketed liquid fibrin sealants, including Crosseal/ Quixil,
contain a stabilizing agent to prevent proteases present in
plasma from dissolving the clot. The presence of a stabilizing
agent has prevented our fibrin sealant from being used in
neurosurgery. Therefore, we have designed a process to remove
these proteases from our second generation BAC, so that BAC II
does not require a stabilizing agent. As a result, we believe
that we can expand the indication for our second generation
fibrin sealant, Crosseal II/ Quixil&nbsp;II, to include
hemostasis in neurosurgery, subject to regulatory approval.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, the manufacturing process for our biosurgical and
passive immunotherapy products uses multiple steps designed to
remove and inactivate pathogenic viruses that may be found in
human plasma. We purchase plasma and plasma fractions from
licensed collection centers, which collect plasma from screened
donors. It is, however, possible that viruses or bacteria could
be present in the plasma we use to produce our products. To
address this safety issue, the components of our products
</DIV>

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<B> 58</B>
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<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
and product candidates undergo a rigorous viral inactivation
process known as solvent detergent, or SD, inactivation. SD
inactivation destroys major blood-borne viruses such as HIV, HBV
and hepatitis&nbsp;C. This step is followed by either
pasteurization, in the case of BAC, or a proprietary
nanofiltration process, in the case of thrombin, to disable or
remove viruses. We believe this multi-step process provides a
high margin of safety for our products and product candidates.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OUR PRODUCTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We utilize our proprietary protein purification technology and
manufacturing know-how to develop biosurgical and passive
immunotherapy products derived from human plasma. Our
biosurgical product line includes products and product
candidates used or intended to be used for hemostasis and other
surgical applications. Our passive immunotherapy product line
includes antibody-rich products and product candidates for the
treatment of immune deficiencies and infectious diseases,
including potential biodefense applications. In each of our
product lines, we are developing novel and
<FONT style="white-space: nowrap">easy-to</FONT>-use products
that address unmet market needs.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Biosurgical products and product candidates</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our currently marketed biosurgical product is Crosseal/ Quixil,
which is used for hemostasis in surgical procedures. It is sold
in the U.S., the EU and several other European countries under a
distribution and supply agreement we have with Ethicon, and in
several other countries directly by us or through local
distributors. We are developing, in collaboration with Ethicon,
several other biosurgical product candidates.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 59</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table summarizes certain information regarding our
biosurgical products and product candidates:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="23%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Product</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" nowrap><B>Status</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" nowrap><B>Indication</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" nowrap><B>Collaborator</B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Crosseal/ Quixil</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Commercially available in the U.S., the EU, several other
    European countries, Mexico and Israel</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Adjunct to hemostasis in liver surgery in the U.S.<BR>
    <BR>
    Adjunct to hemostasis for general surgical use in Germany, UK,
    France, Italy, Brazil and Mexico</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Currently marketed through Ethicon in the U.S. and the EU</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Adjunct to hemostasis in liver and orthopedic surgeries in
    certain EU</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    countries and Israel</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Crosseal&nbsp;II/Quixil&nbsp;II</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Phase&nbsp;III clinical trial for hemostasis in peripheral
    vascular surgery, as part of approval as an adjunct to
    hemostasis for general surgical use, in the U.S. and the EU</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Adjunct to hemostasis for general surgical use in the U.S. and
    the EU</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Under development with Ethicon</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Hemostatic bio-device</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Pre-clinical tests</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    For the management and rapid control of bleeding, including
    severe or brisk bleeding, and for use on active bleeding sites,
    in the U.S. and the EU</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Under development with Ethicon</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    Thrombin stand-alone and flowable thrombin</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Thrombin stand-alone: Phase&nbsp;III clinical trial in the U.S.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Adjunct to hemostasis for general surgical use, primarily for
    use in neurosurgery, in the U.S.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Under development with Ethicon</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Flowable thrombin: expect to file 510(k) application after
    thrombin stand-alone is approved in the U.S.&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 60</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Crosseal/ Quixil</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Crosseal/ Quixil is our marketed fibrin sealant product used for
hemostasis in surgical procedures. Ethicon has been marketing
Quixil as an adjunct to hemostasis in liver and orthopedic
surgeries in the EU and several other European countries since
2003 and Crosseal as an adjunct to hemostasis in liver surgery
in the U.S.&nbsp;since 2004. In addition, we have been marketing
Quixil directly in Israel since 1998 for similar indications and
through local distributors in Mexico since 2000 as an adjunct to
hemostasis for general surgical use. We recently received
approval for Quixil as an adjunct to hemostasis for general
surgical use, and regulatory licenses have been issued for this
indication by Germany, the United Kingdom, France, Italy and
Brazil. Crosseal/ Quixil is contraindicated for neurosurgery.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our Crosseal/ Quixil contains BAC, which includes a suite of
proteins that we believe leads to a faster and more efficient
clotting and healing process. This suite of naturally occurring
proteins is not present in other fibrin sealant products because
they use purified fibrinogen. Our manufacturing process allows
these proteins in BAC to interact in the vial, rather than at
the later stage of application to the wound. We believe that
this interaction in the BAC leads to the clot forming more
effectively when thrombin is added to BAC than when thrombin is
added to purified fibrinogen. Further, we believe that the
resulting clot has greater elasticity and adherence to tissue.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We believe that Crosseal/ Quixil has several competitive
advantages over other liquid fibrin sealants on the market:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Ease-of-use.</I> Fibrin sealants are used in time-critical
    situations and therefore must be easy to use and readily
    available for spraying and dripping. Our Crosseal/ Quixil is
    sold as a frozen liquid and requires approximately one minute
    preparation time in the operating room after thawing. Many other
    fibrin sealants require approximately 20 minutes to prepare and
    cannot be prepared in advance because the fibrinogen breaks down
    after four hours at room temperature. In addition, unlike most
    other fibrin sealants, Crosseal/ Quixil is transparent, making
    it easy for the surgeon to see the underlying surface after the
    sealant has been applied to determine whether hemostasis has
    been achieved.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Efficacy.</I> We believe that the naturally occurring suite
    of proteins in the BAC in Crosseal/ Quixil results in a clot
    that has better adherence to tissue and greater elasticity.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Safety.</I> Crosseal/ Quixil is the first, and currently the
    only, commercially available liquid fibrin sealant product that
    does not contain animal-derived components, thereby avoiding the
    possibility of an adverse reaction associated with exposure to
    bovine proteins contained in other commercially available fibrin
    sealants.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Economy.</I> Crosseal/ Quixil can be refrigerated in a liquid
    form for up to 30 days after thawing. It comes in one, two or
    five milliliter vials. In addition, the product in unopened
    vials is stable at room temperature for up to 24&nbsp;hours.
    Crosseal/ Quixil can also be kept frozen for up to two years.
    This design and packaging allow for tailored application without
    waste of unused product.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In 2004, Frost&nbsp;&#38; Sullivan awarded the Product
Differentiation Leadership Award to Ethicon as a result of
Ethicon&#146;s inclusion of Quixil in its product portfolio. The
award is presented each year to a company that best demonstrates
the ability to develop or advance products with more innovative
capabilities than competing companies and products. According to
Frost&nbsp;&#38; Sullivan, such innovation is expected to
significantly contribute to the industry in terms of product
performance and rate of technical change.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In 2000, we completed a multi-center Phase&nbsp;III clinical
trial with Crosseal/ Quixil in 121&nbsp;patients in the U.S. and
United Kingdom. This study showed that Crosseal/ Quixil
significantly reduced the time required to achieve hemostasis in
liver surgery compared to other fibrin sealants and that patients
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 61</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
treated with Crosseal/ Quixil experienced significantly fewer
postoperative complications compared to patients treated with
other fibrin sealants.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
For the nine months ended September&nbsp;30, 2004 and 2005, we
recognized $3.4&nbsp;million and $5.0&nbsp;million in revenues,
respectively, from our direct commercial sales and sales to
Ethicon and our other distributors of Crosseal/ Quixil,
including revenues recognized from upfront fees and milestone
payments. For the years ended December&nbsp;31, 2003 and 2004,
we recognized $2.5&nbsp;million and $5.2&nbsp;million in
revenues, respectively, from our direct commercial sales and
sales to Ethicon and our other distributors of Crosseal/ Quixil,
including revenues recognized from upfront fees and milestone
payments.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Crosseal&nbsp;II/ Quixil&nbsp;II</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
We are developing our second generation fibrin sealant,
Crosseal&nbsp;II/ Quixil&nbsp;II, in collaboration with Ethicon.
It differs from our current fibrin sealant in that it
incorporates BAC&nbsp;II, and as a result, does not require a
stabilizing agent. The presence of this stabilizing agent
resulted in Crosseal/ Quixil being contraindicated for
neurosurgery. We expect that this contraindication will be
removed upon approval of Crosseal&nbsp;II/ Quixil&nbsp;II. We
are seeking to obtain approval for Crosseal&nbsp;II/
Quixil&nbsp;II as an adjunct to hemostasis for general surgical
use in the U.S. and the EU. To obtain this approval for
Crosseal&nbsp;II/ Quixil&nbsp;II in the U.S., we must
demonstrate effective hemostasis in two types of surgical
procedures.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In July 2005, we began a multi-center Phase&nbsp;III clinical
trial with Crosseal II/ Quixil&nbsp;II for hemostasis in
peripheral vascular surgery in 150&nbsp;patients in the U.S. and
the EU, of which we have enrolled approximately 80 as of
November 2005. We expect to add a multi-center Phase&nbsp;III
trial with Crosseal&nbsp;II/ Quixil&nbsp;II for hemostasis in
kidney surgery in the U.S.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Hemostatic bio-device</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
We are developing in collaboration with Ethicon, a novel
hemostatic bio-device that builds on our Crosseal&nbsp;II/
Quixil&nbsp;II technology. This hemostatic bio-device product
candidate is designed for the management and rapid control of
bleeding, including severe or brisk bleeding, and for use on
active bleeding sites. This next generation biosurgical product
combines medical device components with biological components.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Brisk bleeding is a serious concern in surgical patients. This
type of bleeding is difficult to control and is characterized by
fast flow and high pressure. There is no surgical sealant
currently marketed to induce the rapid formation of a clot at a
brisk bleeding site because the volume and pressure of the
bleeding in these situations displaces the clot formed with
traditional fibrin sealants. Our hemostatic bio-device product
candidate is designed to address this unmet market need.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our hemostatic bio-device product candidate is comprised of our
BAC&nbsp;II and thrombin embedded in a biodegradable device. The
hemostatic bio-device product candidate is designed to combine
the functions of mechanical sealing and hemostasis by providing
a biodegradable device on which a clot can form and be
maintained to stop the bleeding without any other action.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are conducting pre-clinical tests with this product candidate
in laboratory animals. Upon completing these tests, we expect to
conduct a Phase&nbsp;I/ II clinical pilot study in Israel, which
will be followed by clinical trials in the U.S.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Thrombin stand-alone and flowable thrombin</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
We are developing our thrombin stand-alone product with Ethicon
for general surgical use, primarily for use in neurosurgery.
Consistent with our strategy of developing product extension
candidates to address market demand, our thrombin stand-alone
product candidate is a product extension of our fibrin sealant.
It is intended for cases, such as certain types of neurosurgery,
where the physician
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 62</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
desires a more gradual onset of clotting than that provided by
standard fibrin sealants. Our thrombin stand-alone product
candidate is a liquid that is poured directly on the site or
onto an applicator device. Currently available thrombin
stand-alone products use bovine thrombin. Our thrombin
stand-alone product candidate, which is derived from human
plasma, is designed to provide effective hemostasis without the
risk of adverse reactions associated with bovine thrombin. We
are conducting a multi-center Phase&nbsp;III clinical trial with
thrombin stand-alone as an adjunct to hemostasis for general
surgical use in approximately 300&nbsp;patients in the U.S.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are also developing a flowable thrombin product, which is a
product extension that combines our thrombin stand-alone product
candidate with a medical device provided by Ethicon. This
product candidate is designed to be delivered as part of a
complete and
<FONT style="white-space: nowrap">easy-to</FONT>-use application
kit. It is being developed primarily for cases in which more
control in application is desired. We plan to file a 510(k)
Premarket Notification with the FDA for our flowable thrombin
after obtaining approval of our thrombin stand-alone product
candidate in the U.S.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Site-specific treatment of tissue and tissue regeneration</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
We seek to expand the commercial application of our protein
purification technology and our manufacturing know-how for
fibrin sealants by offering our expertise to select companies
that are developing products in the areas of site-specific
treatment of tissue and tissue regeneration. The focus of these
collaborations is the development of products that combine our
fibrin sealant with other components and are designed to be
introduced through minimally invasive procedures.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In June 2005, we entered into a manufacturing and supply
agreement with Aeris Therapeutics, Inc., or Aeris. Under this
agreement, we supply Aeris with our fibrin sealant for
pre-clinical, clinical and commercial use worldwide. As part of
the agreement, Aeris is developing a product that uses our
fibrin sealant for the treatment of severe emphysema, a disease
which results in progressive over inflation of parts of the
lungs, causing shortness of breath and poor respiratory
function. Aeris&#146;s product candidate combines our fibrin
sealant with other therapeutic components, and is administered
in a minimally invasive procedure to the most damaged
over-inflated regions of lung to improve breathing function by
gradually shrinking these treated areas. Aeris plans to conduct
Phase&nbsp;II clinical trial in 2006.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In April 2005, we entered into a joint development and license
agreement and a supply and distribution agreement with Symphony.
Under the development and license agreement, we are jointly
developing a product kit comprised of our fibrin sealant and an
application device and other components supplied by Symphony.
This product combination is designed to reduce fibrillation
abnormalities after coronary artery bypass graft surgery by
injecting our fibrin sealant into the fat pads surrounding the
heart. Symphony is conducting a Phase&nbsp;I clinical trial with
this product candidate in Germany.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Passive immunotherapy products and product candidates</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We produce and sell three passive immunotherapy products. We
supply VIG under government contracts for the treatment of
smallpox vaccine-related complications. We market IVIG in Israel
primarily for the treatment of patients with immune deficiency.
We also market HBIG in Israel for the prevention of reinfection
of transplanted livers with HBV. In addition, we are developing
several other passive immunotherapy product candidates.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 63</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table summarizes certain information regarding our
passive immunotherapy products and product candidates:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="24%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="21%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Product</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" nowrap><B>Status</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" nowrap><B>Indication</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" nowrap><B>Target market</B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    VIG</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Sales in Israel and two European countries</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Smallpox vaccine-related complications</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Governments</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    HT-VIG*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    In development</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Smallpox vaccine-related complications and treatment of smallpox</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Governments</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    IVIG</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Commercial sales in Israel</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Immune deficiency</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Medical community</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    HBIG</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Commercial sales in Israel</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Prevention of HBV reinfection of transplanted liver</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Medical community</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    WNIG*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Phase&nbsp;I/II clinical trial in the U.S.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    West Nile fever</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Medical community</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><I>*&nbsp;</I></TD>
    <TD align="left">
    <I>We have received NIH grants for the development of these
    product candidates.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>VIG</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
VIG is a product that contains antibodies specific to vaccinia.
It is designed to treat smallpox vaccine-related complications.
These complications range from localized adverse reactions to
inflammation of the brain.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Recent concern that smallpox virus may be used as a bioweapon
has driven governments to stockpile smallpox vaccines and VIG.
We supply VIG to government organizations. To date, we have sold
VIG to three governments, including to the United Kingdom
Department of Health under a contract we were awarded by the
United Kingdom in December 2005. Under this agreement, we expect
to receive approximately $20&nbsp;million through the third
quarter of 2006.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>HT-VIG</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
HT-VIG is a more concentrated form of VIG and can be used in
smaller volumes for the same indication and we believe can also
be used for the treatment of smallpox. VIG must be dispensed
intravenously due to the large volume of VIG that is required
for effective treatment. As a result, it must be administered in
a clinic only by specialized personnel and can take up to an
hour. In addition to intravenous administration, the smaller
volume of HT-VIG that we believe will be needed for effective
treatment can be administered in a single injection
intramuscularly, allowing non-specialized medical personnel to
treat more patients in urgent situations.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We produce HT-VIG using our proprietary HT technology. We expect
to begin testing HT-VIG in animals in the first quarter of 2006
to confirm the comparability of HT-VIG to our VIG, which will
allow us to provide the information required by the potential
purchasers of this product. Government purchasers may require
additional testing to meet the requirements of a specific bid
request. In 2003, the NIH awarded us a $3.0&nbsp;million grant
for the development of this product candidate, all of which has
been funded.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>IVIG</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
IVIG is a product that contains the spectrum of antibodies
normally present in healthy adult human plasma. It is primarily
used to provide ongoing treatment for primary immune
deficiencies by providing a broad selection of antibodies that
mimic a healthy immune system.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 64</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We market IVIG in Israel for immune deficiency indications. For
the nine months ended September&nbsp;30, 2004 and 2005, we
recognized $6.3&nbsp;million and $7.8&nbsp;million in revenues,
respectively, from sales of IVIG in Israel. For the years ended
December&nbsp;31, 2002, 2003 and 2004 we recognized
$6.5&nbsp;million, $7.5&nbsp;million and $8.7&nbsp;million in
revenues, respectively, from sales of IVIG in Israel.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>HBIG</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
HBIG is a product that contains antibodies specific to HBV. HBV
can cause lifelong infection, scarring of the liver, liver
cancer, liver failure and death. Many patients with chronic HBV
infection require a liver transplant. Because HBV can reside in
tissue other than the liver, there is a high risk that the liver
of these transplant patients will be reinfected with HBV, which
can destroy the transplanted liver. To prevent reinfection,
these patients require lifelong treatment for HBV. HBIG is one
of the treatments used to prevent reinfection of the
transplanted liver.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We market HBIG in Israel for the prevention of reinfection of
transplanted livers with HBV. For the nine months ended
September&nbsp;30, 2004 and 2005, we recognized
$1.5&nbsp;million and $1.9&nbsp;million in revenues,
respectively, from sales of HBIG in Israel.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>WNIG</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
WNIG is a product that contains antibodies specific to the West
Nile fever virus. We are developing WNIG to treat severe
infection with the West Nile virus and we have received orphan
drug designation for WNIG from the FDA for this indication. The
NIH is currently conducting a multi-center Phase&nbsp;I/ II
clinical trial in the U.S.&nbsp;for the treatment of severe West
Nile virus infection with our WNIG product candidate in
approximately 100&nbsp;patients, of which they have enrolled 35
to date. In September 2005, we received a grant of
$1.0&nbsp;million from the NIH, of which $0.5&nbsp;million has
been funded to date for the development of this product
candidate.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OUR BUSINESS STRATEGY</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our strategy is to utilize our core competencies to develop and
market innovative products that address important unmet medical
needs. We aim to make our biosurgical products the treatment of
choice in surgical hemostasis, and our passive immunotherapy
products the treatment of choice for immune deficiencies and for
existing and emerging infectious disease, including potential
bioterrorism threats. To achieve these goals, our strategy
includes the following key elements:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Focus on Additional Indications for Existing Products and
    Product Extensions.</I> In our biosurgical product line, we
    intend to focus on developing and commercializing our products
    for new indications and creating product extensions to address
    the unmet needs of the medical community. For example, we
    identified the need for a hemostatic product to control severe
    or brisk bleeding and are developing our hemostatic bio-device
    product candidate with Ethicon to meet that need. In addition,
    we plan to enhance our biosurgical product offering to meet
    surgeons&#146; needs and preferences by developing two product
    extension candidates, our thrombin stand-alone and flowable
    thrombin. In our passive immunotherapy product line, we intend
    to further refine our hyperimmune capabilities and exploit our
    manufacturing know-how to rapidly commercialize products that
    address existing and emerging infectious disease, including
    potential bioterrorism threats. For example, we identified the
    need for a treatment for West Nile virus infection and are
    developing a product candidate that entered clinical trials in
    2003, just three years after the disease was first detected in
    the U.S.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Develop and Launch Products that Integrate Biological
    Components and Medical Devices for the Biosurgical Market.</I>
    We intend to apply our protein purification technology and our
    understanding of device-biological combinations to develop and
    launch novel combination products. We intend to design
    combination products that are more effective in wound closure
    and healing, easier to apply</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 65</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    and target new indications, such as brisk bleeding. Our
    hemostatic bio-device, comprised of our BAC&nbsp;II and thrombin
    embedded in a biodegradable device, is our first product
    candidate in this area.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Expand Our Core Technology.</I> We intend to expand our core
    technology outside the area of protein purification through
    research, internal development and collaborations that will
    allow us access to new markets and indications. We expect our
    technology expansion to include both biologics and synthetics
    targeting healing, site-specific drug delivery and tissue
    regeneration. We intend to continue our efforts to identify
    opportunities to access new and complementary technologies
    through potential acquisitions, licensing, joint ventures and
    collaborations with universities and business organizations. We
    believe that this approach will allow us to efficiently develop
    a broad technology base from which we can deliver a greater
    variety of novel and complementary products.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    <I>Utilize Strategic Collaborations to Develop New Products and
    Enter New Geographic Markets.</I> We intend to strengthen our
    product pipeline and marketing efforts by capitalizing on the
    technology and worldwide and local marketing and sales
    infrastructure of third party collaborators. In 2005, we entered
    into collaboration agreements with Aeris and Symphony for the
    use of our fibrin sealant for development of product candidates
    for site-specific treatment of tissue and tissue regeneration.
    Also, we intend to increase our global presence through
    collaborations by expanding our sales and marketing efforts to
    various countries, including Japan, which we believe is
    currently the world&#146;s largest market for fibrin sealants.
    Our objective in our collaborations is to diversify our
    development risk, develop multiple products with limited
    financial risk, efficiently market our products and quickly
    establish significant market share in new territories.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>RESEARCH AND DEVELOPMENT</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We conduct research and development in our biosurgical product
line, focusing on developing products with characteristics that
satisfy surgeons&#146; unmet needs. In our passive immunotherapy
product line, we are directing our efforts to developing
products that address immune deficiencies and existing and
emerging infectious diseases, including potential bioterrorism
threats. We have 24 employees directly involved in research and
development in Israel. Our location in Israel allows us access
to research groups in Israel, such as Technion-Israel Institute
of Technology, the Weitzman Institute of Science and Tel Aviv
University. In addition, we collaborate with the NIH in the U.S.
and Paul-Ehrlich-Institut in Germany.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our research and development activities and the clinical trials
for our product candidates are funded by operations as well as
financial support from our collaborators, which include
commercial and government entities. Our research and
development, clinical and regulatory expenses together with the
cost incurred in connection with funded research and development
were $3.4&nbsp;million, $3.4&nbsp;million and $5.1&nbsp;million
for the years ended December&nbsp;31, 2002, 2003 and 2004,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As of September&nbsp;30, 2005, we had received grants from the
NIH in connection with the development of our HT-VIG and WNIG
product candidates. Generally we have the right to patent any
technologies developed from government grants, subject to the
U.S.&nbsp;government&#146;s right to receive a royalty-free
license for federal government use and to require licensing to
others in certain circumstances.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>SALES AND MARKETING</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Crosseal/ Quixil is currently marketed and distributed in the
EU, certain other European countries and the U.S. through
Ethicon, our exclusive distributor in those territories. In
addition, Quixil is currently marketed in Mexico through a local
distributor. Other products being developed under the
development agreement with Ethicon, such as Crosseal&nbsp;II/
Quixil&nbsp;II, the thrombin products and the hemostatic
bio-device, will also be exclusively distributed by Ethicon in
those territories for their respective indications.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 66</B>
</DIV>
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<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, we intend to expand our sales and marketing efforts
into Japan. Further, we plan to collaborate with Ethicon to
promote the usage and acceptance of our fibrin sealants.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We directly market our Quixil, IVIG and HBIG in Israel. In
December 2005, we were awarded a contract by the United Kingdom
government to provide VIG.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>MANUFACTURING AND PRODUCTION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We currently manufacture our biosurgical and passive
immunotherapy products in our facility near Tel&nbsp;Aviv,
Israel. Our manufacturing facility layout and design, batch size
spectrum and the application of our technology across products
in both of our product lines gives us the flexibility to
manufacture a variety of products, using our manufacturing lines
for the manufacture of more than one product. In addition, our
variable production batch size allows us to more easily
<FONT style="white-space: nowrap">scale-up</FONT> our laboratory
process to a commercial manufacturing level. This reduces the
variation between our research and manufacturing batch sizes,
which increases product equivalency between these two batch
sizes. The ability to produce largely equivalent laboratory and
commercial batch sizes reduces the probability of the FDA
requiring additional clinical testing to demonstrate
equivalence. This versatility allows us to increase the total
output of our manufacturing facility, compared to the use of a
&#147;product dedicated line,&#148; reduce the transition time
from laboratory to commercial manufacturing and achieve
manufacturing efficiency by matching unit output for the
Crosseal/ Quixil components, BAC and thrombin.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We believe that our current production capacity is sufficient to
meet our present output requirements. However, we intend to
expand our production operations by building a new production
facility in Jerusalem, Israel which we expect to complete in
2009. We currently expect that the additional production
capacity provided by this new facility will allow us to meet our
supply requirements thereafter.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The various regulatory requirements to which we are subject,
such as the regulations of the FDA, the EMEA and the Israeli
Ministry of Health, require us to adhere to cGMP. This standard
requires manufacturers to follow elaborate design, testing,
control, documentation and other quality assurance procedures
throughout the entire manufacturing process. Our facility was
inspected and approved in 2003 by the FDA. Prior to such
approval our plant was approved by the Medicines Control Agency,
now known as Medicines and Healthcare Products Regulatory
Agency, and the Israeli Ministry of Health as part of the
pre-market approval process for our products. We are also
subject to periodic reinspection of our facility.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our production process consists primarily of protein extraction
and purification, and includes various safety-enhancing
procedures, including SD virus inactivation, pasteurization and
proprietary nanofiltration.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The raw materials we use in our production processes consist
primarily of human plasma or plasma fractions, synthetic
materials and chemicals and other disposable materials. We
obtain plasma and plasma fractions from FDA-approved collection
centers in the U.S. and from Magen David Adom in Israel. We use
plasma for the manufacture of thrombin, IVIG and hyperimmunes
and, subject to manufacturing economics, we may prefer to use
plasma fractions for the manufacture of these and other
products. The decision to purchase plasma fractions as opposed
to plasma is driven both by the fact that we need only specific
components of plasma for the manufacture of our products, and
the fact that the costs for undertaking the initial purification
processes for plasma are currently higher for us than for other
companies such as plasma fractionators that focus on those
production steps.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 67</B>
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<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We purchase each of the following raw materials and disposables
for our marketed products from single suppliers:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    nanofiltration filters, which we use for virus removal and
    purchase from Asahi Kasei Pharma Corporation;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    a resin, which we use to remove plasminogen and produce
    BAC&nbsp;II and purchase from Amersham Biosciences AB;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    the specialized application device, which we sell as part of our
    Crosseal/ Quixil product package and purchase from
    PlastMed;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    tranexamic acid, which we use as a stabilizing agent in the
    current version of Crosseal/ Quixil and purchase from Daiichi
    Pharmaceuticals Co., Ltd.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In the event that any one of these supply arrangements or
agreements are terminated or the ability of any one of these
suppliers to perform under our agreements were to be materially
adversely affected, we anticipate that even if we are able to
locate, qualify and enter into an agreement with a new supplier,
it would take approximately six to twelve months to obtain
regulatory clearance before a new supplier could begin supplying
the relevant product to us. We have long-term agreements with
all of our sole suppliers, except for Daiichi Pharmaceuticals
Co., Ltd.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>MATERIAL AGREEMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Ethicon, Inc.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In September 2003, we entered into a development agreement and a
distribution and supply agreement with Ethicon, Inc., a Johnson
and Johnson company. In July 2004, we amended these agreements
to redefine some of the regulatory milestones that had not been
completed to date and to expand the territory in which Ethicon
is permitted to exclusively sell certain of our products (as
further discussed below) to include the U.S. and Canada.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Development agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
The development agreement requires us and Ethicon to use
commercially reasonable efforts to develop Crosseal&nbsp;II/
Quixil&nbsp;II, thrombin, the hemostatic bio-device and flowable
thrombin in accordance with a development plan approved by us
and Ethicon.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Ethicon is responsible for all of our reasonable development
costs, including costs related to clinical trials and regulatory
filing fees, as well as half of our personnel compensation
costs, incurred by us in connection with the development of the
products under the agreement. Ethicon is also responsible for
the purchase of capital equipment reasonably necessary to
conduct development under the agreement. If we decide to use any
equipment subsequent to the completion of such development, we
may purchase such equipment at fair market value.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Ethicon is obligated to make milestone payments to us upon the
earlier of the first commercial sale of a product developed
under the agreement or 45&nbsp;days after obtaining U.S.&nbsp;or
EU marketing clearance of each such product.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have agreed not to commercialize, without allowing Ethicon
the opportunity to participate in, any improvement to either
Crosseal/ Quixil or Crosseal II/ Quixil&nbsp;II in the
U.S.&nbsp;or Canada.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We and Ethicon granted each other royalty-free, non-exclusive
cross licenses to use the other party&#146;s intellectual
property rights necessary for the development work contemplated
under the agreement. Intellectual property arising from the
performance of each of our and Ethicon&#146;s obligations under
the agreement is owned by the party that developed the
intellectual property, and intellectual property
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 68</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
developed related to our products belongs to us and any
intellectual property related to Ethicon&#146;s products remains
theirs. Intellectual property that is developed jointly is owned
jointly. However, intellectual property related to the process
of integration of our products with the substrate to be included
in the hemostatic bio-device or the flowable thrombin; the
hemostatic bio-device or flowable thrombin or any improvement to
the hemostatic bio-device or flowable thrombin is owned jointly.
There is no obligation under the agreement to account for or to
obtain consent from us or Ethicon in order to exploit the
jointly owned intellectual property.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under this agreement, Ethicon is responsible for filing and
prosecuting patents for jointly developed intellectual property
related to the hemostatic bio-device and the flowable thrombin,
and we are responsible for filing and prosecuting patents for
jointly developed intellectual property related to
Crosseal&nbsp;II/ Quixil&nbsp;II, BAC&nbsp;II, thrombin and the
process for making the hemostatic bio-device and the flowable
thrombin. Additionally, all regulatory filings for products
developed under the agreement are owned by us, except that the
regulatory filings for the flowable thrombin are owned by
Ethicon.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The initial term of the agreement is until September 2013, but
is subject to earlier termination upon the termination of the
distribution and supply agreement, or the later of achievement
of and payment for all milestones and completion of any
agreed-upon improvements to products being developed under the
agreement. Additionally, the agreement may be terminated by
either party for material breach by, or upon the occurrence of a
bankruptcy event in relation to, the other party.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Distribution and supply agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Under the distribution and supply agreement, we granted to
Ethicon the exclusive right, in certain territories, to market,
sell and distribute Crosseal/ Quixil and other fibrin sealant
and hemostasis products that are being developed under the
development agreement in professional medical settings for
hemostasis and sealing indications (excluding dentistry
applications). Ethicon has agreed that we will be its exclusive
supplier of human plasma-derived hemostats and sealants for
these indications. The territories covered by this agreement are
the U.S. and Canada and all their territories and possessions,
the EU, Norway, Iceland, Liechtenstein and Switzerland,
excluding, in the case of Quixil, Portugal. Ethicon has a right
of first refusal with respect to any new territories into which
we may expand, and may expand into new territories upon written
notice to us of its intention to do so, in each case subject to
its obligation to pay for the necessary costs of obtaining
marketing approval in such territories. In consideration of this
exclusive arrangement, Ethicon paid us exclusivity fees, and
upon reaching certain milestones, we may receive further
payments.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Ethicon is obligated to pay us consideration based on the
quantity of Crosseal/ Quixil, Crosseal&nbsp;II/ Quixil&nbsp;II,
thrombin stand-alone and flowable thrombin that it purchases
from us in each quarter. The transfer price paid to us for the
products purchased in a quarter is calculated based on the
average price at which products are sold by Ethicon in that
quarter multiplied by a percentage that is fixed for each
specific product in the relevant year. The transfer price is
adjusted depending on the dollar amount and our scheduled
percentage of Ethicon&#146;s net sales during the quarter,
subject to specified minimum and maximum transfer price amounts.
The minimum transfer price is also subject to periodic
readjustments designed to preserve our gross profit margin for
the particular product in the event of regulatory changes that
cause an increase in the unit costs of our cost variables or in
our manufacturing costs for that product. These prices are also
subject to readjustment upon extraordinary increases in our raw
materials or supply costs. In each event, the extent of any
price increase is to be agreed upon between the parties.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The agreement provides for Ethicon to purchase minimum
quantities of our Crosseal/ Quixil, Crosseal&nbsp;II/
Quixil&nbsp;II and thrombin stand-alone. The minimum purchase
amounts are generally based on a percentage of the previous
year&#146;s sales of the relevant product by Ethicon. In the
event that Ethicon&#146;s sales of these products fall by a
specified percentage over two consecutive years, then we will
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 69</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
have the right to terminate the agreement with respect to such
products. If we fail to supply a specified minimum percentage of
the binding orders placed by Ethicon for our products within a
specific time period, we will be obligated to pay to Ethicon a
liquidated damages penalty.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are also obligated to supply Ethicon with certain specified
additional devices and product components on a non-exclusive
basis. Our obligation to supply these devices and components
relates to the same territory as in which any primary product
with which the device or component will be used or sold. The
agreement also requires Ethicon to provide certain materials for
use in connection with our fibrin sealant in some of the
products we are developing under the agreement.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are required to use commercially reasonable efforts to obtain
and maintain the necessary regulatory approval to market and
sell each product in accordance with the agreement, subject to
Ethicon&#146;s obligations to pay development and certain labor
costs and expenses. However, Ethicon is obligated to use
commercially reasonable efforts to conduct, at its expense, the
peripheral vascular surgery study for Quixil in the United
Kingdom and additional studies for an indication in addition to
the current liver surgery indication for Crosseal at up to three
sites in the U.S.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Ethicon is obligated to make certain milestone payments to us:
upon our receipt of FDA approval, prior to the end of fiscal
year 2007, for the commercial distribution of Crosseal in the
U.S.&nbsp;for an indication in addition to liver surgery, and
achievement of specified volume sales of Quixil by Ethicon in
2006 or 2007; and upon achievement of specified volume sales of
Crosseal/ Quixil and Crosseal II/ Quixil&nbsp;II by Ethicon in
2008, 2009 or 2010.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The initial term of the agreement is until September 2013.
Ethicon, at its option, may renew the agreement for an unlimited
number of additional three year periods, exercisable upon at
least 90&nbsp;days&#146; written notice prior to the date of
termination of the then current term. Ethicon may terminate the
agreement at will at any time after March&nbsp;23, 2006 by
providing us with at least six months prior written notice,
paying all development costs and one-half of our labor costs
incurred during the six month notice period and making an early
termination payment. Ethicon may also terminate the agreement if
we fail to supply specified minimum percentages of the binding
orders placed by Ethicon for our products. We may terminate the
agreement if Ethicon breaches our exclusive supply arrangement
or fails to make certain minimum purchases. The agreement may
also terminate upon material breach or non-compliance with
applicable law if the breach is not cured, or upon bankruptcy or
similar event.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Medimop Medical Projects Ltd.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under the agreement between us and Medimop Medical Projects
Ltd., dated June&nbsp;26, 2005, we have a perpetual, exclusive,
worldwide, royalty-free, fully-paid license to use, manufacture,
exploit, modify, create derivative works of, market, distribute,
sell and exploit all intellectual property rights related to the
mix-ject device, which is part of our application device for
Crosseal/ Quixil and Crosseal&nbsp;II/ Quixil&nbsp;II.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PlastMed Ltd.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
On March&nbsp;25, 2004, we entered into a manufacturing and
supply agreement with PlastMed, appointing PlastMed as our
exclusive manufacturer and supplier of the Crosseal/ Quixil
application device. This agreement was amended on June&nbsp;30,
2004 in connection with the financing of certain material
required for manufacturing the device.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our agreement with PlastMed expires in March 2009. Under the
agreement, PlastMed agreed to manufacture the application device
exclusively for us during the term of the agreement and for a
period of 36&nbsp;months thereafter. In return, we agreed to
order at least 80% of all of our requirements
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 70</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
for the application device from PlastMed during the term of the
agreement. In addition, we agreed not order the supply or
manufacture of the application device, or any other product or
device, from any of PlastMed&#146;s subcontractors or suppliers
for a period of four years after the termination of the
agreement.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under the terms of the agreement, with PlastMed&#146;s
assistance, we are required to obtain regulatory approval in the
U.S. and the EU for the manufacture of the application device.
We also agreed to indemnify PlastMed if the application device
is supplied in and causes harm or damage in a territory where no
applicable laws, statutes or orders exist as to its proper
design, construction and quality.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Upon termination of the agreement, subject to certain
conditions, PlastMed has a right of first refusal in the event
that we seek to order additional quantities of the application
device from another supplier. Upon exercise of this right, the
agreement will be automatically renewed for an additional period
of one year.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>United Kingdom Department of Health</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In December 2005, we were awarded a contract by the United
Kingdom to provide VIG to the United Kingdom Department of
Health. Under our agreement with them, we expect to receive
approximately &#163;11.5&nbsp;million (approximately
$20&nbsp;million) through the end of the third quarter of 2006.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The term of the agreement expires in December 2006. The
Department of Health has the right to extend the term for one
additional year, upon written notice to us given no later than
three months before the agreement would otherwise expire. The
Department of Health has the right to terminate the agreement if
we fail to deliver VIG within the time stated or agreed upon. In
addition, the Department of Health may at any time terminate the
agreement by giving three months written notice to us.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Magen David Adom in Israel</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
On September&nbsp;5, 1995, we entered into an assignment
agreement with Octapharma A.G. and Magen David Adom, or MDA, an
Israeli not-for-profit organization. Under this agreement,
Octapharma A.G. assigned all its rights and obligations to us
under its know-how, license and manufacturing contract, dated
September&nbsp;2, 1990 with MDA. On April&nbsp;17, 1997, we
entered into a lease and operation agreement with MDA, which
terminated and replaced in its entirety our outstanding
know-how, license and manufacturing contract with MDA. On
July&nbsp;20, 2000, this lease and operation agreement was
terminated in its entirety and replaced by a new lease and
operation agreement, which was subsequently amended on
December&nbsp;16, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under our lease and operation agreement with MDA, as amended, we
lease our manufacturing facility and some machinery and
equipment from MDA and purchase plasma from MDA under certain
terms. In addition, we have agreed, upon the termination of our
agreement, to grant MDA a license to manufacture certain
licensed products, which include Factor VIII, albumin and IVIG,
as well as other new products, then registered in Israel, and
market and sell these products only in Israel, as described
below.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our agreement with MDA terminates on December&nbsp;31, 2010.
After December&nbsp;31, 2007, we have the right to terminate
this agreement by giving 12&nbsp;months advance written notice
to MDA. If we exercise this early termination right, we will be
required to pay MDA an amount equal to $500,000&nbsp;per year,
or such pro rata amount for a part of a year, from the date of
termination until December&nbsp;31, 2010. In addition, subject
to certain conditions, we have a right to terminate this
agreement if MDA refuses to finance or bear the costs associated
with certain compulsory investments, as described below.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under the terms of this agreement, we are required to maintain
an unconditional bank guarantee in the amount of $250,000 in
order to secure various payments due to MDA. Such guarantee is
to be
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 71</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
maintained for a period of six months after we vacate the
manufacturing facility. In addition, we have provided MDA with a
security interest on our inventory of uncompleted products and
raw materials.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Lease and manufacturing</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Under the terms of the agreement, we lease our manufacturing
facility and some machinery and equipment from MDA in return for
a rent and lease fee in the amount of $700,000 plus 1% of the
sales of all products that were sold to third parties in each
fiscal year, minus certain deductions, which fee shall not be
less than $1.1&nbsp;million and not more than $2.0&nbsp;million
per year.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under the terms of the agreement, to the extent we purchase
plasma from MDA that is collected from donors in Israel, we are
required to give priority to the manufacture of licensed
products from such plasma that is required for local use in
Israel and ordered from us.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Upon termination of this agreement, we are obligated to leave
the manufacturing facility in good working condition and capable
of manufacturing all the licensed products. Upon termination of
this agreement at any time after January&nbsp;1, 2007, if the
manufacturing facility is not capable of manufacturing all of
the licensed products and MDA wishes to do so, then we are
responsible for the cost of replacing any missing manufacturing
equipment, up to a maximum of 50% of the grant, which grant is
equal to the unused portion of $4.5&nbsp;million that MDA does
not spend on certain compulsory investments.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Investments in the manufacturing facility</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<I>Compulsory Investments.</I> As a result of new laws,
regulations, directives, requirements or instructions by
authorities, certain compulsory investments in the manufacturing
facility might be necessary to preserve appropriate licenses
required to market products. The costs associated with these
compulsory investments will be borne by us, MDA or both of us,
depending on whether the prices of our products can be increased
as a result of the compulsory investments. If we are able to
increase the prices of our products, then the full cost for the
compulsory investments shall be borne by us, and we will sell
any such equipment or investment to MDA upon the termination of
this agreement. If we are not able to increase the prices of our
products, then the cost for the compulsory investments shall be
borne by MDA and us, in equal parts or at any other ratio as
determined by a steering committee comprised of MDA&#146;s and
our personnel. Notwithstanding the foregoing, MDA shall bear
100% of the costs related to any compulsory investments required
by Israeli regulatory authorities as a result of the location of
the manufacturing facility.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under the agreement, we have agreed to finance all of the
required compulsory investments until December&nbsp;31, 2006,
including MDA&#146;s share, which we are entitled to offset
against the rent and lease fee, provided that the rent and lease
fee received by MDA in any given year during such period shall
not be less than $1.0&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In the event that the required compulsory investments are of a
substantial magnitude or are required after January&nbsp;1,
2006, we are entitled to refuse to finance or bear the cost of
such investments. Subsequent to our refusal, MDA will be
entitled to finance or refuse to finance such compulsory
investments. If MDA refuses to finance or bear the cost of such
compulsory investments, we will have the option to terminate our
agreement or carry out the compulsory investments. Additionally,
MDA shall be entitled to refuse to participate in such
compulsory investments, even if we are prepared to finance them,
if the requirement for such compulsory investment was not issued
by a competent Israeli authority and MDA&#146;s part in such
investment exceeds a specified amount in a given time frame.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Discretionary Investments.</I> If we install new items of
equipment in the manufacturing facility or make any other
investments not essential to preserving appropriate licenses and
to maintaining our ability to market products, we will bear the
costs associated with such discretionary investments. Upon the
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 72</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
termination of our agreement, we may, at our option, remove from
the manufacturing facility any such equipment that is easily
removable, or sell it to MDA. Any new equipment that becomes an
inseparable part of the manufacturing facility shall be
purchased by MDA at a price negotiated in good faith by MDA and
us. In the event that MDA does not operate the manufacturing
facility during the five years after we vacate the premises, MDA
will be released from its obligation to purchase this equipment
from us and we will be entitled to remove it.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Plasma</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Under the terms of the agreement, we are required to notify MDA
at the beginning of each quarter which products we intend to
manufacture from its plasma. Every two quarters, an accounting
is made whereby we pay MDA for the amount of plasma actually
used in the manufacture of our products. However, if MDA finds a
buyer for its plasma that is willing to pay higher prices than
those specified in our agreement, then we will have the right of
first refusal to purchase such plasma for the same price as the
third party is willing to pay. We have elected not to exercise
this right of first refusal for the fiscal year 2006.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Intellectual property</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Upon the termination of this agreement on December&nbsp;31,
2010, we will grant MDA a royalty free, perpetual and
non-transferable license to manufacture all of the licensed
products based on our know-how, as well as any new products that
are either registered as a new patent or as a new pharmaceutical
product with the Registrar of Medical Preparations in the
Israeli Ministry of Health, and to market and sell these
products in Israel.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Upon the expiration or termination of this agreement at any time
after December&nbsp;31, 2006, we are obligated to favorably
consider a request by MDA to obtain from us a license granting
MDA the right to manufacture and sell in Israel, products that
we manufactured at the manufacturing facility.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, for a period to be agreed upon during the last year
of our operation of the manufacturing facility, we agreed to
train, at MDA&#146;s cost, a few of MDA&#146;s key personnel in
the operation of the manufacturing facility so that MDA may
continue operating the manufacturing facility after the
termination of our agreement.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>INTELLECTUAL PROPERTY</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our success will depend in large part on our ability to maintain
a proprietary position in our products and product candidates
through a combination of patents and trade secrets. We rely upon
patents, trade secrets, know-how and continuing technological
innovation to develop and maintain our competitive position. We
plan to aggressively protect and defend our proprietary
position. As of September&nbsp;30, 2005, we owned 11
U.S.&nbsp;patents and four patent applications related to our
protein purification technology and the design of our products.
We also own 72&nbsp;patents and 30&nbsp;patent applications in
foreign countries related to this technology.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We believe that our patents and our existing products and
product candidates do not infringe upon intellectual property
rights of others, however it is possible that our existing
patent rights may be challenged and found invalid or found to
violate proprietary rights of others. In the event any of our
products are challenged as infringing, we would be required to
modify the design of the product, obtain a license or litigate
the issue. We may not be able to finance costly patent
litigation, obtain licenses or modify our products in a timely
manner or at all. Failure to defend a patent infringement action
or to obtain a license or implementation of modifications would
have a material adverse effect on our continued operations.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 73</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition to our patents, other intellectual property and
know-how, including the parts of our protein purification
technology that we have produced and own, we seek to establish
trade secret protections and contractual safeguards such as
confidentiality and proprietary information agreements. The
development of our technology and many of our processes are
dependent upon the knowledge, experience and skills of key
scientific and technical personnel. In an effort to protect our
rights to this proprietary information and technology, which are
not patented, we require all employees, consultants and advisors
to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside our
company. Further, as a matter of company policy, all scientific
and technical employees have executed agreements that generally
require disclosure and assignment to us of ideas, developments,
discoveries and inventions made by them. However, these
agreements may not effectively prevent disclosure of our
confidential information or provide meaningful protection for
our confidential information if there is unauthorized use or
disclosure.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>COMPETITION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The biotechnology and biopharmaceutical industries are
characterized by rapidly evolving technology and intense
competition. Our competitors include pharmaceutical,
biopharmaceutical, chemical and biotechnology companies, many of
which have financial, technical and marketing resources
significantly greater than ours. In addition, many specialized
companies have formed collaborations with large, established
companies to support research, development and commercialization
of products that may be competitive with our products.
Accordingly, our competitors may succeed in obtaining patent
protection, receiving marketing approval from the FDA, EMEA or
other regulatory authorities and commercializing products more
rapidly than us. Academic institutions, government agencies and
other public and private research organizations are also
conducting research activities and seeking patent protection,
and may commercialize products on their own or through joint
venture arrangements.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Biosurgical competition</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We compete in the advanced biosurgical hemostats market, which
includes surgical sealants and synthetic glues. A number of
companies, such as Baxter International Inc. and CryoLife, Inc.
market fibrin sealants, glues and collagen for hemostatic
applications. In addition, Baxter,
<FONT style="white-space: nowrap">ZLB-Behring</FONT> LLC and
Nycomed A/S all market fibrin sealants. Of these, we believe
that Baxter, which markets Tisseel VH in the U.S., is our main
competitor in this territory, being the manufacturer of the only
other FDA-approved fibrin sealant. In Europe, our main
competitors include Baxter, which markets Tissucol, and Nycomed,
which markets Beriplast (manufactured by
<FONT style="white-space: nowrap">ZLB-Behring),</FONT>
TachoComb&nbsp;H and TachoSil.
<FONT style="white-space: nowrap">ZLB-Behring</FONT> markets
Beriplast and Tachocomb in Japan. TachoComb&nbsp;H and TachoSil,
unlike other fibrin sealants, embed the fibrin sealant in a
solid substrate. The substrate of TachoComb contains bovine and
equine proteins, while the substrate of TachoSil contains equine
proteins. Beriplast also contains bovine proteins. Currently,
Crosseal/ Quixil is the only commercially available liquid
fibrin sealant that, among other features, is completely free of
bovine proteins.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In the market for thrombin products, our human thrombin
stand-alone product candidate would compete mainly in the
U.S.&nbsp;with bovine-derived thrombin products marketed by King
Pharmaceuticals, Inc., for the same indications. In addition,
Baxter markets FloSeal, a bovine-based gelatin combined with
human thrombin, which would compete with our flowable thrombin
product candidate. ZymoGenetics, Inc. is developing a
recombinant thrombin product which does not contain bovine or
equine proteins and has entered Phase&nbsp;III clinical trials.
Further, Haemacure Corporation has announced plans to develop a
human thrombin product which could compete with our thrombin
stand-alone product.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 74</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition to these products, our products also compete with
fibrin sealants and other biosurgical products that are prepared
on site by medical staff from the plasma of the patient prior to
undergoing surgery. ThermoGenesis Corp.&#146;s CryoSeal FS
System, a thrombin and fibrin system, is an example of such a
product candidate. ThermoGenesis has completed Phase&nbsp;III
clinical trials for CryoSeal FS System.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Passive immunotherapy competition</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In the passive immunotherapy market, our VIG product competes
with immunoglobulin products marketed by DynPort Vaccine Company
LLC and Cangene Corporation for the same indication. Our
<FONT style="white-space: nowrap">HT-VIG</FONT> product
candidate is the only high titer passive immunotherapy that we
are aware of. Existing VIG products would compete with
<FONT style="white-space: nowrap">HT-VIG.</FONT> Our WNIG
product candidate is the only passive immunotherapy for West
Nile fever that we are aware of. The other treatment for the
West Nile fever is the administration of general anti-viral
drugs. In addition, there are many general IVIG manufacturers,
any of which can enter the Israeli general IVIG market at any
time.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>GOVERNMENT REGULATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Government authorities in the U.S. and other countries
extensively regulate the research, development, testing,
manufacture, labeling, promotion, advertising, distribution and
marketing, among other things, of drugs, biologics and medical
devices under the Federal Food, Drug, and Cosmetic Act and
implementing regulations. Failure to comply with applicable
U.S.&nbsp;requirements, both before and after approval, may
subject us to administrative and judicial sanctions, such as a
delay in approval or refusal by the FDA to approve pending
applications, warning letters, product recalls, product
seizures, total or partial suspension of production or
distribution, injunctions, and/or criminal prosecution.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The steps required before a new drug or biological product may
be marketed in the U.S.&nbsp;include: pre-clinical laboratory
and animal tests and formulation studies; submission to the FDA
of an investigational new drug exemption, or IND, for human
clinical testing, which must become effective before human
clinical trials may begin; adequate and well-controlled clinical
trials to establish the safety and effectiveness of the product
candidate for each indication; submission to the FDA of a new
drug application, or NDA, for a drug product or a Biologics
License Application, or BLA, for a biological product;
satisfactory completion of an FDA inspection of the
manufacturing facility or facilities at which the drug is
produced to assess compliance with regulatorily-prescribed cGMP;
and FDA review and approval of the NDA or BLA.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Pre-clinical tests include laboratory evaluations of product
chemistry, toxicity and formulation, as well as animal studies.
The results of the pre-clinical tests, together with
manufacturing information and analytical data, are submitted to
the FDA as part of an IND, which must become effective before
human clinical trials may begin. An IND will automatically
become effective 30&nbsp;days after receipt by the FDA, unless
before that time the FDA raises concerns or questions about
issues such as the conduct of the trials as outlined in the IND.
In such a case, the IND sponsor and the FDA must resolve any
outstanding FDA concerns or questions before clinical trials can
proceed.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Clinical trials involve the administration of the
investigational drug to human subjects under the supervision of
qualified physician-investigators and healthcare personnel.
Clinical trials are conducted under protocols detailing, for
example, the parameters to be used in monitoring patient safety
and the safety and effectiveness criteria, or endpoints, to be
evaluated. Each protocol must be submitted to the FDA as part of
the IND.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Clinical trials are typically conducted in three defined phases,
but the phases may overlap or be combined with each other. Each
trial must be reviewed and approved by an independent
Institutional Review Board before it can begin. Phase&nbsp;I
usually involves the initial introduction of the investigational
product candidate into people to evaluate its safety, dosage
tolerance, pharmacodynamics and, if
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 75</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
possible, to gain an early indication of its effectiveness.
Phase&nbsp;II usually involves trials in a limited patient
population to evaluate dosage tolerance and appropriate dosage;
identify possible adverse side-effects and safety risks; and
preliminarily evaluate the effectiveness of the product
candidate for specific indications. Phase&nbsp;III trials
usually further evaluate clinical effectiveness and test further
for safety by using the product candidate in its final form in
an expanded patient population.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We cannot guarantee that Phase&nbsp;I, Phase&nbsp;II or
Phase&nbsp;III clinical trials will be completed successfully
within any specified period of time, if at all. Furthermore, we,
the FDA or another party may suspend or terminate clinical
trials at any time on various grounds, including a finding that
the patients are being exposed to an unacceptable health risk.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Assuming successful completion of the required clinical testing,
the results of the preclinical studies and the clinical studies,
together with other detailed information, including information
on the manufacture and composition of the product candidate, are
submitted to the FDA in the form of an NDA or BLA requesting
approval to market the product candidate for one or more
indications. Before approving an application, the FDA usually
will inspect the facility or the facilities at which the product
candidate is manufactured, and will not approve the product
candidate unless cGMP compliance is satisfactory. If the FDA
determines the application and the manufacturing facilities are
acceptable, the FDA will issue an approval letter. If the FDA
determines the application of manufacturing facilities are not
acceptable, the FDA may outline the deficiencies in the NDA or
BLA and often will request additional testing or information.
Notwithstanding the submission of any requested additional
testing or information, the FDA ultimately may decide that the
application does not satisfy the regulatory criteria for
approval. After approval, certain changes to the approved
product candidate, such as adding new indications, manufacturing
changes, or additional labeling claims are subject to further
FDA review and approval. The testing and approval process
requires substantial time, effort and financial resources, and
we cannot be sure that any approval will be granted on a timely
basis, if at all.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We may seek fast track designation for some of our products.
Fast track products are those that are intended for the
treatment of a serious or life-threatening condition and that
demonstrate the potential to address unmet medical needs for
such a condition. Fast track products are eligible for two means
of potentially expediting product development and FDA review of
NDAs. First, a fast track product may be approved on the basis
of either a clinical endpoint or a surrogate endpoint that is
reasonably likely to predict clinical benefit. Approvals of this
kind may be subject to requirements for appropriate
post-approval studies to validate the surrogate endpoint or
otherwise confirm the effect on the clinical endpoint, and to
certain other conditions. Second, if the FDA determines after
review of preliminary clinical data submitted by the sponsor
that a fast track product may be effective, it may begin review
of portions of an NDA or BLA before the sponsor submits the
complete NDA or BLA, thereby accelerating the date on which
review of a portion of the NDA or BLA can begin. There can be no
assurance that any of our other product candidates will receive
designation as fast track products. And even if they are
designated as fast track products, we cannot assure you that our
product candidates will be reviewed or approved more
expeditiously for their fast track indications than would
otherwise have been the case or will be approved promptly, or at
all. Furthermore, the FDA can revoke fast track status at any
time.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Pursuant to the Orphan Drug Act, FDA may designate a drug
intended to treat a &#147;rare disease or condition&#148; as an
&#147;orphan drug.&#148; A &#147;rare disease or
condition,&#148; is generally one that affects fewer than
200,000 people in the U.S.&nbsp;Orphan drug designation must be
requested before submitting a NDA or BLA. Orphan drug
designation does not convey any advantage in, or shorten the
duration of, the regulatory review and approval process. If a
product which has an orphan drug designation subsequently
receives the first FDA approval for the indication for use for
which it has such designation, the product is entitled to
exclusive marketing rights in the U.S.&nbsp;for seven years,
meaning that FDA may not approve any other applications to
market the same drug for the same indication
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 76</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
during that period, except in limited circumstances. Orphan
drugs may also be eligible for federal income tax credits for
certain clinical trial expenses. FDA has accepted WNIG into the
orphan drug program. However, the Orphan Drug Act could be
repealed, amended or reinterpreted in ways that may adversely
effect the development of WNIG. Further, even if designated as
orphan drug, our products may not be approved before other
applications and granted orphan drug exclusivity if approved.
Therefore, we cannot assure you as to the precise scope of
protection that may be afforded by an orphan drug designation in
the future.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, holders of an approved NDA or BLA are required, for
example, to report certain adverse reactions and production
problems, if any, to the FDA, and to comply with certain
requirements concerning advertising and promotional labeling for
their products. Also, quality control and manufacturing
procedures must continue to conform to cGMP after approval, and
the FDA periodically inspects manufacturing facilities to assess
compliance with cGMP. Accordingly, manufacturers must continue
to expend time, money and effort in the area of production and
quality control to comply with cGMP and other aspects of
regulatory compliance.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Some of our products which have a lower potential safety risk to
the intended user or patient, and which have similar,
competitive products previously cleared by the FDA for the same
intended indication, may utilize a simpler and shorter
regulatory path called a Premarket Notification or a 510(k)
application to gain commercial access to the marketplace. This
regulatory process requires that we demonstrate substantial
equivalence to a product which was on the market prior to
May&nbsp;29, 1976, or which has been found substantially
equivalent after that date.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our research and development operations involve the use of
hazardous materials, including chemicals like acetones and
hexanes, radioactive materials like
<FONT style="white-space: nowrap">carbon-14</FONT> and tritium,
and biological materials such as human plasma. Federal, state
and local laws and regulations govern the use, manufacture,
storage, handling and disposal of these materials. Our capital
expenditures and costs to comply with these laws and regulations
have not been a material part of our operating expenses to date.
For at least the next two to three years, we do not anticipate
that we will be required to make material capital expenditures
for environmental control facilities in order to comply with
these regulations.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, our product candidates under development will be
subject to a wide variety of foreign regulations governing the
development, manufacture and marketing of our product
candidates. Whether or not FDA approval has been obtained,
approval of a product candidate by the comparable regulatory
authorities of foreign countries must still be obtained prior to
manufacturing or marketing the product candidate in those
countries. The approval process varies from jurisdiction to
jurisdiction and the time needed to secure approval may be
longer or shorter than that required for FDA approval. We cannot
assure you that clinical trials conducted in one country will be
accepted by other countries or that approval in one country will
result in approval in any other country.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>EMPLOYEES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As of December&nbsp;31, 2005, we had approximately 150 employees
at the following locations: our manufacturing facility in Kiryat
Ono, near Tel Aviv, Israel, research and development facility in
Rechovot, Israel, regulatory affairs, marketing and logistics
support offices in Brussels, Belgium and our headquarters in New
York, New York. Of these employees, 15 hold Ph.D. degrees. With
the exception of one employee, all of our employees are
full-time; 24 of these are directly involved in research and
development, and approximately 100 are involved in manufacturing
operations, including quality assurance and regulatory affairs.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are subject to local labor laws and regulations with respect
to our employees in those jurisdictions. These laws principally
concern matters such as paid annual vacation, paid sick days,
length of the
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 77</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
workday and work week, minimum wages, pay for overtime,
insurance for work-related accidents, severance pay, and other
conditions of employment.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In particular, by order of the Israeli Ministry of Labor and
Welfare, we and our Israeli employees are subject to provision
of the collective bargaining agreements between the Histadrut,
the General Federation of Labor in Israel, and the Coordination
Bureau of Economic Organizations, including the Industrialists
Associations. These provisions principally concern cost of
living increases, recreation pay, and other conditions of
employment. We believe that the benefits and working conditions
that we provide to our employees are above the required minimum.
Our employees are not represented by a labor union. We have
written employment contracts with virtually all of our employees
and we believe that our relations with our employees are
satisfactory.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>FACILITIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We currently lease approximately 54,000&nbsp;square feet of
office, manufacturing, laboratory and warehousing space in
Kiryat Ono, near Tel Aviv, Israel. Our current space is adequate
to support our current operations, although we anticipate that
we will need additional space in order to increase our
manufacturing capacity. The lease expires December 2010.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We also lease approximately 15,000&nbsp;square feet of office
and laboratory research space in Rechovot, Israel, which we use
to conduct our research and development activities. This lease
expires June 2008.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our European regulatory affairs, marketing and logistics support
offices are located in a leased office space in Brussels,
Belgium. This lease expires in 2008.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, our headquarters are located in a leased office
space at 708 Third Avenue New York, New&nbsp;York 10017. This
lease expires on April&nbsp;31, 2006. Upon expiration, the lease
will be automatically new for successive three months intervals
unless earlier terminated by either party upon advance written
notice prior to the expiration date of the then current term.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>LEGAL PROCEEDINGS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are not currently a party to any material legal proceedings.
We may, from time to time, become involved in litigation or
other adversarial proceedings based on commercial, product
liability or other claims.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 78</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='111'></A>
</DIV>

<!-- link1 "Management" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Management
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>EXECUTIVE OFFICERS AND DIRECTORS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Set forth below is the name, age, position and a brief account
of the business experience of each of our executive officers and
directors as of January&nbsp;1, 2006:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="49%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Age</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="left" nowrap><B>Position(s)</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert Taub</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    President, Chief Executive Officer and Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Nissim Mashiach</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Senior Vice President, Operations</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Michael Burshtine</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Senior Vice President and Chief Financial Officer</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Philippe Romagnoli</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Vice President and Secretary</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fredric D. Price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Chairman of the Board</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Jos B. Peeters</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Steven St. Peter,&nbsp;M.D.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Douglas A. Cotter,&nbsp;Ph.D.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Director</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Robert Taub </I>has served as our President, Chief Executive
Officer and a member of our board of directors since the
founding of Omrix in 1998. Prior to establishing Omrix,
Mr.&nbsp;Taub was the co-founder of Octapharma A.G., a Swiss
plasma fractionation and pharmaceutical company, which
successfully introduced innovative plasma derivative products to
the market. During his time at Octapharma, from 1983 to 1995,
the company underwent a successful transformation from a
<FONT style="white-space: nowrap">start-up</FONT> operation to
an integrated manufacturing enterprise. He also founded a
research and development group in Israel and initiated and
directed the management of a biological fibrin sealant
development project. Prior to Octapharma, Mr.&nbsp;Taub held
various general management and sales and marketing positions
with Armour Pharmaceutical, Revlon Health Care Group, Baxter
Travenol Laboratories, Inc., now Baxter International Inc., and
Monsanto Company. He has a B.A. in languages from the University
of Antwerp and an M.B.A. from INSEAD (the European Institute of
Business Administration) in Fontainebleau, France.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Nissim Mashiach </I>has served as our Senior Vice President,
Operations since 2000 and was our plant manager from 1998 to
2000. From 1991 to 1998, he served in various production and
operations management positions with Perio Products Ltd., a
privately held medical devices manufacturer located in
Jerusalem, Israel. Mr.&nbsp;Mashiach holds a B.Sc. in chemical
engineering from the Technion in Haifa, Israel, an Mpharm.Sc.
from the Hebrew University in Jerusalem, Israel and an M.B.A.
from the University of Manchester.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Michael Burshtine </I>has served as our Senior Vice President
and Chief Financial Officer since April 2004. From October 2001
to April 2004, he was the senior partner at Kesselman Corporate
Finance PricewaterhouseCoopers in Tel Aviv, Israel. From January
1999 to October 2001, he was an audit and transaction support
partner at Kesselman&nbsp;&#38; Kesselman PricewaterhouseCoopers
in Tel Aviv, Israel. From 1992 to 1999, he was a certified
public accountant at Shachak Peer Reznick&nbsp;&#38; Co. in Tel
Aviv, Israel, including the last two years as a partner.
Mr.&nbsp;Burshtine is a certified public accountant in Israel
and has a B.A. in economics and accounting and an M.B.A. from
<FONT style="white-space: nowrap">Tel-Aviv</FONT> University.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Philippe Romagnoli </I>has served as our Vice President and
Secretary since April 2004. From September 2002 to April 2004,
he was our interim Chief Financial Officer and a member of our
board of directors. Prior to joining Omrix, from 1998 to 2002,
he was the chairman of the board of Artesia Bank and from 1992
until 1998, the chief executive officer of Banque Paribas
Belgium. Mr.&nbsp;Romagnoli holds an engineering degree with a
specialty in physics from the University of Li&#232;ge Belgium.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 79</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Fredric D. Price </I>has served as the chairman of our board
of directors since January 2005. Since August 2004, he has been
the chairman of the Empirical Physician&nbsp;&#38; Patient
Information Census, or EPPIC and a member of the general
partnership of BioDevelopment Ventures. From October 2000 to
August 2004, he was chairman of the board of directors and chief
executive officer of BioMarin Pharmaceutical Inc. During his
time at BioMarin, the company underwent a successful
transformation from an early stage R&#38;D organization to a
fully integrated biotech company. From 1994 to 2000, he was
president, chief executive officer and director of Applied
Microbiology, a biotechnology and nutrition company. His prior
experiences include having been vice president of finance and
administration and chief financial officer of
Regeneron&nbsp;Pharmaceuticals, Inc., a founder of the strategy
consulting firm RxFDP, and a vice president of Pfizer
Pharmaceuticals with both line and staff responsibilities.
Mr.&nbsp;Price received a B.A. from Dartmouth College and an
M.B.A. from the Wharton School of the University of Pennsylvania.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Jos B. Peeters,&nbsp;Ph.D. </I>has served as a member of our
board of directors since 1999. Since January&nbsp;1993 he has
been the managing partner of Capricorn Venture Partners&nbsp;NV.
From September 1985 to October 1992, he worked as managing
director at BeneVent Management&nbsp;NV. He has a Ph.D. in solid
state physics from the University of Leuven, Belgium. He is a
managing director of Easdaq&nbsp;NV, the successor company of
Nasdaq Europe&nbsp;NV, which operates a pan-European Stock
Market for growth companies. He is chairman of Quest for
Growth&nbsp;NV and a board member of Innogenetics&nbsp;NV.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Steven St.&nbsp;Peter,&nbsp;M.D. </I>has served as a member
of our board of directors since February 2004. He joined
MPM&nbsp;Capital&nbsp;L.P. as a principal in 2004 and became a
general partner in 2005. Prior to joining MPM, from 2001 to
2003, he was a principal at Apax Partners and from 1999 to 2001,
he was a senior associate at The Carlyle Group. His investment
scope has included both venture and buyout transactions across
the medical technology and biopharmaceutical industries.
Dr.&nbsp;St. Peter is board certified in internal medicine and
was previously an assistant clinical professor of Medicine at
Columbia University. He completed his Doctor of Medicine at
Washington University. Prior to his medical training, he was an
investment banker at Merrill Lynch. He also holds an M.B.A. from
the Wharton School of the University of Pennsylvania and a B.A.
in Chemistry from the University of Kansas. He is a director of
Helicos BioSciences Corporation, PharmAthene, Inc. and Xanodyne
Pharmaceuticals Inc.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Douglas A. Cotter,&nbsp;Ph.D. </I>has served as a member of
our board of directors since November 2005. From 1985 to 1996,
1998 to 2000 and since 2003, Dr.&nbsp;Cotter has been the
president of Healthcare Decisions, Inc., a private health care
and biotechnology consulting firm specializing in corporate
development and acquisitions. From 2000 to 2002, he was a senior
vice president of Leerink Swann and Company, an investment
banking firm focusing on life science and medical corporations.
Between 1996 and 1998, Dr.&nbsp;Cotter was vice president of
Decision Resources, a consulting firm specializing in the health
care industry, primarily pharmaceuticals. Dr.&nbsp;Cotter is
also a director of Respironics Inc.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>BOARD COMPOSITION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Upon completion of this offering, we will have an authorized
board of directors comprised of five members, which we believe
will be compliant with the independence criteria for boards of
directors under applicable law. We will continue to evaluate our
compliance with these criteria over time. To the extent we deem
necessary, we will seek to appoint additional independent
directors.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our certificate of incorporation provides that the authorized
number of directors may be changed only by resolution adopted by
a majority of our board of directors.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 80</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>BOARD COMMITTEES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Audit committee</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our audit committee is comprised of Fredric D. Price (chairman),
Jos B.&nbsp;Peeters and Douglas A.&nbsp;Cotter. Fredric
D.&nbsp;Price is independent as defined under Nasdaq rules. The
board of directors has determined that Fredric D.&nbsp;Price is
an &#147;audit committee financial expert&#148; as defined under
SEC rules and regulations by virtue of his business background
and experience described under &#147;Executive officers and
directors&#148; above.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our audit committee is responsible for, among other things:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    overseeing the accounting and financial reporting processes and
    audits of our financial statements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    appointing an independent registered public accounting firm to
    audit our financial statements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    overseeing and monitoring:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="2%"></TD>
    <TD width="2%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    the integrity of our financial statements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    our compliance with legal and regulatory requirements as they
    relate to financial statements or accounting matters;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    our independent auditor&#146;s independence and
    performance;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    our internal accounting and financial controls;</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    preparing the report that SEC rules require be included in our
    annual proxy statement or annual report on
    Form&nbsp;<FONT style="white-space: nowrap">10-K;&nbsp;</FONT>
    and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    providing management with the results of its monitoring and
    recommendations.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Compensation committee</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our compensation committee is comprised of Douglas A. Cotter
(chairman), Fredric D. Price and Jos&nbsp;B. Peeters. Our
compensation committee is responsible for, among other things:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    reviewing and approving executive compensation plans for our
    chief executive officer and other executive officers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    reviewing and making recommendations to the board of directors
    regarding the compensation policy for such other officers as
    directed by the board;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    reviewing and making recommendations to the board of directors
    regarding general compensation goals and guidelines for
    employees;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    reviewing and making recommendations to the board of directors
    regarding general guidelines for the issuance of options and
    other forms of equity based compensation to all employees and
    consultants;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    preparing a report to be included in our annual proxy statement
    or annual report on
    Form&nbsp;<FONT style="white-space: nowrap">10-K;&nbsp;</FONT>
    and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    acting as administrator of our current benefit plans, including
    making recommendations for amendments to the plans.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 81</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Nominating and corporate governance committee</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our nominating and corporate governance committee is comprised
of Fredric D. Price (chairman), Steven St. Peter and Robert
Taub. Our corporate governance and nominating committee is
responsible for, among other things:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    reviewing board composition, procedures and committees, and
    making recommendations on these matters to the board of
    directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    reviewing, soliciting and making recommendations to the board of
    directors and stockholders with respect to candidates for
    election to the board;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    overseeing compliance by the board of directors and management
    with our corporate governance principles and ethics standards
    and code of conduct.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>DIRECTOR COMPENSATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We provide cash compensation and stock options to non-employee
members of our board of directors for serving on our board of
directors. After the closing of this offering, we will pay each
of our non-employee directors $30,000&nbsp;per year for serving
on our board of directors. We provide an additional payment of
$90,000&nbsp;per year to Fredric D. Price for service as
chairman of the board of directors. In addition to compensation
for board services, we will pay the members of our committees,
other than the chairman, $7,500&nbsp;per year to each member of
our audit committee and $5,000&nbsp;per year to each member of
our compensation committee and governance and nominating
committee. We will pay the chair of the audit committee $15,000
and the chairs of each of the compensation committee and
governance and nominating committee $10,000. The aggregate
compensation paid to Fredric D. Price will not exceed $120,000,
notwithstanding service on any of our committees. Members of our
board of directors are reimbursed for some expenses in
connection with attendance of board and committee meetings.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In January 2005, we granted stock options to Fredric D. Price to
purchase up to 300,000&nbsp;shares of our common stock pursuant
to our 2004 Equity Incentive Plan. In addition, in December
2005, we granted stock options to Douglas A. Cotter to purchase
up to 30,000&nbsp;shares of our common stock pursuant to our
2004 Equity Incentive Plan. Following the completion of this
offering, each newly appointed non-employee director will be
eligible to participate in our equity incentive plan and will be
granted stock options to purchase&nbsp;30,000&nbsp;shares of
common stock for his or her service on our board of directors
upon joining the board of directors, as described in the section
of this prospectus entitled &#147;Employee benefit plans.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our compensation committee is comprised of Douglas&nbsp;A.
Cotter (chairman), Fredric&nbsp;D. Price and Jos&nbsp;B.
Peeters. None of the members of our compensation committee was
at any time during 2004 one of our officers or employees. No
member of our compensation committee and none of our executive
officers serve as a member of the board of directors or
compensation committee of any entity that has one or more
executive officers serving as a member of our board of directors
or compensation committee.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>EXECUTIVE COMPENSATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Summary compensation table</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table presents compensation information for 2005
paid to or accrued for our chief executive officer and the next
four most highly compensated executive officers whose annual
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 82</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
compensation exceeded $100,000 for the fiscal year ended
December&nbsp;31, 2005, whom we refer to in this prospectus as
the &#147;named executive officers.&#148;
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="29%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>2005 Annual compensation</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Long-term compensation</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Other</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Restricted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Securities</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>annual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>underlying</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>All other</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>Name and principal positions</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Salary</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Bonus<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>compensation</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>awards</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>compensation</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="25" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert Taub</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Chief Executive Officer</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>350,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>51,059</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,910</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Nissim Mashiach</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Senior Vice President, Operations</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>187,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>74,766</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,968</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>69,958</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(5)</SUP></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Michael Burshtine</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Senior Vice President and<BR>
    Chief Financial Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>170,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>55,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,229</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(6)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>104,165</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(7)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>350,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,350</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(8)</SUP></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Philippe Romagnoli</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President and Secretary</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>166,008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Martin
    Knopf<SUP style="font-size: 85%; vertical-align: text-top">(9)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President, Business Development</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>120,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,200</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(10)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,592</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>296,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>96,250</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(11)</SUP></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="5%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>Includes bonuses paid in the first quarter of 2006 for
    services rendered during 2005.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I>(2)</I></TD>
    <TD align="left">
    <I>This amount includes $15,297 for a leased car and $27,273 for
    payment of health insurance premiums.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I>(3)</I></TD>
    <TD align="left">
    <I>This amount represents $12,910 for life insurance
    premiums.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I>(4)</I></TD>
    <TD align="left">
    <I>This amount includes $14,956 for a leased car and $9,755 for
    a tax related reimbursement.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I>(5)</I></TD>
    <TD align="left">
    <I>This amount includes $26,547 for vacation redemption, $14,063
    for deposits in a short term savings plan and $29,348 for life
    insurance and certain other retirement benefits typically
    provided in Israel.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I>(6)</I></TD>
    <TD align="left">
    <I>This amount includes $22,037 for a leased car.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="6%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I>(7)</I></TD>
    <TD align="left">
    <I>This amount represents the value of a grant of
    20,833&nbsp;shares of restricted common stock calculated based
    upon the fair market value of our common stock on
    December&nbsp;31, 2005, which was $5.00&nbsp;per share.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="5%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I>(8)</I></TD>
    <TD align="left">
    <I>This amount includes $11,268 for deposits in a short term
    savings plan and $23,081 for life insurance and certain other
    retirement benefits typically provided in Israel.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I>(9)</I></TD>
    <TD align="left">
    <I>Martin Knopf, who served as our Vice President, Business
    Development, ceased working with us in July 2005.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><I>(10)</I></TD>
    <TD align="left">
    <I>Subject to final adjustment upon the completion of the audit
    of the financial statements for the year ended December&nbsp;31,
    2005.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><I>(11)</I></TD>
    <TD align="left">
    <I>This amount represents a termination payment.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Stock option grants in last fiscal year</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table presents information regarding grants in
2005 of stock options to the named executive officers. Options
and restricted stock granted to our named executive officers
were granted under our 2004 Equity Incentive Plan. Generally,
25% of the shares subject to the options and the restricted
stock granted to employees vest one year from the date of grant
and thereafter vest in equal installments of 25% on the next
three anniversaries of the date of grant. Unvested shares
subject to the
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 83</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
options and the restricted stock held by our named executive
officers will vest automatically upon completion of this
offering.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Percentage of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>securities</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>total options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>underlying</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>granted to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Exercise or</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Grant date</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>employees</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>base price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Expiration</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>present</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>granted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>in 2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>($/share)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>value ($)<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="20" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert Taub</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Nissim Mashiach</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12/30/2014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44,000</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(A)</SUP></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Michael Burshtine</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>04/18/2014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,000</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(B)</SUP></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12/30/2014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44,000</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(A)</SUP></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Philippe Romagnoli</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Martin
    Knopf<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>296,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>04/02/2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,926</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(C)</SUP></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>Martin Knopf, who served as our Vice President, Business
    Development, ceased working with us in July 2005.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><I>(2)</I></TD>
    <TD align="left">
    <I>The present value of stock option grants was estimated in
    accordance with the Black-Scholes option pricing model as
    permitted by the rules of the Securities and Exchange
    Commission. Key assumptions used under the Black-Scholes model
    include: (A)&nbsp;(a)&nbsp;an expected option term of
    4.5&nbsp;years, (b)&nbsp;risk-free rate of 4.31%, (c)&nbsp;stock
    price volatility of 0% and (d)&nbsp;no expected dividends.
    (B)&nbsp;(a)&nbsp;an expected option term of 3.75&nbsp;years,
    (b)&nbsp;risk-free rate of 4.04%, (c)&nbsp;stock price
    volatility of 0% and (d)&nbsp;no expected dividends. (C)
    (a)&nbsp;an expected option term of 0.5&nbsp;years,
    (b)&nbsp;risk-free rate of 3.55%, (c)&nbsp;stock price
    volatility of 0% and (d)&nbsp;no expected dividends.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The percentage of total options granted to employees in 2005 is
based on options to purchase a total of 1,026,296&nbsp;shares of
common stock granted during the year ended December&nbsp;31,
2005.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Aggregate options exercised in last fiscal year and fiscal
year-end option values</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table presents the number of shares of common
stock acquired and the value realized upon exercise of stock
options during 2005 and the number of shares of common stock
subject to &#147;exercisable&#148; and &#147;unexercisable&#148;
stock options held as of December&nbsp;31, 2005 by each of the
named executive officers. Also presented are values of
<FONT style="white-space: nowrap">&#147;in-the</FONT>-money&#148;
options, which represent the positive difference between the
exercise price of each outstanding stock option and the assumed
initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. There were no stock options exercised by named executive
officers in 2005.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap><B>Value of unexercised</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap><B>Number of securities</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap><B>in-the-money</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap><B>underlying unexercised</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap><B>options held at</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap><B>options held at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap><B>December&nbsp;31, 2005</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Value</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap><B>December&nbsp;31, 2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap><B>($)</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>acquired on</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>realized</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>($)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Vested</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Unvested</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Vested</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Unvested</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert Taub</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Nissim Mashiach</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>225,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>622,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>251,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Michael Burshtine</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>225,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>377,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>572,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Philippe Romagnoli</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>311,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>103,750</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Martin
    Knopf<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>141,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>154,322</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>390,429</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>424,385</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>Martin Knopf, who served as our Vice President, Business
    Development, ceased working with us in July 2005.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 84</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Employment agreements</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
On September&nbsp;21, 1997, we entered into an agreement with
Nissim Mashiach in connection with his services as operations
manager of our manufacturing facilities. Under the agreement,
Mr.&nbsp;Mashiach receives monthly compensation, which was set
initially at NIS 24,000 in 1997 (approximately $6,690) and is
adjusted based on the Israeli consumer price index each month.
This agreement will terminate if either we or Mr.&nbsp;Mashiach
gives the other 90&nbsp;days written notice, if
Mr.&nbsp;Mashiach is incapable of performing his duties for a
period exceeding 180&nbsp;days or if Mr.&nbsp;Mashiach is
discharged for certain breaches of the employment agreement. We
will also make a monthly contribution of 13.33% of
Mr.&nbsp;Mashiach&#146;s monthly base salary to severance and
pension funds to be maintained on his behalf, known as a
manager&#146;s insurance policy, as well as a monthly
contribution of 2.5% of his monthly base salary to a disability
pension to be maintained on his behalf. Upon termination of this
agreement, Mr.&nbsp;Mashiach is entitled to receive all amounts
accrued in the manager&#146;s insurance policy. If the amount
accrued in the manager&#146;s insurance policy is less than the
severance pay required by law (one month salary per year of
employment), we will pay him an additional amount to ensure that
he receives his entire severance pay.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In February 2004, we entered into an employment agreement with
Mr.&nbsp;Burshtine, which we amended and restated as of
January&nbsp;1, 2006. The agreement provides for
Mr.&nbsp;Burshtine to receive a base salary of $150,000&nbsp;per
year. Mr.&nbsp;Burshtine will also be eligible to receive an
annual bonus consisting of a non-discretionary portion in the
aggregate amount of $30,000 and a discretionary amount of up to
36% of his base salary, of which half shall be based on an
evaluation of Mr.&nbsp;Burshtine&#146;s performance and half
shall be based on our performance. We will also make a monthly
contribution of 13.83% of Mr.&nbsp;Burshtine&#146;s monthly base
salary to severance and pension funds to be maintained on his
behalf, known as a manager&#146;s insurance policy, as well as a
monthly contribution of 2.5% of his monthly base salary to a
disability pension to be maintained on his behalf. In addition,
we will contribute 7.5% of Mr.&nbsp;Burshtine&#146;s monthly
base salary to a tax advantaged savings plan under Israeli law.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The employment agreement with Mr.&nbsp;Burshtine provides for an
initial term extending to April&nbsp;18, 2007, with automatic
renewal for additional one-year periods, unless he or we give
six months&#146; notice to the other party that the employment
agreement will not be extended.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The agreement also requires us to pay him, upon termination
without cause, the balance of the base salary to which he would
be entitled under his employment agreement as if he were to
continue to be employed from the date of termination until
April&nbsp;18, 2007 or the following April&nbsp;18 and
thereafter, and a pro rata portion of the unconditional and
discretionary annual bonuses to which he would be entitled for
that period as well as any other accrued and unpaid compensation
and benefits.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In March 2005, we granted stock options to Michael Burshtine to
purchase up to 300,000&nbsp;shares of our common stock under our
2004 Equity Incentive Plan.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
On October&nbsp;1, 2002, we entered into an agreement with
Bemsol S.A., of which Philippe Romagnoli is the sole
stockholder, in connection with Mr.&nbsp;Romagnoli&#146;s
services as a Vice President and Secretary. Under the agreement,
Mr.&nbsp;Romagnoli receives quarterly compensation of
<FONT face="times new roman,times">&#128;</FONT>24,750
(approximately $30,000) and an additional
<FONT face="times new roman,times">&#128;</FONT>770&nbsp;per day
(approximately $925) for services rendered in excess of 60% of a
standard full time schedule. This agreement terminates on
September&nbsp;30, 2006. Upon termination, this agreement can be
renewed by mutual agreement for an additional year. This
agreement may be terminated with the consent of both parties. In
addition, we may terminate the agreement if Mr.&nbsp;Romagnoli
breaches or threatens to breach any of the provisions relating
to inventions and proprietary information. In the case of early
termination by us, we are obligated to pay Mr.&nbsp;Romagnoli
the amount due for the remaining term of the agreement, not to
exceed one year.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 85</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
On January&nbsp;13, 2005, we entered into an agreement with
Fredric D. Price in connection with his services as the chairman
and member of our board of directors. Under the agreement,
Mr.&nbsp;Price received an annual compensation of $120,000 and a
grant of non-qualified stock options exercisable for
300,000&nbsp;shares under our 2004 Equity Incentive Plan. These
shares vest over a four year period. This agreement expired
according to its terms on its first anniversary. On
January&nbsp;13, 2006, we entered into an agreement with Fredric
D. Price in connection with his services as the chairman and
member of our board of directors, under which he continues to
receive an annual compensation of $120,000. This agreement
expires at our annual meeting of stockholders held in 2008. If
Mr.&nbsp;Price resigns without good reason, he will retain those
options which have vested as of the termination date. If
Mr.&nbsp;Price is terminated without cause or resigns for good
reason, he will retain those options which will vest within two
years of the termination date, with such vesting accelerating to
the termination date. In addition, if Mr.&nbsp;Price is
terminated without cause or resigns for good reason, he will
receive $10,000&nbsp;monthly for one year.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Employee benefit plans</B>
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>2004 Equity Incentive Plan and 2005 Equity Incentive Plan for
Israeli Employees</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>In general</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
In January 2005, our board of directors adopted and our
stockholders approved our 2004 Equity Incentive Plan, or the
2004 Plan. The 2004 Plan authorizes the award of options,
restricted stock grants, stock bonuses and other rights based on
the value of our common stock, such as stock appreciation
rights, phantom stock, dividend equivalents or performance
units. In August 2005, our board of directors adopted and our
stockholders approved our 2005 Equity Incentive Plan for Israeli
Employees, or the 2005 Israeli Plan. The 2005 Israeli Plan
functions as part of the 2004 Plan applicable to Israeli
employees. The 2005 Israeli Plan authorizes the award of
options, stock appreciation rights, restricted stock grants and
stock bonuses.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Both plans are administered by our board of directors, but the
board may delegate authority to administer either plan to the
compensation committee or to a committee consisting of two or
more members of the board. Our board, or, to the extent
applicable, the committee to which the board delegates its
powers under the plan, has the authority to interpret the plans,
grant awards and make all other determinations for the
administration of the plans.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>The 2004 Equity Incentive Plan</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Directors, consultants and employees of our company, including
our executive officers, are eligible to participate in the 2004
Plan. Participants are selected by our board of directors in its
discretion to receive awards under the 2004 Plan. To date, only
stock options have been awarded under the 2004 Plan. The 2004
Plan provides for the grant of &#147;incentive stock
options&#148; (options that qualify for special tax treatment
under Section&nbsp;422 of the Internal Revenue Code) and
nonqualified stock options. Incentive stock options may be
granted only to our employees or employees of any of our
corporate subsidiaries. Nonqualified stock options and all
awards other than stock options may be granted to our employees,
officers, directors or consultants and those of any of our
subsidiaries. The exercise price of incentive stock options must
be at least equal to the fair market value of shares of our
common stock on the date of grant. The exercise price of
incentive stock options granted to 10% stockholders must be at
least equal to 110% of the fair market value of our common stock
on the date of grant.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Awards vest and become exercisable according to a schedule
determined for each award by the administrator of the 2004 Plan.
The administrator also determines the maximum term for awards
granted under our plan, provided that the term of any incentive
stock option may not exceed ten years from the date of its grant
and the term of any incentive stock option granted to 10%
stockholders
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 86</B>
</DIV>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
may not exceed five years from the date of its grant. The awards
granted under the 2004 Plan generally may not be transferred in
any manner other than by will or by the laws of descent and
distribution and may be exercised during the lifetime of the
recipient only by the recipient or the recipient&#146;s guardian
or legal representative. The administrator may allow exceptions
to this restriction for awards that are not incentive stock
options.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The plan administrator determines the effect on granted options
of the disability or retirement of an employee optionee or the
termination of the optionee&#146;s service to us or to a parent
or subsidiary of ours. Under the form of stock option agreement
previously approved by our board of directors, participants
generally may exercise any vested options for a period of three
months following termination of employment or service
(12&nbsp;months in the case of termination due to death or
disability) and any options held by the participant which have
not vested as of the date of the participant&#146;s termination
of employment or service with our company will be forfeited.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In the event of any stock dividend,
<FONT style="white-space: nowrap">split-up</FONT> or combination
of shares effected proportionately with respect to all
outstanding shares or any recapitalization, extraordinary cash
dividend, reorganization, merger, consolidation, spin-off,
exchange of shares or other similar capital change, the
administrator may, in its discretion, make equitable adjustments
to the number and kind of securities that may be issued under
the 2004 Plan, the number and kind of securities or other
property subject to outstanding awards and the exercise or
repurchase price with respect to awards that may be issued, or
which are outstanding, under the 2004 Plan. In the event of any
reorganization, merger, consolidation, spin-off or exchange of
shares transaction, the administrator, in its discretion, may
cause any award issued under the 2004 Plan to be assumed, or new
rights substituted therefore, by another entity party to the
transaction.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The 2004 Plan may be amended or terminated by action of our
board of directors, subject to the approval of our stockholders
as required by listing regulations or applicable law.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have reserved 3,275,636&nbsp;shares of our common stock for
issuance under the 2004 Equity Incentive Plan. As of
December&nbsp;31, 2005, options to purchase a total of 2,026,796
shares of common stock were outstanding under the plan and
1,968,507&nbsp;shares remain available for issuance. In the
event than an outstanding award expires, is terminated
unexercised, is forfeited for any reason, or is settled without
the issuance of shares of our common stock, such shares will
again become available for issuance under the 2004 Plan.
Similarly, if a participant surrenders shares in connection with
the exercise of an award, an equal number of shares will again
become available for grant under the 2004 Plan.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>The 2005 Equity Incentive Plan for Israeli Employees</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Our 2005 Israeli Plan, which is part of our 2004 Plan, provides
for the grant of &#147;102 Stock Options&#148; (options that
qualify for special tax treatment under Section&nbsp;102 of the
Israeli Tax Ordinance (New Version) 1961, or the Ordinance). 102
Stock Options may be granted only to Israeli employees,
executive officers and directors excluding any &#147;Controlling
Holders&#148; (as such term is defined in the Ordinance). In
addition, to claim certain Israeli tax benefits, stock options
intended to benefit our employees in Israel must be granted to a
trustee who holds the stock options and underlying shares in
trust for a statutory holding period of at least two years
following the end of the calendar year in which the options are
granted but no longer than 30 months, and, in respect of options
granted after January&nbsp;1, 2006, for at least two years from
the date of grant. Awards made under the 2005 Israeli Plan will
utilize the shares of our common stock available for issuance
under the 2004 Plan, discussed above.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 87</B>
</DIV>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Management</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have adopted provisions in our certificate of incorporation
that limit or eliminate the personal liability of our directors
to the maximum extent permitted by the DGCL. The DGCL expressly
permits a corporation to provide that its directors will not be
liable for monetary damages for a breach of their fiduciary
duties as directors, except for liability:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    for any breach of the director&#146;s duty of loyalty to us or
    our stockholders;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    for any act or omission not in good faith or that involves
    intentional misconduct or a knowing violation of law;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    for any unlawful payments of dividends or unlawful stock
    purchases or redemptions;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    for any transaction from which the director derived an improper
    personal benefit.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
These limitations of liability do not generally affect the
availability of equitable remedies such as injunctive relief or
rescission. Our certificate of incorporation and by-laws also
authorize us to indemnify our officers, directors, employees and
other agents to the fullest extent permitted under the DGCL and
we may advance expenses to our directors, officers, employees
and other agents in connection with a legal proceeding, subject
to limited exceptions.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As permitted by the DGCL, our certificate of incorporation and
by-laws provide that:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    we must indemnify our board members and officers to the fullest
    extent permitted by the DGCL and advance expenses to our board
    members and officers in connection with a legal proceeding,
    subject to limited exceptions;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    we may purchase and maintain insurance on behalf of our current
    or former board members, officers, employees or agents against
    any liability asserted against them and incurred by them in any
    such capacity, or arising out of their status as such.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In January 2005, we entered into separate indemnification
agreements with each of our directors. Prior to the completion
of this offering, we will enter into separate indemnification
agreements with each of our board members and officers that will
require us to indemnify them to the fullest extent permitted by
the DGCL. These indemnification agreements will also require us
to advance any expenses incurred by the board members and
officers as a result of any proceeding against them as to which
they could be indemnified.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The limited liability and indemnification provisions in our
certificate of incorporation and by-laws and in any
indemnification agreements we enter into may discourage
stockholders from bringing a lawsuit against our board members
for breach of their fiduciary duties and may reduce the
likelihood of derivative litigation against our board members
and officers, even though a derivative action, if successful,
might otherwise benefit us and our stockholders. A
stockholder&#146;s investment in us may be adversely affected to
the extent we pay the costs of settlement or damage awards
against our directors and officers under these indemnification
provisions.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
At present, there is no pending litigation or proceeding
involving any of our directors, officers, employees or agents in
which indemnification by us is sought, nor are we aware of any
threatened litigation or proceeding that may result in a claim
for indemnification.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 88</B>
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='112'></A>
</DIV>

<!-- link1 "Certain relationships and related party transactions" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Certain relationships and related party transactions
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>RECAPITALIZATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In January 2005, we effected a recapitalization of our capital
stock through the exchange of convertible promissory notes,
convertible notes and warrants into shares of common stock and
the reclassification of our Series&nbsp;A Convertible Preferred
Stock and Series&nbsp;B Convertible Preferred Stock into shares
of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Exchange of convertible promissory notes, convertible notes
and warrants into common stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In connection with the recapitalization, we exchanged:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    an aggregate of $23,500,000 principal face amount of 1998/1999
    convertible notes and 667,455 1998/1999 warrants for an
    aggregate of 12,059,597&nbsp;shares of common stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    an aggregate of $2,600,000 principal amount of 2001 convertible
    promissory notes for an aggregate 2,109,799&nbsp;shares of
    common stock;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    an aggregate of $4,049,200 principal amount of 2002 convertible
    promissory notes for an aggregate 3,363,550&nbsp;shares of
    common stock.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our directors, officers, beneficial owners of more than five
percent of our voting securities and their affiliates
participated in this exchange as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>shares of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>common</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Principal</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>issuable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Principal</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Principal</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>amount of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>upon</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>amount of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>amount of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Shares of</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>1998/1999</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exercise of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>price of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2001</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>common stock</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>notes</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>1998/1999</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>1998/1999</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>notes</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>notes</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>issued in</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2" align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exchanged</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>warrants</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>warrant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exchanged</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exchanged</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>recapitalization</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="25" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert Taub</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>837,500</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,507,148</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Jos&nbsp;B.
    Peeters<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,616,527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>116,804</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>211,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,455,617</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    MPM BioVentures&nbsp;I
    LLC<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,222,613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>367,067</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,299,554</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Alpinvest Partners NV</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,243,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>600,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,278,310</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,951,568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>667,455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,800,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,049,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,540,628</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>These notes were held by BioInvest BV and the shares were
    issued in the name of Robert Taub, our President, Chief
    Executive Officer and director.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><I>(2)</I></TD>
    <TD align="left">
    <I>Quest for Growth N.V., Capricorn Venture Fund&nbsp;N.V. and
    Baring Capricorn Ventures Ltd., each an affiliate of Jos&nbsp;B.
    Peeters, a member of our board of directors, participated in our
    recapitalization as explained in the table above.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><I>(3)</I></TD>
    <TD align="left">
    <I>BB Bioventures L.P., MPM Asset Management Investors 1998 LLC
    and MPM&nbsp;BioVentures Parallel Fund, L.P. are affiliates of
    MPM BioVentures&nbsp;I LLC, a beneficial owner of more than five
    percent of our common stock. Steven St. Peter, a member of our
    board of directors, is a general partner of MPM
    Capital,&nbsp;L.P.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 89</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Certain relationships and related party transactions</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Reclassification of Series&nbsp;A Convertible Preferred Stock
and Series&nbsp;B Convertible Preferred Stock into common
stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In connection with this recapitalization, we reclassified each
share of Series&nbsp;A Convertible Preferred Stock into
1.91524&nbsp;shares of our common stock. In connection with this
recapitalization, we reclassified each share of Series&nbsp;B
Convertible Preferred Stock into 2.94212&nbsp;shares of our
common stock.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Stockholders&#146; agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In connection with our recapitalization we entered into a
stockholders&#146; agreement with certain holders of our common
stock. Under the terms of this agreement, which terminates upon
the closing of this offering, the holders of our common stock
are entitled to preemptive rights and, among other things, to
elect five board members, one of which is to be designated by
MPM BioVentures I LLC and its affiliates. In addition,
Mr.&nbsp;Taub is entitled to appoint one director.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Investor rights agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In connection with our recapitalization we entered into an
investor rights agreement with post-recapitalization holders of
our common stock. This agreement provides these holders with
rights to receive financial information and inspection rights,
all of which rights will terminate upon the closing of this
offering. This agreement also provides these holders with
certain customary registration rights, which survive the closing
of this offering, which are described in the section entitled,
&#147;Description of Capital Stock.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Common stock, warrants and options outstanding prior to the
recapitalization</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Prior to the recapitalization, there were 9,540,988&nbsp;shares
of common stock outstanding. These shares of common stock were
not affected by the recapitalization. Prior to the
recapitalization, there were 709,197 warrants outstanding with
exercise prices ranging from $4.40 to $12.29. Some of these
warrants were amended through a waiver and amendment between us
and the warrantholders, dated January&nbsp;13, 2005. Prior to
the recapitalization, there were 695,458 options to purchase
shares of common stock outstanding, with exercise prices ranging
from $1.00 to $7.76.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>THE NEW CONVERTIBLE PROMISSORY NOTES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In January 2005, we renegotiated the terms of certain 2001
convertible promissory notes and 2002 convertible promissory
notes with noteholders who did not exchange their notes in the
recapitalization. This resulted in the issuance of an aggregate
principal amount of approximately $2&nbsp;million in new
convertible promissory notes, which currently remain outstanding
and bear interest at 10%&nbsp;per annum. Included in the holders
of the new convertible promissory notes is Philippe Romagnoli,
our Vice President and Secretary. He holds an aggregate
principal amount of $906,703 of these notes.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>ADDITIONAL CONVERSION TO COMMON STOCK FOLLOWING OUR
RECAPITALIZATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In January 2005, following the recapitalization, we exchanged
$500,000 principal amount of the convertible promissory notes,
held by Philippe Romagnoli, our Vice President and Secretary,
for 415,335&nbsp;shares of common stock.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 90</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Certain relationships and related party transactions</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OTHER RELATIONSHIPS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We compensate certain of our executive officers through entities
under their control. We compensate Robert Taub, our President,
Chief Executive Officer and director, through Romata Holding AG,
of which Robert Taub is the principal stockholder. We also
compensate Philippe Romagnoli, our Vice President and Secretary,
through Bemsol&nbsp;S.A., of which Philippe Romagnoli is the
principal stockholder.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 91</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='113'></A>
</DIV>

<!-- link1 "Principal stockholders" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Principal stockholders
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table shows information known to us with respect
to the beneficial ownership of our common stock as of
December&nbsp;31, 2005, as adjusted, to reflect the sale of the
shares of common stock offered, by:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    each of our directors;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    each of our named executive officers;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    all of our directors and executive officers as a group;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#216;</FONT>&nbsp;</TD>
    <TD align="left">
    each person or group of affiliated persons whom we know to
    beneficially own more than 5% of our common stock.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Beneficial ownership and percentage ownership are determined in
accordance with the rules of the SEC. This information does not
necessarily indicate beneficial ownership for any other purpose.
In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of common
stock underlying options or warrants held by that person that
are currently exercisable or will become exercisable within
60&nbsp;days of December&nbsp;31, 2005 are deemed outstanding
and are included in the number of shares beneficially owned and
are also shown separately in the column below entitled
&#147;Options exercisable within 60&nbsp;days of
December&nbsp;31, 2005,&#148; while the shares are not deemed
outstanding for purposes of computing percentage ownership of
any other person. To our knowledge, except as indicated in the
footnotes to this table and subject to community property laws
where applicable, the persons named in the table have sole
voting and investment power with respect to all shares of our
common stock shown as beneficially owned by them.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Percentage of beneficial ownership before this offering is based
on 29,916,892&nbsp;shares of our common stock outstanding as of
December&nbsp;31, 2005
and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
outstanding immediately after this offering.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The address for those individuals for which an address is not
otherwise indicated is: c/o&nbsp;Omrix Biopharmaceuticals, Inc.,
708 Third Avenue, New York, New York 10017.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exercisable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Percent</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Percent</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>within</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>beneficially</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>beneficially</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>60&nbsp;days of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>owned</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>owned</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>beneficially</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>before this</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>after this</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name and address of beneficial owner</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>owned</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>offering</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>offering</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Directors and executive officers:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert
    Taub<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,610,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32.1</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Nissim Mashiach</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>325,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>325,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Michael Burshtine</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>370,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>350,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Philippe Romagnoli</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>515,335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fredric D. Price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Jos B.
    Peeters<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,658,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Steven St. Peter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Douglas A. Cotter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>All directors and executive officers as a group</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,810,228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,205,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Five percent stockholders:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="17">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    MPM BioVentures&nbsp;I
    LLC<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,846,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>134,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29.5</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    AlpInvest Partners
    N.V.<SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,390,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="right" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
(Footnotes on following page)
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 92</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Principal stockholders</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><I>&nbsp; *</I></TD>
    <TD align="left">
    <I>Represents beneficial ownership of less than 1%.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>Includes 5,486,962 shares of common stock held by TINV SA and
    MINV SA. Mr.&nbsp;Taub is the&nbsp;majority stockholder of these
    companies. Mr.&nbsp;Taub is the beneficial owner of these
    5,486,962&nbsp;shares of common stock and has sole voting power
    and sole dispositive power over these shares of common stock.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><I>(2)</I></TD>
    <TD align="left">
    <I>Represents:&nbsp;(1)&nbsp;620,996 shares of common stock held
    by Capricorn Venture Fund NV, an affiliate of Capricorn Venture
    Partners N.V.; (2)&nbsp;31,531 shares of common stock and 40,000
    shares of common stock issuable upon conversion of the warrants
    held by Capricorn Venture Partners N.V.; (3)&nbsp;680,817 shares
    of common stock held by Baring Capricorn Ventures LTD; and
    (4)&nbsp;1,284,891 shares of common stock held by Quest For
    Growth N.V.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I>Capricorn Venture Partners N.V. represented by
    Mr.&nbsp;Peeters and Mr.&nbsp;Marc Lambrechts, and Euro Invest
    Management NV, represented by Mr.&nbsp;Philippe Haspeslagh,
    Ms.&nbsp;Nadia Van Hove and Mr.&nbsp;Hans Bosmans, are the
    beneficial owners of 620,996 shares of common stock held by
    Capricorn Venture Fund N.V. and exercise shared voting power and
    shared dispositive power over these shares of common stock. Each
    of Mr.&nbsp;Peeters, Mr.&nbsp;Marc Lambrechts, Mr.&nbsp;Philippe
    Haspeslagh, Ms.&nbsp;Nadia Van Hove and Mr.&nbsp;Hans Bosmans
    disclaims beneficial ownership over the 620,996 shares of common
    stock held by Capricorn Venture Fund N.V., except to the extent
    of their respective pecuniary interests therein.</I></TD>
</TR>

<TR>
    <TD style="font-size: 2pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I>Mr.&nbsp;Peeters, Euro Invest Management NV, represented by
    Mr.&nbsp;Philippe Haspeslagh, and Gerard Van Acker BVBA,
    represented by Mr.&nbsp;Gerard Van Acker, are the beneficial
    owners of 31,531 shares of common stock and 40,000 shares of
    common stock issuable upon conversion of the warrants held by
    Capricorn Venture Partners N.V. and exercise shared voting power
    and shared dispositive power over these shares of common stock.
    Each of Mr.&nbsp;Peeters, Mr.&nbsp;Haspeslagh and Mr.&nbsp;Van
    Acker disclaims beneficial ownership over the 31,531 shares of
    common stock and 40,000 shares of common stock issuable upon
    conversion of the warrants held by Capricorn Venture Partners
    N.V., except to the extent of their respective pecuniary
    interest therein.</I></TD>
</TR>

<TR>
    <TD style="font-size: 2pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I>IPES Trustees LTD is the beneficial owner of 680,817 shares
    of common stock held by Baring Capricorn Ventures LTD and
    exercises sole voting power and sole dispositive power over the
    these shares of common stock. Mr.&nbsp;Peeters disclaims
    beneficial ownership over the 680,817 shares of common stock
    held by Baring Capricorn Ventures LTD, except to the extent of
    his pecuniary interests therein.</I></TD>
</TR>

<TR>
    <TD style="font-size: 2pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I>Mr.&nbsp;Peeters, Auxilium Keerbergen BVBA, represented by
    Mr.&nbsp;Frans Theeuwes, Bergendal &#38; Co SPRL, represented by
    Duke Diego du Monceau de Bergendal, Gengest BVBA, represented by
    Mr.&nbsp;Rudi Marien, Euro Investment Management BVBA,
    represented by Mr.&nbsp;Philippe Haspeslagh, Pamica NV,
    represented by Mr.&nbsp;Michel Akkermans, Tacan BVBA,
    represented by Mr Johan Tack, Quest Management NV, represented
    by Mr.&nbsp;Ren&#233; Avonts, Mr.&nbsp;Koenraad Debackere,
    Mr.&nbsp;Dirk Vanderschrick and De Meiboom NV, represented by
    Mr.&nbsp;Leo Claeys, are the beneficial owners of 1,284,891
    shares of common stock held by Quest For Growth N.V. and
    exercise shared voting power and shared dispositive power over
    these shares. Each of Mr.&nbsp;Peeters, Mr.&nbsp;Frans Theeuwes,
    Duke Diego du Monceau de Bergendal, Mr.&nbsp;Rudi Marien,
    Mr.&nbsp;Philippe Haspeslagh, Mr.&nbsp;Michel Akkermans,
    Mr.&nbsp;Johan Tack, Mr.&nbsp;Ren&#233; Avonts,
    Mr.&nbsp;Koenraad Debackere, Mr.&nbsp;Dirk Vanderschrick and
    Mr.&nbsp;Leo Claeys disclaims beneficial ownership over the
    1,284,891 shares of common stock held by Quest For Growth N.V.,
    except to the extent of their respective pecuniary interests
    therein.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><I>(3)</I></TD>
    <TD align="left">
    <I>Represents: (1)&nbsp;8,711,507&nbsp;shares of common stock
    held by BB Bioventures LP, MPM Asset Management Investors 1998
    LLC and MPM BioVentures Parallel Fund&nbsp;LP, each an affiliate
    of MPM BioVentures I LLC and (2)&nbsp;134,740&nbsp;shares of
    common stock issuable upon conversion of the warrants held by
    MPM Capital, L.P, the general partner of MPM BioVentures&nbsp;I
    LLC.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 93</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Principal stockholders</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <I>Dr.&nbsp;Ansbert Gadicke, Dr.&nbsp;Luke Evnin and
    Dr.&nbsp;Michael Steinmetz are managing members of MPM
    BioVentures&nbsp;I LLC and MPM Asset Management Investors 1998
    LLC. Dr.&nbsp;Gadicke, Dr.&nbsp;Evnin and Dr.&nbsp;Steinmetz may
    be deemed the beneficial owners of 8,711,507&nbsp;shares of
    common stock held by affiliates of MPM BioVentures&nbsp;I LLC
    and exercise shared voting power and shared dispositive power
    over the 8,711,507&nbsp;shares of common stock held by
    affiliates of MPM BioVentures&nbsp;I LLC. Each of
    Dr.&nbsp;Gadicke, Dr.&nbsp;Evnin and Dr.&nbsp;Steinmetz
    disclaims beneficial ownership over the 8,711,507&nbsp;shares
    held by affiliates of MPM BioVentures I LLC, except to the
    extent of their respective pecuniary interests therein.
    Dr.&nbsp;Gadicke and Dr.&nbsp;Evnin may be deemed the beneficial
    owners of 134,740&nbsp;shares of common stock issuable upon
    conversion of the warrants held by MPM Capital, L.P, and
    exercise shared voting power and shared dispositive power over
    these shares of common stock held by MPM Capital, L.P. Each of
    Dr.&nbsp;Gadicke and Dr.&nbsp;Evnin disclaims beneficial
    ownership over the 134,740&nbsp;shares of common stock issuable
    upon conversion of the warrants held by MPM Capital, L.P.,
    except to the extent of their respective pecuniary interests
    therein. The address for MPM Capital, L.P., and MPM
    BioVentures&nbsp;I LLC and its affiliates is The John Hancock
    Tower, 200 Clarendon Street, 54th&nbsp;Floor, Boston,
    MA&nbsp;02116.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><I>(4)</I></TD>
    <TD align="left">
    <I>Represents shares of common stock held by Investment
    Fund&nbsp;I&#151;Direct en. Co. C.V., an affiliate of AlpInvest
    Partners N.V. AlpInvest Partners N.V. is the beneficial owner of
    these shares of common stock and has sole voting power and sole
    dispositive power over these shares of common stock. The address
    for AlpInvest Partners N.V. is Jachthavenweg 118, 1081 KJ
    Amsterdam, The Netherlands.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 94</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='114'></A>
</DIV>

<!-- link1 "Description of capital stock" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Description of capital stock
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>GENERAL</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In connection with this offering, we will amend and restate our
certificate of incorporation and by-laws. The following summary
of our capital stock does not relate to our current amended and
restated certificate of incorporation or amended and restated
<FONT style="white-space: nowrap">by-laws,</FONT> but rather is
a description of our capital stock under the certificate of
incorporation and
<FONT style="white-space: nowrap">by-laws,</FONT> which will be
in effect upon completion of this offering.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Upon completion of this offering, the total amount of our
authorized capital stock will consist of 120,000,000&nbsp;shares
of common stock, par value $0.01&nbsp;per share, and
20,000,000&nbsp;shares of preferred stock, par value
$0.01&nbsp;per share. As of December&nbsp;31, 2005, there were
29,916,892&nbsp;shares of common stock outstanding and no shares
of preferred stock outstanding. As of December&nbsp;31, 2005, we
had approximately 46 record holders of our common stock. In
addition, as of December&nbsp;31, 2005, 3,275,636&nbsp;shares of
our common stock were reserved for grants under our 2004 Equity
Incentive Plan and options to purchase a total of
2,026,796&nbsp;shares of our common stock were outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Immediately after this offering, there will
be &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock and no shares of our preferred stock
outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following description of our capital stock does not purport
to be complete and is subject to, and is qualified by, our
certificate of incorporation and by-laws, which are filed as
exhibits to the registration statement of which this prospectus
is a part, and by the applicable provisions of Delaware law.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>COMMON STOCK</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Voting</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The holders of our common stock are entitled to one vote for
each share held of record on each matter submitted to a vote of
stockholders, including the election of directors, and do not
have any right to cumulative votes in the election of directors.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Dividends</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Subject to the rights and preferences of the holders of any
series of preferred stock which may at the time be outstanding,
holders of our common stock are entitled to such dividends as
our board of directors may declare from time to time out of
legally available funds. Dividends on the common stock are not
cumulative.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Liquidation rights</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In the event of any liquidation, dissolution or
<FONT style="white-space: nowrap">winding-up</FONT> of our
affairs, after payment of all of our debts and liabilities, and
subject to the rights and preferences of the holders of any
outstanding shares of any series of our preferred stock, the
holders of our common stock will be entitled to receive their
pro rata distribution of any of our remaining assets.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Other matters</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Holders of our common stock have no conversion, preemptive or
other subscription rights and there are no redemption rights or
sinking fund provisions with respect to the common stock. The
shares of our common stock to be sold in this offering when
issued and paid for will be validly issued, fully paid and
non-assessable.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 95</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Description of capital stock</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Preferred stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are authorized to issue up to 20,000,000&nbsp;shares of
preferred stock. Our certificate of incorporation authorizes our
board, from time to time, without any further stockholder action
or approval: to issue these shares in one or more classes or
series; to establish from time to time the number of shares to
be included in each class or series; and to fix the rights,
preferences and privileges of the shares of each wholly unissued
class or series and any of its qualifications, limitations or
restrictions. In some circumstances, the issuance of shares of
preferred stock may render more difficult or tend to discourage
a merger, tender offer or proxy contest, the assumption of
control by a holder of a large block of our securities or the
removal of incumbent management. Our board may authorize the
issuance of preferred stock with voting or conversion rights
that could adversely affect the voting power or other rights of
the holders of our common stock. We currently have no plans to
issue any shares of preferred stock.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION,
BY-LAWS AND DELAWARE&nbsp;LAW</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Provisions of our certificate of incorporation, by-laws and
Delaware law, which are summarized below, may be deemed to have
an <FONT style="white-space: nowrap">anti-takeover</FONT> effect
and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider in such
stockholder&#146;s best interest, including those attempts that
might result in a premium over the market price for our common
stock. These provisions include the elimination of stockholder
action by written consents, elimination of the ability of
stockholders to call special meetings, advance notice procedures
for stockholder proposals and director nominations,
supermajority vote requirements for amendments to our
certificate of incorporation and by-laws, and certain Delaware
law provisions.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Number of directors; removal for cause; filling vacancies</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our certificate of incorporation provides that our board of
directors will consist of not less than one nor more than eight
members, the exact number of which will be fixed from time to
time by our board. Upon completion of this offering, our board
of directors will consist of five directors.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our certificate of incorporation and by-laws provide that
directors may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of at
least 80% of the voting power of the issued and outstanding
shares of our capital stock entitled to vote generally at an
election of directors. Our certificate of incorporation and
<FONT style="white-space: nowrap">by-laws</FONT> also provide
that any newly created directorships on our board may only be
filled by a majority of the board then in office, provided that
a quorum is present, and any other vacancy occurring on the
board may only be filled by a majority of the board then in
office, even if less than a quorum, or by a sole remaining
director. Any director elected in accordance with the preceding
sentence will hold office for the remainder of the full term
until such director&#146;s successor shall have been elected and
qualified. No decrease in the number of directors constituting
the board of directors shall have the effect of shortening the
term of any incumbent director.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The director removal and vacancy provisions will make it more
difficult for a stockholder to remove incumbent directors and
simultaneously gain control of the board by filling vacancies
created by such removal with its own nominees.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Special meetings of stockholders</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our certificate of incorporation and by-laws deny stockholders
the right to call a special meeting of stockholders. Our by-laws
provide that a special meeting of stockholders may be called
only by the chairman of our board, the president, any vice
president, the secretary or any assistant secretary.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 96</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Description of capital stock</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Stockholder action by written consent</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our certificate of incorporation and by-laws require all
stockholder actions to be taken by a vote of the stockholders at
an annual or special meeting and denies the ability of
stockholders to act by written consent without a meeting.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Stockholder proposals</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
At an annual meeting of stockholders, only business that is
properly brought before the meeting will be conducted or
considered. To be properly brought before an annual meeting of
stockholders, business must be specified in the notice of the
meeting (or any supplement to that notice), brought before the
meeting by or at the direction of the board (or any duly
authorized committee of the board) or properly brought before
the meeting by a stockholder. For business to be properly
brought before an annual meeting by a stockholder, the
stockholder must:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">be a stockholder of record on the
    date of the giving of the notice for the meeting;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">be entitled to vote at the
    meeting;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">have given timely written notice
    of the business in proper written form to our secretary.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
To be timely, a stockholder&#146;s notice must be delivered to
or mailed and received at our principal executive offices not
less than 90&nbsp;days nor more than 120&nbsp;days prior to the
anniversary date of the last annual meeting; provided, however,
that in the event that the annual meeting is called for a date
that is not within 30&nbsp;days before or after the anniversary
date, notice by the stockholder must be received not later than
the close of business on the 10th&nbsp;day following the day on
which notice of the date of the annual meeting was mailed or
public disclosure of the date of the annual meeting was made,
whichever first occurs.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
To be in proper written form, a stockholder&#146;s notice to the
secretary must set forth as to each matter the stockholder
proposes to bring before the annual meeting:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">a brief description of the
    business desired to be brought before the annual meeting and the
    reasons for conducting the business at the annual meeting;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the name and address, as they
    appear on our books, of the stockholder proposing such business;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the class or series and number of
    our shares which are owned beneficially or of record by the
    stockholder proposing the business;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">a description of all arrangements
    or understandings between such stockholder and any other person
    or persons (including their names) in connection with the
    proposal of such business by such stockholder and any material
    interest of such stockholder in the business;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">a representation that the
    stockholder intends to appear in person or by proxy at the
    meeting to bring the business before the meeting.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Similarly, at a special meeting of stockholders, only such
business as is properly brought before the meeting will be
conducted or considered. To be properly brought before a special
meeting, business must be specified in the notice of the meeting
(or any supplement to that notice).
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Nomination of candidates for election to our board</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under our <FONT style="white-space: nowrap">by-laws,</FONT> only
persons who are properly nominated will be eligible for election
to be members of our board. To be properly nominated, a director
candidate must be nominated at an annual meeting of the
stockholders or any special meeting called for the purpose of
electing directors
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 97</B>
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Description of capital stock</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
by or at the direction of our board (or any duly authorized
committee of the board) or properly nominated by a stockholder.
To properly nominate a director, a stockholder must:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">be a stockholder of record on the
    date of the giving of the notice for the meeting;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">be entitled to vote at the
    meeting;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">have given timely written notice
    in proper written form to our secretary.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
To be timely, a stockholder&#146;s notice must be delivered to
or mailed and received at our principal executive offices:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">in the case of an annual meeting,
    not less than 90&nbsp;days nor more than 120&nbsp;days prior to
    the anniversary date of the last annual meeting of our
    stockholders; provided, however, that in the event that the
    annual meeting is called for a date that is not within
    30&nbsp;days before or after the anniversary date of the last
    annual meeting, notice by the stockholder must be received not
    later than the close of business on the 10th&nbsp;day following
    the day on which notice of the date of the annual meeting was
    mailed or public disclosure of the date of the annual meeting
    was made, whichever first occurs;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">in the case of a special meeting
    of stockholders called for the purpose of electing directors,
    not later than the close of business on the 10th&nbsp;day
    following the day on which notice of the date of such meeting
    was mailed or public disclosure of the date of the special
    meeting was made, whichever first occurs.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
To be in proper written form, a stockholder&#146;s notice to the
secretary must be accompanied by a written consent of each
proposed nominee to being named as a nominee and to serve as a
director if elected and must set forth:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">as to each person whom the
    stockholder proposes to nominate for election as a director:
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="2%"></TD>
    <TD width="2%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    the name, age, business address and residence address of the
    person;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    the principal occupation or employment of the person;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    the class or series and number of shares of our capital stock
    that are owned beneficially or of record by the person;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    any other information relating to the person that would be
    required to be disclosed in a proxy statement or other filings
    required to be made in connection with solicitations of proxies
    for election of directors pursuant to Section&nbsp;14 of the
    Securities Exchange Act of 1934, as amended, or the Exchange
    Act, and the rules and regulations promulgated
    thereunder;&nbsp;and</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">as to the stockholder giving the
    notice:
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="2%"></TD>
    <TD width="2%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    the name and record address of such stockholder;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    the class or series and number of shares of our capital stock
    that are owned beneficially or of record by such stockholder;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    a description of all arrangements or understandings between such
    stockholder and each proposed nominee and any other person or
    persons (including their names) under which the nomination(s)
    are to be made by such stockholder;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    a representation that the stockholder intends to appear in
    person or by proxy at the meeting to nominate the persons named
    in its notice;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD align="left">
    any other information relating to such stockholder that would be
    required to be disclosed in a proxy statement or other filings
    required to be made in connection with solicitations of proxies</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 98</B>
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Description of capital stock</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="2%"></TD>
    <TD width="2%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    for election of directors pursuant to Section&nbsp;14 of the
    Exchange Act and the rules and regulations promulgated
    thereunder.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Amendment of certificate of incorporation and by-laws</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our certificate of incorporation generally requires the approval
of the holders of at least eighty percent (80%) of the voting
power of the issued and outstanding shares of our capital stock
entitled to vote generally at an election of directors to amend
certain provisions of our certificate of incorporation described
in this section. Our certificate of incorporation and by-laws
provide that the holders of at least eighty percent (80%) of the
voting power of the issued and outstanding shares of our capital
stock entitled to vote generally at an election of directors
have the power to amend or repeal our
<FONT style="white-space: nowrap">by-laws.</FONT> In addition,
our certificate of incorporation grants our board of directors
the authority to amend and repeal our
<FONT style="white-space: nowrap">by-laws</FONT> without a
stockholder vote in any manner not inconsistent with the laws of
the State of Delaware or our certificate of incorporation.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Delaware law</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We will be subject to the provisions of Section&nbsp;203 of the
DGCL regulating corporate takeovers. In general, those
provisions prohibit a Delaware corporation from engaging in any
business combination with any interested stockholder for a
period of three years following the date that the stockholder
became an interested stockholder, unless:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">prior to that date, the board of
    directors of the corporation approved either the business
    combination or the transaction which resulted in the stockholder
    becoming an interested stockholder;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">upon consummation of the
    transaction which resulted in the stockholder becoming an
    interested stockholder, the interested stockholder owned at
    least 85% of the voting stock of the corporation outstanding at
    the time the transaction commenced, excluding for purposes of
    determining the voting stock outstanding those shares owned by
    directors and officers and shares issued under employee stock
    plans under which employee participants do not have the right to
    determine confidentially whether shares held subject to the plan
    will be tendered in a tender or exchange offer;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">on or after the date the business
    combination is approved by the board of directors and authorized
    at an annual or special meeting of stockholders by at least
    <FONT style="white-space: nowrap">two-thirds</FONT> of the
    outstanding voting stock which is not owned by the interested
    stockholder.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Section&nbsp;203 defines &#147;business combination&#148; to
include the following:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">any merger or consolidation
    involving the corporation and the interested stockholder;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">any sale, transfer, pledge or
    other disposition of 10% or more of the assets of the
    corporation involving the interested stockholder;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">subject to certain exceptions, any
    transaction that results in the issuance or transfer by the
    corporation of any stock of the corporation to the interested
    stockholder;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">any transaction involving the
    corporation that has the effect of increasing the proportionate
    share of the stock of any class or series of the corporation
    beneficially owned by the interested stockholder;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the receipt by the interested
    stockholder of the benefit of any loans, advances, guarantees,
    pledges or other financial benefits provided by or through the
    corporation.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 99</B>
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Description of capital stock</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In general, Section&nbsp;203 defines an interested stockholder
as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or
person affiliated with or controlling, controlled by, or under
common control with the entity or person.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Warrants and new convertible promissory notes</B>
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Warrants</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
As of December&nbsp;31, 2005, the warrants described below were
outstanding. These warrants contain anti-dilution provisions
providing for adjustments to the exercise price and the number
of shares underlying the warrant upon the occurrence of certain
events, including any issuance of common stock at a certain
price, rights, options, or convertible securities,
reclassification, stock dividend, stock split, stock
combination, or merger, consolidation or sale of substantially
all of the assets, recapitalization or other similar
transaction. All of these warrants, except the one described in
the fourth bullet below, have net exercise provisions under
which the holder may, in lieu of payment of the exercise price
in cash, surrender the warrant and receive a net amount of
shares based on the fair market value of our common stock at the
time of exercise of the warrant after deduction of the aggregate
exercise price. The holder of the warrants described in the
third bullet below is entitled upon exercise of the warrants to
the payment of any declared or paid dividends (except for a
stock dividend payable in common stock) that would have been
paid to the holder of the warrant had the warrant been fully
exercised prior to the record date or date used to determine
entitlement to the dividend. In addition, the holders of
warrants, described in the first, second and fifth bullets below
are entitled to certain registration rights, as described in the
section of this prospectus entitled &#147;&#151;Registration
rights.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have issued the following outstanding warrants that expire:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">in December 2008 to
    purchase&nbsp;449,410&nbsp;shares of our common stock at a price
    per share of $5.55.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">in December 2008 to purchase
    59,787&nbsp;shares of our common stock at a price per share of
    $6.17.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">in July 2014 to
    purchase&nbsp;100,000&nbsp;shares of our common stock at a price
    per share of $4.18.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">in September 2009 to
    purchase&nbsp;14,952&nbsp;shares of our common stock at a price
    per share of $4.18 and December 2009 to
    purchase&nbsp;14,952&nbsp;shares of our common stock at a price
    per share of $4.18.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">in August 2013 to
    purchase&nbsp;100,000&nbsp;shares of our common stock at a price
    per share of $4.40.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">on the earlier of March 2012 or
    three years after an initial public offering to
    purchase&nbsp;149,522&nbsp;shares of our common stock at a price
    per share of $4.18.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>New convertible promissory notes</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
As of December&nbsp;31, 2005, we had outstanding an amended and
restated senior convertible promissory note, or the 2005
Series&nbsp;A Note, in the principal amount of $752,148, and a
series of amended and restated senior convertible promissory
notes, or the 2005 Series&nbsp;B Notes, in the principal amount
of $1,214,802. The 2005 Series&nbsp;A Note and the 2005
Series&nbsp;B Notes pay interest of 10%, compounded annually on
the basis of a 365&nbsp;day year and are payable on the maturity
date of December&nbsp;30, 2007. Both series of these new
convertible promissory notes have similar terms, except with
respect to prepayment premium. We may prepay the 2005
Series&nbsp;A Note, at any time, upon payment of the principal
amount and a prepayment premium equal to 50% of the principal
amount plus accrued interest to the date of prepayment. We may
prepay the 2005 Series&nbsp;B Note, at any time, upon payment
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 100</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Description of capital stock</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
of the principal amount and a prepayment premium, equal to two
times the face amount up to January&nbsp;29, 2006, one times the
face amount from January&nbsp;29, 2006 to January&nbsp;29, 2007
and one-half times the face amount thereafter.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The holder of either series of these new convertible promissory
notes may demand repayment of the notes, together with the
prepayment premium and accrued interest described above, upon a
change of control. A change of control is defined as the
consummation of any transaction or series of transactions where
holders of record of our common stock immediately prior to the
transaction hold less than 50% of our common stock after the
transaction on a fully diluted basis or consummation of an
initial public offering. Change of control does not include a
financing where our existing investors retain 50% or more of our
common stock on a fully diluted basis. At the sole election of
the holder of either series of these new convertible promissory
notes, the principal balance of the note and any accrued and
unpaid interest may be converted into securities issued in our
next financing upon the closing of such financing in which the
aggregate gross proceeds to us from third party purchasers are
at least $10,000,000, which financings that trigger a change of
control are excluded. To the extent the note is not converted in
the next financing the conversion privilege terminates. The
conversion price is equal to the lower of 80% of the price paid
by investors in the next financing and $2.25&nbsp;per security.
The terms of the note restrict the incurrence of additional debt
to an aggregate of $5.0&nbsp;million without consent of the
majority of the holders of the 2005 Series&nbsp;A Note and 2005
Series&nbsp;B Notes, acting as a single series.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Registration rights</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Certain holders of shares of common stock, shares of common
stock issuable upon the exercise of outstanding options and
warrants are entitled to registration rights with respect to
these securities as set forth in agreements between us and the
holders of these securities. We are generally required to pay
all expenses, excluding underwriting discounts and commissions,
related to registrations effected in connection with the
following rights, including in some cases the fees and expenses
of counsel representing the registering security holders.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Investor rights agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
In January 2005, in connection with our recapitalization, we
entered into an investor rights agreement, with certain holders
of our common stock. Under the agreement, beginning
180&nbsp;days after the closing of this offering, if a holder or
holders of at least a majority of our outstanding shares of
common stock request that we file a registration statement
related to the sale of our securities held by such holders, we
will use our best commercial efforts to cause such shares to be
registered, subject to certain limitations. We are not obligated
to effect more than two registrations under this demand
provision. In the case of an underwritten offering, these demand
registration rights are subject to customary cutbacks.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If available for our use, a holder or holders of at least 1% of
our outstanding shares of common stock holding in the aggregate
not less than 1,000,000&nbsp;shares that may be registered under
the agreement, may request that we file a registration statement
on <FONT style="white-space: nowrap">Form&nbsp;S-3</FONT> or
other similar short-form registration statement, subject to
customary cutbacks in the case of an underwritten offering.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition to the demand registration rights, if we register
any of our securities under the Securities Act after this
offering, any holder or holders of at least 1% of our
outstanding shares of common stock may require that we include
some or all of the shares held by them in that registration,
subject to cutbacks in the case of an underwritten offering.
However, in no event may the cutback reduce the number of shares
requested to be included by such holder or holders to be less
than 25% of the total included in the underwriting.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 101</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Description of capital stock</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our obligations to register shares of our common stock under the
agreement terminate as to shares that are: sold under a
registration statement or Rule&nbsp;144 under the Securities
Act, transferred, prior to the consummation of this offering, in
a manner that was not in compliance with the stockholder rights
agreement between us and our stockholders or held by any holder
when less than 100,000&nbsp;shares of common stock are held by
such holder and all of such shares may be sold under
Rule&nbsp;144(k) of the Securities Act.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The holders of our common stock and warrants have agreed to not
sell or otherwise transfer or dispose of any shares (excluding
shares acquired in or following our initial public offering) for
such period of time as required by the underwriters, in
connection with our initial public offering, not to exceed
180&nbsp;days following the effective date of the registration
statement.
</DIV>

<DIV align="left" style="font-size: 9pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Warrants</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Under certain warrants that we have issued, we have agreed that
for five years after the closing of this offering, if we
register any of our securities under the Securities Act, a
holder may require that we include some or all of the shares
held by them in that registration, subject to cutbacks in the
case of an underwritten offering. In addition, we have agreed
that, if available for our use, a holder or holders of at least
$300,000 estimated value of securities that may be registered
under the terms of the warrant, may request that we file a
registration statement on
<FONT style="white-space: nowrap">Form&nbsp;S-3</FONT> or other
similar short-form registration statement. Our obligation to
register shares of our common stock under the warrants on
<FONT style="white-space: nowrap">Form&nbsp;S-3</FONT> or other
similar short-form registration statement terminates as to
shares that may be sold under Rule&nbsp;144(k) within thirty
days of the proposed effective date of the registration
statement.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under another warrant we have issued, we have agreed that if we
file a registration statement registering any common stock for
any of our other stockholders, we will include the common stock
issuable upon exercise of this warrant. However, we will not be
obliged to register any shares that may be sold under
Rule&nbsp;144(k).
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NASDAQ NATIONAL MARKET LISTING</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have applied to have our common stock approved for quotation
on NASDAQ under the symbol &#147;OMRI.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>TRANSFER AGENT AND REGISTRAR</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Upon the closing of this offering, the transfer agent and
registrar for our common stock will be American Stock Transfer
and Trust Company.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 102</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='115'></A>
</DIV>

<!-- link1 "Shares eligible for future sale" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Shares eligible for future sale
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of our common
stock in the public market, or the perception that these sales
could occur, could adversely affect the price of our common
stock.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Based on the number of shares outstanding as
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
we will have
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock outstanding after the completion of this
offering
(approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
if the underwriters exercise their over-allotment option in
full). Of those shares,
the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock sold in this offering
(&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
if the underwriters exercise their over-allotment option in
full) will be freely transferable without restriction, unless
purchased by our affiliates. The
remaining &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock to be outstanding immediately following the
completion of this offering, which are &#147;restricted
securities&#148; under Rule&nbsp;144 of the Securities Act, or
Rule&nbsp;144, as well as any other shares held by our
affiliates, may not be resold except pursuant to an effective
registration statement or an applicable exemption from
registration, including an exemption under Rule&nbsp;144.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>LOCK-UP AGREEMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The holders of
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of outstanding common stock as of the closing of this offering
and the holders
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock underlying options and warrants as of the
closing of this offering, including all of our officers and
directors, have entered into
<FONT style="white-space: nowrap">lock-up</FONT> agreements
under which they have generally agreed, subject to certain
exceptions, not to offer or sell any shares of common stock or
securities convertible into or exchangeable or exercisable for
shares of common stock for a period of at least 180&nbsp;days
from the date of this prospectus without the prior written
consent of UBS Securities LLC. See &#147;Underwriting&#151; No
sale of similar securities.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>RULE&nbsp;144</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In general, under Rule&nbsp;144, an affiliate of ours who
beneficially owns shares of our common stock that are not
restricted securities, or a person who beneficially owns for
more than one year shares of our common stock that are
restricted securities, may generally sell, within any
three-month period, a number of shares that does not exceed the
greater of:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">1% of the number of shares of our
    common stock then outstanding, which will equal
    approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    immediately after this offering;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the average weekly trading volume
    of our common stock on NASDAQ during the four preceding calendar
    weeks.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Sales under Rule&nbsp;144 are also subject to requirements with
respect to manner of sale, notice and the availability of
current public information about us. Generally, a person who was
not our affiliate at any time during the three months before the
sale, and who has beneficially owned shares of our common stock
that are restricted securities for at least two years, may sell
those shares without regard to the volume limitations, manner of
sale provisions, notice requirements or the requirements with
respect to availability of current public information about us.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Rule&nbsp;144 does not supersede the contractual obligations of
our security holders set forth in the
<FONT style="white-space: nowrap">lock-up</FONT> agreements
described above.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>RULE&nbsp;701</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Generally, an employee, officer, director or consultant who
purchased shares of our common stock before the effective date
of the registration statement of which this prospectus is a
part, or who holds
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 103</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Shares eligible for future sale</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
options as of that date, under a written compensatory plan or
contract, may rely on the resale provisions of Rule&nbsp;701
under the Securities Act. Under Rule&nbsp;701, these persons who
are not our affiliates may generally sell their eligible
securities, commencing 90&nbsp;days after the effective date of
the registration statement of which this prospectus is a part,
without having to comply with the public information, holding
period, volume limitation or notice provisions of Rule&nbsp;144.
These persons who are our affiliates may generally sell their
eligible securities under Rule&nbsp;701, commencing 90&nbsp;days
after the effective date of the registration statement of which
this prospectus is a part, without having to comply with
Rule&nbsp;144&#146;s one-year holding period restriction.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Neither Rule&nbsp;144 nor Rule&nbsp;701 supersedes the
contractual obligations of our security holders set forth in the
<FONT style="white-space: nowrap">lock-up</FONT> agreements
described above.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>SALE OF RESTRICTED SHARES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock that were outstanding
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;will
become eligible for sale, pursuant to Rule&nbsp;144 or
Rule&nbsp;701, without registration approximately as follows:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock will be immediately eligible for sale in the
    public market without restriction;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock will be eligible for sale in the public market
    under Rule&nbsp;144 or Rule&nbsp;701, beginning 90&nbsp;days
    after the effective date of the registration statement of which
    this prospectus is a part, subject to the volume, manner of sale
    and other limitations under those rules;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the
    remaining &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock will become eligible under Rule&nbsp;144 for
    sale in the public market from time to time after the effective
    date of the registration statement of which this prospectus is a
    part upon expiration of their respective holding periods.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The above does not take into consideration the effect of the
<FONT style="white-space: nowrap">lock-up</FONT> agreements
described above.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>REGISTRATION RIGHTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Upon completion of this offering, the holders of
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common
stock, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock issuable upon the exercise of outstanding
options
and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock issuable upon the exercise of outstanding
warrants and new convertible promissory notes, or their
transferees, will be entitled to various rights with respect to
the registration of these shares under the Securities Act.
Registration of these shares under the Securities Act would
result in these shares becoming freely tradeable without
restriction under the Securities Act immediately upon the
effectiveness of the registration, except for shares held by
affiliates.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>EQUITY PLAN</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We intend to file a registration statement on
<FONT style="white-space: nowrap">Form&nbsp;S-8</FONT> under the
Securities Act to register the shares of common stock available
for issuance under our 2004 Equity Incentive Plan and 2005
Equity Incentive Plan for Israeli Employees. Subject to the
<FONT style="white-space: nowrap">lock-up</FONT> agreements,
shares issued under these plans after the effective date of such
registration statement will be available for sale in the open
market and, for our affiliates, subject to the conditions and
restrictions of Rule&nbsp;144. As of December&nbsp;31, 2005,
options to purchase a total of 2,026,796&nbsp;shares of common
stock were outstanding and 1,968,507&nbsp;shares of our common
stock were available for future grant.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 104</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='116'></A>
</DIV>

<!-- link1 "Material U.S. federal income and estate tax consequences to non-U.S. holders" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Material U.S.&nbsp;federal income and estate tax consequences to
<FONT style="white-space: nowrap">non-U.S.&nbsp;holders
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following is a general discussion of material
U.S.&nbsp;federal income and estate tax consequences of the
ownership and disposition of our common stock that may be
relevant to a
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
that acquires our common stock pursuant to this offering. The
discussion is based on provisions of the Internal Revenue Code
of 1986, as amended, or the Code, applicable U.S.&nbsp;Treasury
regulations promulgated thereunder and U.S.&nbsp;Internal
Revenue Service, or IRS, rulings and pronouncements and judicial
decisions, all as in effect on the date of this prospectus, and
all of which are subject to change, possibly on a retroactive
basis, or different interpretations. We have not sought, and
will not seek, any ruling from the IRS with respect to the tax
consequences discussed in this prospectus, and there can be no
assurance that the IRS will not take a position contrary to the
tax consequences discussed below or that any positions taken by
the IRS would not be sustained.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The discussion is limited to
<FONT style="white-space: nowrap">non-U.S.&nbsp;holders</FONT>
that hold our common stock as a &#147;capital asset&#148; within
the meaning of Section&nbsp;1221 of the Code (generally,
property held for investment). As used in this discussion, the
term
<FONT style="white-space: nowrap">&#147;non-U.S.&nbsp;holder&#148;</FONT>
means a beneficial owner of our common stock that is not, for
U.S.&nbsp;federal income tax purposes:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">an individual who is a citizen or
    resident of the U.S.;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">a corporation (including any
    entity treated as a corporation for U.S.&nbsp;federal income tax
    purposes) created or organized in or under the laws of the
    U.S.&nbsp;or any political subdivision thereof;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">an estate the income of which is
    includible in gross income for U.S.&nbsp;federal income tax
    purposes regardless of its source;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">a trust (1)&nbsp;if a
    U.S.&nbsp;court is able to exercise primary supervision over the
    administration of the trust and one or more U.S.&nbsp;persons
    have authority to control all substantial decisions of the
    trust, or (2) that has made a valid election to be treated as a
    U.S.&nbsp;person for such purposes.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
This discussion specifically does not address U.S.&nbsp;federal
income and estate tax rules applicable to any person who holds
our common stock through entities treated as partnerships for
U.S.&nbsp;federal income tax purposes or through entities which
are disregarded for U.S.&nbsp;federal income tax purposes or to
such entities themselves. If a partnership (including any entity
or arrangement treated as a partnership for such purposes) owns
our common stock, the tax treatment of a partner in the
partnership will depend upon the status of the partner and the
activities of the partnership. A holder that is a partnership, a
disregarded entity or holders of interests in such entities
should consult their own tax advisor regarding the tax
consequences of the purchase, ownership and disposition of our
common stock.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
This discussion does not consider:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">any U.S.&nbsp;state, local or
    foreign tax consequences;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">any U.S.&nbsp;federal gift tax
    consequences;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">any U.S.&nbsp;federal tax
    consideration that may be relevant to a
    <FONT style="white-space: nowrap">non-U.S.&nbsp;</FONT> holder
    in light of its particular circumstances or to
    <FONT style="white-space: nowrap">non-U.S.&nbsp;</FONT> holders
    that may be subject to special treatment under U.S.&nbsp;federal
    tax laws, including without limitation, banks or other financial
    institutions, insurance companies, common trust funds,
    tax-exempt organizations, certain trusts, hybrid entities,
    certain former citizens or residents of the U.S., holders
    subject to U.S.&nbsp;federal alternative minimum tax,
    broker-dealers, and dealers or traders in securities or
    currencies;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">special tax rules that may apply
    to a
    <FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
    that is deemed to sell our common stock under the constructive
    sale provisions of the Code and to a
    <FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
    that holds our common
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 105</B>
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Material U.S.&nbsp;federal income and estate tax consequences
to
<FONT style="white-space: nowrap">non-U.S.&nbsp;holders</FONT></B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    stock as part of a &#147;straddle,&#148; &#147;hedge,&#148;
    &#147;conversion transaction,&#148; &#147;synthetic
    security&#148; or other integrated investment.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>This discussion is for general purposes only. Prospective
investors are urged to consult their own tax advisors regarding
the application of the U.S. federal income and estate tax laws
to their particular situations and the consequences under U.S.
federal gift tax laws, as well as foreign, state and local laws
and tax treaties.</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>DIVIDENDS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As previously discussed, we do not anticipate paying dividends
on our common stock in the foreseeable future as described in
the section of this prospectus entitled &#147;Dividend
policy.&#148; If we pay dividends on our common stock, those
payments will constitute dividends for U.S.&nbsp;federal income
tax purposes to the extent paid from our current or accumulated
earnings and profits, as determined under U.S.&nbsp;federal
income tax principles. To the extent those distributions exceed
our current and accumulated earnings and profits, the
distributions will constitute a return of capital and first
reduce the
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder&#146;s</FONT>
adjusted tax basis, but not below zero, and then will be treated
as gain from the sale of stock, as described in the section of
this prospectus entitled &#147;Gain on disposition of common
stock.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Dividends paid to a
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
generally will be subject to withholding of U.S.&nbsp;federal
income tax at a 30% rate, or a lower rate under an applicable
income tax treaty, unless the dividend is effectively connected
with the conduct of a trade or business of the
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
within the U.S.&nbsp;or, if an income tax treaty applies,
attributable to a permanent establishment of the
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
within the U.S.&nbsp;Under applicable U.S.&nbsp;Treasury
regulations, a
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
(including, in certain cases of
<FONT style="white-space: nowrap">non-U.S.&nbsp;holders</FONT>
that are entities, the owner or owners of such entities) will be
required to satisfy certain certification and disclosure
requirements in order to claim a reduced rate of withholding
pursuant to an applicable income tax treaty.
<FONT style="white-space: nowrap">Non-U.S.&nbsp;holders</FONT>
should consult their tax advisors regarding their entitlement to
benefits under a relevant income tax treaty.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Dividends that are effectively connected with a
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder&#146;s</FONT>
conduct of a trade or business in the U.S.&nbsp;or, if an income
tax treaty applies, attributable to a permanent establishment in
the U.S., are taxed on a net income basis at the regular
graduated U.S.&nbsp;federal income tax rates in the same manner
as if the
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
were a resident of the U.S. In such cases, we will not have to
withhold U.S.&nbsp;federal income tax if the
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
complies with applicable certification and disclosure
requirements. In addition, a &#147;branch profits tax&#148; may
be imposed at a 30% rate, or a lower rate under an applicable
income tax treaty, on dividends received by a foreign
corporation that are effectively connected with the conduct of a
trade or business in the U.S.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
A <FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
that is eligible for a reduced rate of U.S.&nbsp;federal
withholding tax under an income tax treaty may obtain a refund
or credit of any excess amounts withheld by filing an
appropriate claim for a refund together with the required
information with the IRS.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>GAIN ON DISPOSITION OF COMMON STOCK</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
A <FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
generally will not be subject to U.S.&nbsp;federal income tax
with respect to gain realized on a sale or other disposition of
our common stock unless one of the following applies:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the gain is effectively connected
    with the
    <FONT style="white-space: nowrap">non-U.S.&nbsp;holder&#146;s</FONT>
    conduct of a trade or business in the U.S.&nbsp;or, if an income
    tax treaty applies, is attributable to a permanent establishment
    maintained by the
    <FONT style="white-space: nowrap">non-U.S.</FONT> holder in the
    U.S.; in these cases, the
    <FONT style="white-space: nowrap">non-U.S.</FONT> holder
    generally will be taxed on its net gain derived from the
    disposition at the regular graduated rates and in the manner
    applicable to U.S. persons and, if the
    <FONT style="white-space: nowrap">non-U.S.</FONT> holder is a
    foreign corporation, the &#147;branch profits tax&#148;
    described above may also apply;
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 106</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Material U.S.&nbsp;federal income and estate tax consequences
to
<FONT style="white-space: nowrap">non-U.S.&nbsp;holders</FONT></B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the
    <FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT> is
    an individual who holds the common stock as a capital asset and
    is present in the U.S.&nbsp;for 183&nbsp;days or more in the
    taxable year of the disposition and certain other conditions are
    met; in this case, the
    <FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
    will be subject to a 30% tax on the gain derived from the sale
    or other disposition or such lower rate as may be specified by
    an applicable income tax treaty;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">we are or have been a
    &#147;U.S.&nbsp;real property holding corporation&#148; for
    U.S.&nbsp;federal income tax purposes at any time within the
    shorter of the five-year period ending on the date of
    disposition or the period that the
    <FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
    held our common stock. We do not believe that we have been,
    currently are, or will become, a U.S.&nbsp;real property holding
    corporation. If we were or were to become a U.S.&nbsp;real
    property holding corporation at any time during the applicable
    period, however, any gain recognized on a disposition of our
    common stock by a
    <FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
    that did not own (directly, indirectly or constructively) more
    than 5% of our common stock during the applicable period would
    not be subject to U.S.&nbsp;federal income tax, provided that
    our common stock is &#147;regularly traded on an established
    securities market&#148; (within the meaning of
    Section&nbsp;897(c)(3) of the Code).
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>FEDERAL ESTATE TAX</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Common stock owned or treated as owned by an individual who is a
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT> at
the time of death will be included in the individual&#146;s
gross estate for U.S.&nbsp;federal estate tax purposes, unless
an applicable estate tax or other treaty provides otherwise,
and, therefore, such individual may be subject to
U.S.&nbsp;federal estate tax.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>INFORMATION REPORTING AND BACKUP WITHHOLDING TAX</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Dividends and proceeds from the sale or other taxable
disposition of our common stock are potentially subject to
backup withholding. In general, backup withholding will not
apply to dividends on our common stock made by us or our paying
agents, in their capacities as such, to a
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT> if
the holder has provided the required certification that it is a
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
and neither we nor our paying agent has actual knowledge (or
reason to know) that the holder is a U.S.&nbsp;holder.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Generally, we must report to the IRS the amount of dividends
paid, the name and address of the recipient, and the amount, if
any, of tax withheld. These information reporting requirements
apply even if withholding was not required. A similar report is
sent to the recipient of the dividend. Pursuant to income tax
treaties or some other agreements, the IRS may make its reports
available to tax authorities in the recipient&#146;s country of
residence.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In general, backup withholding and information reporting will
not apply to proceeds from the disposition of our common stock
paid to a
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT> if
the holder has provided the required certification that it is a
<FONT style="white-space: nowrap">non-U.S.&nbsp;holder</FONT>
and neither we nor our paying agent has actual knowledge (or
reason to know) that the holder is a U.S.&nbsp;holder.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in
an overpayment of taxes, a refund or credit against the
holder&#146;s U.S.&nbsp;federal income tax liability, if any,
may be obtained provided that the required information is
furnished to the IRS in a timely manner.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<FONT style="white-space: nowrap">Non-U.S.&nbsp;holders</FONT>
should consult their tax advisors regarding the application of
the information reporting and backup withholding rules to them.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Prospective
<FONT style="white-space: nowrap">non-U.S.&nbsp;holders</FONT>
of our common stock should consult their tax advisors with
respect to the particular tax consequences to them of owning and
disposing of our common stock, including the consequences under
the laws of any state, local or foreign jurisdiction or under
any applicable tax treaty.</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 107</B>
</DIV>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='117'></A>
</DIV>

<!-- link1 "Underwriting" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Underwriting
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We are offering the shares of our common stock described in this
prospectus through the underwriters named below. UBS Securities
LLC, CIBC World Markets Corp., Leerink Swann&nbsp;&#38; Company
and Oppenheimer&nbsp;&#38; Co. are the representatives of the
underwriters. We have entered into an underwriting agreement
with the representatives. Subject to the terms and conditions of
the underwriting agreement, each of the underwriters has
severally agreed to purchase the number of shares of common
stock listed next to its name in the following table:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="81%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Number of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>Underwriters</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>shares</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    UBS Securities LLC</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    CIBC World Markets Corp.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Leerink Swann&nbsp;&#38; Company</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Oppenheimer&nbsp;&#38; Co. Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The underwriting agreement provides that the underwriters must
buy all of the shares if they buy any of them. However, the
underwriters are not required to take or pay for the shares
covered by the underwriters&#146; over-allotment option
described below.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our common stock is offered subject to a number of conditions,
including:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">receipt and acceptance of the
    common stock by the underwriters;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the underwriters&#146; right to
    reject orders in whole or in part.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The representatives have advised us that the underwriters intend
to make a market in our common stock but that they are not
obligated to do so and may discontinue making a market at any
time without notice.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In connection with this offering, certain of the underwriters or
securities dealers may distribute prospectuses electronically.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Sales of shares made outside of the United States may be made by
affiliates of the underwriters.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OVER-ALLOTMENT OPTION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have granted the underwriters an option to buy up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares of our common stock. The underwriters may exercise this
option solely for the purpose of covering over-allotments, if
any, made in connection with this offering. The underwriters
have 30&nbsp;days from the date of this prospectus to exercise
this option. If the underwriters exercise this option, they will
each purchase additional shares approximately in proportion to
the amounts specified in the table above.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>COMMISSIONS AND DISCOUNTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Shares sold by the underwriters to the public will initially be
offered at the offering price set forth on the cover of this
prospectus. Any shares sold by the underwriters to securities
dealers may be sold at a discount of up to
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the
underwriters to other brokers or dealers at a discount of up to
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share from the initial public offering price. If all the shares
are not sold at the initial public offering price, the
representatives may change the offering price and the other
selling terms. Upon execution of the underwriting agreement, the
underwriters will be obligated to purchase the shares at the
prices and upon the terms stated therein and, as a result, will
thereafter bear any risk
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 108</B>
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Underwriting</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
associated with changing the offering price to the public or
other selling terms. The underwriters have informed us that they
do not expect discretionary sales to exceed 5% of the shares of
common stock to be offered.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table shows the per share and total underwriting
discounts and commissions we will pay to the underwriters,
assuming both no exercise and full exercise of the
underwriters&#146; option to purchase up to an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="63%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>No exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Full exercise</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We estimate that the total expenses of this offering payable by
us, not including the underwriting discounts and commissions,
will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NO SALES OF SIMILAR SECURITIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We, our executive officers and directors and substantially all
of our existing security holders have entered into
<FONT style="white-space: nowrap">lock-up</FONT> agreements with
the underwriters. Under these agreements, subject to certain
exceptions, we and each of these persons may not, without the
prior written approval of UBS&nbsp;Securities LLC, offer, sell,
contact to sell or otherwise dispose of, directly or indirectly,
or hedge our common stock or securities convertible into or
exchangeable for our common stock. These restrictions will be in
effect for a period of 180&nbsp;days after the date of this
prospectus. At any time and without public notice, UBS
Securities LLC may, in its sole discretion, release some or all
of the securities from these
<FONT style="white-space: nowrap">lock-up</FONT> agreements.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
If during the period that begins on the date that is 15 calendar
days plus 3&nbsp;business days before the last day of the
<FONT style="white-space: nowrap">180-day</FONT>
<FONT style="white-space: nowrap">lock-up</FONT> period and ends
on the last day of the
<FONT style="white-space: nowrap">180-day</FONT>
<FONT style="white-space: nowrap">lock-up</FONT> period, we
issue an earnings release or material news or a material event
relating to us occurs; or prior to the expiration of the
<FONT style="white-space: nowrap">180-day</FONT>
<FONT style="white-space: nowrap">lock-up</FONT> period, we
announce that we will release earnings results during the
<FONT style="white-space: nowrap">16-day</FONT> period beginning
on the last day of the
<FONT style="white-space: nowrap">180-day</FONT>
<FONT style="white-space: nowrap">lock-up</FONT> period, then
the <FONT style="white-space: nowrap">180-day</FONT>
<FONT style="white-space: nowrap">lock-up</FONT> period will be
extended until the expiration of the date that is 15 calendar
days plus 3 business days after the date on which the issuance
of the earnings release or the material news or material event
occurs.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>INDEMNIFICATION AND CONTRIBUTION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have agreed to indemnify the underwriters and their
controlling persons against certain liabilities, including
liabilities under the Securities Act. If we are unable to
provide this indemnification, we have agreed to contribute to
payments the underwriters and their controlling persons may be
required to make in respect of those liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NASDAQ NATIONAL MARKET QUOTATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have applied to have our common stock approved for quotation
on NASDAQ under the symbol &#147;OMRI.&#148;
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 109</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Underwriting</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PRICE STABILIZATION, SHORT POSITIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In connection with this offering, the underwriters may engage in
activities that stabilize, maintain or otherwise affect the
price of our common stock, including:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">stabilizing transactions;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">short sales;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">purchases to cover positions
    created by short sales;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">imposition of penalty
    bids;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">syndicate covering transactions.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market
price of our common stock while this offering is in progress.
These transactions may also include making short sales of our
common stock, which involve the sale by the underwriters of a
greater number of shares of common stock than they are required
to purchase in this offering. Short sales may be &#147;covered
short sales,&#148; which are short positions in an amount not
greater than the underwriters&#146; over-allotment option
referred to above, or may be &#147;naked short sales,&#148;
which are short positions in excess of that amount.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The underwriters may close out any covered short position either
by exercising their over-allotment option, in whole or in part,
or by purchasing shares in the open market. In making this
determination, the underwriters will consider, among other
things, the price of shares available for purchase in the open
market compared to the price at which they may purchase shares
through the over-allotment option.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Naked short sales are sales in excess of the over-allotment
option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position
is more likely to be created if the underwriters are concerned
that there may be downward pressure on the price of the common
stock in the open market that could adversely affect investors
who purchased in this offering.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of that underwriter in stabilizing or short covering
transactions.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As a result of these activities, the price of our common stock
may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be
discontinued by the underwriters at any time. The underwriters
may carry out these transactions on NASDAQ, in the
<FONT style="white-space: nowrap">over-the</FONT>-counter market
or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>DETERMINATION OF OFFERING PRICE</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Prior to this offering, there was no public market for our
common stock. The initial public offering price will be
determined by negotiation by us and the representatives of the
underwriters. The principal factors to be considered in
determining the initial public offering price include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the information set forth in this
    prospectus and otherwise available to the representatives;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">our history and prospects and the
    history of, and prospects for, the industry in which we compete;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">our past and present financial
    performance and an assessment of our management;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">our prospects for future earnings
    and the present state of our development;
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 110</B>
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Underwriting</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the general condition of the
    securities markets at the time of this offering;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">the recent market prices of, and
    the demand for, publicly traded common stock of generally
    comparable companies;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">other factors deemed relevant by
    the underwriters and us.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>AFFILIATIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Certain of the underwriters and their affiliates may from time
to time provide certain commercial banking, financial advisory,
investment banking and other services for us for which they will
be entitled to receive separate fees.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 111</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='118'></A>
</DIV>

<!-- link1 "Notice to investors" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Notice to investors
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>EUROPEAN ECONOMIC AREA</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In relation to each Member State of the European Economic Area,
or EEA, which has implemented the Prospectus Directive (each, a
Relevant Member State), with effect from and including the date
on which the Prospectus Directive is implemented in that
Relevant Member State, or the Relevant Implementation Date, our
common stock will not be offered to the public in that Relevant
Member State prior to the publication of a prospectus in
relation to our common stock that has been approved by the
competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and
notified to the competent authority in that Relevant Member
State, all in accordance with the Prospectus Directive, except
that, with effect from and including the Relevant Implementation
Date, our common stock may be offered to the public in that
Relevant Member State at any time:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">to legal entities which are
    authorized or regulated to operate in the financial markets or,
    if not so authorized or regulated, whose corporate purpose is
    solely to invest in securities;
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">to any legal entity which has two
    or more of (1)&nbsp;an average of at least 250&nbsp;employees
    during the last financial year; (2)&nbsp;a total balance sheet
    of more than
    <FONT face="times new roman,times">&#128;</FONT>43,000,000 and
    (3)&nbsp;an annual net turnover of more than
    <FONT face="times new roman,times">&#128;</FONT>50,000,000, as
    shown in its last annual or consolidated accounts;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">in any other circumstances which
    do not require the publication by us of a prospectus pursuant to
    Article&nbsp;3 of the Prospectus Directive.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As used above, the expression &#147;offered to the public&#148;
in relation to any of our common stock in any Relevant Member
State means the communication in any form and by any means of
sufficient information on the terms of the offer and our common
stock to be offered so as to enable an investor to decide to
purchase or subscribe for our common stock, as the same may be
varied in that Member State by any measure implementing the
Prospectus Directive in that Member State and the expression
&#147;Prospectus Directive&#148; means Directive 2003/71/ EC and
includes any relevant implementing measure in each Relevant
Member State.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The EEA selling restriction is in addition to any other selling
restrictions set out below.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>UNITED KINGDOM</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our common stock may not be offered or sold and will not be
offered or sold to any persons in the United Kingdom other than
to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or
as agent) for the purposes of their businesses and in compliance
with all applicable provisions of the Financial Services and
Markets Act 2000, or the FSMA, with respect to anything done in
relation to our common stock in, from or otherwise involving the
United Kingdom. In addition, each underwriter has only
communicated or caused to be communicated and will only
communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning
of Section&nbsp;21 of the FSMA) received by it in connection
with the issue or sale of our common stock in circumstances in
which Section&nbsp;21(1) of the FSMA does not apply to us.
Without limitation to the other restrictions referred to herein,
this prospectus is directed only at (1)&nbsp;persons outside the
United Kingdom, (2)&nbsp;persons having professional experience
in matters relating to investments who fall within the
definition of &#147;investment professionals&#148; in
Article&nbsp;19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005; or (3)&nbsp;high net
worth bodies corporate, unincorporated associations and
partnerships and trustees of high value trusts as described in
Article&nbsp;49(2) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005. Without limitation to the
other restrictions referred to herein,
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 112</B>
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notice to investors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
any investment or investment activity to which this prospectus
relates is available only to, and will be engaged in only with,
such persons, and persons within the United Kingdom who receive
this communication (other than persons who fall within
(2)&nbsp;or (3)&nbsp;above) should not rely or act upon this
communication.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>FRANCE</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
No prospectus (including any amendment, supplement or
replacement thereto) has been prepared in connection with the
offering of our common stock that has been approved by the
Autorit&#233; des march&#233;s financiers or by the competent
authority of another State that is a contracting party to the
Agreement on the European Economic Area and notified to the
Autorit&#233; des march&#233;s financiers; no common stock has
been offered or sold and will be offered or sold, directly or
indirectly, to the public in France except to permitted
investors, consisting of persons licensed to provide the
investment service of portfolio management for the account of
third parties, qualified investors (investisseurs
qualifi&#233;s) acting for their own account and/or corporate
investors meeting one of the four criteria provided in
Article&nbsp;1 of Decree N&#176; 2004-1019 of September&nbsp;28,
2004 and belonging to a limited circle of investors (cercle
restreint d&#146;investisseurs) acting for their own account,
with &#147;qualified investors&#148; and &#147;limited circle of
investors&#148; having the meaning ascribed to them in
Article&nbsp;L. 411-2 of the French Code Mon&#233;taire et
Financier and applicable regulations thereunder; none of this
prospectus or any other materials related to the offer or
information contained therein relating to our common stock has
been released, issued or distributed to the public in France
except to Permitted Investors; and the direct or indirect resale
to the public in France of any common stock acquired by any
Permitted Investors may be made only as provided by articles L.
412-1 and L. 621-8 of the French Code Mon&#233;taire et
Financier and applicable regulations thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>ITALY</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The offering of shares of our common stock has not been cleared
by the Italian Securities Exchange Commission (Commissione
Nazionale per le Societ&#224; e la Borsa, or the CONSOB)
pursuant to Italian securities legislation and, accordingly,
shares of our common stock may not and will not be offered, sold
or delivered, nor may or will copies of this prospectus or any
other documents relating to shares of our common stock or the
offering be distributed in Italy other than to professional
investors (operatori qualificati), as defined in
Article&nbsp;31, paragraph&nbsp;2 of CONSOB
Regulation&nbsp;No.&nbsp;11522 of July&nbsp;1, 1998, as amended,
or Regulation&nbsp;No.&nbsp;11522.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Any offer, sale or delivery of shares of our common stock or
distribution of copies of this prospectus or any other document
relating to shares of our common stock or the offering in Italy
may and will be effected in accordance with all Italian
securities, tax, exchange control and other applicable laws and
regulations, and, in particular, will be: (i)&nbsp;made by an
investment firm, bank or financial intermediary permitted to
conduct such activities in Italy in accordance with the
Legislative Decree No.&nbsp;385 of September&nbsp;1, 1993, as
amended, or the Italian Banking Law, Legislative Decree
No.&nbsp;58 of February&nbsp;24, 1998, as amended,
Regulation&nbsp;No.&nbsp;11522, and any other applicable laws
and regulations; (ii)&nbsp;in compliance with Article&nbsp;129
of the Italian Banking Law and the implementing guidelines of
the Bank of Italy; and (iii)&nbsp;in compliance with any other
applicable notification requirement or limitation which may be
imposed by CONSOB or the Bank of Italy.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Any investor purchasing shares of our common stock in the
offering is solely responsible for ensuring that any offer or
resale of shares of common stock it purchased in the offering
occurs in compliance with applicable laws and regulations.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
This prospectus and the information contained herein are
intended only for the use of its recipient and are not to be
distributed to any third party resident or located in Italy for
any reason. No person
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 113</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notice to investors</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
resident or located in Italy other than the original recipients
of this document may rely on it or its content.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition to the above (which shall continue to apply to the
extent not inconsistent with the implementing measures of the
Prospective Directive in Italy), after the implementation of the
Prospectus Directive in Italy, the restrictions, warranties and
representations set out under the heading &#147;European
Economic Area&#148; above shall apply to Italy.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>SPAIN</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Neither the common stock nor this prospectus have been approved
or registered in the administrative registries of the Spanish
National Securities Exchange Commission (Comisi&#243;n Nacional
del Mercado de Valores). Accordingly, our common stock may not
be offered in Spain except in circumstances which do not
constitute a public offer of securities in Spain within the
meaning of articles 30bis of the Spanish Securities Markets Law
of 28 July 1988 (Ley 24/1988, de 28&nbsp;de Julio, del Marcado
de Valores), as amended and restated, and supplemental rules
enacted thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>SWEDEN</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
This is not a prospectus under, and has not been prepared in
accordance with the prospectus requirements provided for in, the
Swedish Financial Instruments Trading Act (lagen (1991:980) om
handel med finasiella instrument) nor any other Swedish
enactment. Neither the Swedish Financial Supervisory Authority
nor any other Swedish public body has examined, approved, or
registered this document.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>SWITZERLAND</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The common stock may not and will not be publicly offered,
distributed or re-distributed on a professional basis in or from
Switzerland and neither this prospectus nor any other
solicitation for investments in our common stock may be
communicated or distributed in Switzerland in any way that could
constitute a public offering within the meaning of
Articles&nbsp;1156 or 652a of the Swiss Code of Obligations or
of Article&nbsp;2 of the Federal Act on Investment Funds of
March&nbsp;18, 1994. This prospectus may not be copied,
reproduced, distributed or passed on to others without the
underwriters&#146; prior written consent. This prospectus is not
a prospectus within the meaning of Articles&nbsp;1156 and 652a
of the Swiss Code of Obligations or a listing prospectus
according to article&nbsp;32 of the Listing Rules of the Swiss
Exchange and may not comply with the information standards
required thereunder. We will not apply for a listing of our
common stock on any Swiss stock exchange or other Swiss
regulated market and this prospectus may not comply with the
information required under the relevant listing rules. The
common stock offered hereby has not and will not be registered
with the Swiss Federal Banking Commission and has not and will
not be authorized under the Federal Act on Investment Funds of
March&nbsp;18, 1994. The investor protection afforded to
acquirers of investment fund certificates by the Federal Act on
Investment Funds of March&nbsp;18, 1994 does not extend to
acquirers of our common stock.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 114</B>
</DIV>

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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='119'></A>
</DIV>

<!-- link1 "Legal matters" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Legal matters
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The validity of the common stock offered hereby will be passed
upon for us by Skadden, Arps, Slate, Meagher&nbsp;&#38; Flom
LLP, New York, New York. Dewey Ballantine LLP, New York, New
York is counsel for the underwriters in connection with this
offering.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='120'></A>
</DIV>

<!-- link1 "Experts" -->

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Experts
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The consolidated financial statements of Omrix
Biopharmaceuticals, Inc. at December&nbsp;31, 2004, and for the
year then ended, appearing in this Prospectus and Registration
Statement have been audited by Kost, Forer, Gabbay&nbsp;&#38;
Kasierer, a member of Ernst&nbsp;&#38; Young Global, an
independent registered public accounting firm, and at
December&nbsp;31, 2003, and for each of the two years in the
period ended December&nbsp;31, 2003, by Ziv Haft, a BDO member
firm, an independent registered public accounting firm, as set
forth in their respective reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given on
the authority of such firms as experts in accounting and
auditing.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 115</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='121'></A>
</DIV>

<!-- link1 "Where you can find additional information" -->

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Where you can find additional information
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have filed with the SEC a registration statement on
<FONT style="white-space: nowrap">Form&nbsp;S-1</FONT> under the
Securities Act with respect to the shares of common stock we are
offering. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information
in the registration statement and the exhibits which are part of
the registration statement. For further information with respect
to us and our common stock, we refer you to the registration
statement and to the exhibits to the registration statement.
Statements contained in this prospectus about the contents of
any contract or any other document are not necessarily complete,
and, in each instance, we refer you to the copy of the contract
or other document filed as an exhibit to the registration
statement. Each of these statements is qualified in all respects
by this reference.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
You may read and copy the registration statement of which this
prospectus is a part at the SEC&#146;s Public Reference Room,
which is located at 100 F Street, N.E., Room&nbsp;1580,
Washington,&nbsp;D.C. 20549. You can request copies of the
registration statement by writing to the SEC and paying a fee
for the copying cost. Please call the SEC at
<FONT style="white-space: nowrap">1-800-SEC-0330</FONT> for more
information about the operation of the SEC&#146;s Public
Reference Room. In addition, the SEC maintains an Internet
website, which is located at www.sec.gov, that contains reports,
proxy and information statements and other information regarding
issuers that file electronically with the SEC. You may access
the registration statement of which this prospectus is a part at
the SEC&#146;s Internet website. Upon completion of this
offering, we will be subject to the information reporting
requirements of the Securities Exchange Act of 1934, and we will
file reports, proxy statements and other information with the
SEC.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
This prospectus includes statistical data obtained from industry
publications. These industry publications generally indicate
that the authors of these publications have obtained information
from sources believed to be reliable but do not guarantee the
accuracy and completeness of their information. While we believe
these industry publications to be reliable, we have not
independently verified their data.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> 116</B>
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Omrix Biopharmaceuticals, Inc.</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>INDEX TO CONSOLIDATED FINANCIAL STATEMENTS at
SEPTEMBER&nbsp;30, 2005</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="85%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" nowrap><B>Page</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#300'>Reports of independent registered public
    accounting firms</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    <B>F-2</B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#301'>Consolidated balance sheets</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    <B>F-4</B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#302'>Consolidated statements of operations</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    <B>F-6</B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#303'>Statements of changes in stockholders&#146;
    deficiency</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    <B>F-7</B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#304'>Consolidated statements of cash flows</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    <B>F-8</B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#305'>Notes to consolidated financial
    statements</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    <B>F-10</B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#306'>Schedule&nbsp;II&#151; Valuation and
    qualification accounts</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    <B>F-35</B></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-1</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<IMG src="y16354ernstyng.gif" alt="ERNST &#38; YOUNG LOGO" width="150" height="16"><FONT style="font-size: 10pt">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<A name='300'></A>
</DIV>

<!-- link1 "Report of independent registered public accounting firm" -->

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Report of independent registered public accounting firm
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
To the stockholders of
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Omrix Biopharmaceuticals, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have audited the accompanying consolidated balance sheets of
Omrix Biopharmaceuticals, Inc. (&#147;the Company&#148;) and its
subsidiaries at December&nbsp;31, 2004, and the related
consolidated statements of operations, changes in
stockholders&#146; deficiency and cash flows for the year then
ended. Our audit also included the accompanying financial
statement schedule. These financial statements and schedule are
the responsibility of the Company&#146;s management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Company&#146;s and its subsidiaries&#146; internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company&#146;s and its
subsidiaries&#146; internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In our opinion, based on our audit, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company and
its subsidiaries at December&nbsp;31, 2004, and the consolidated
results of their operations and their cash flows for the year
then ended in conformity with U.S.&nbsp;generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
/s/ <FONT style="font-variant:SMALL-CAPS">KOST FORER
GABBAY&nbsp;&#38; KASIERER
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
A Member of Ernst&nbsp;&#38; Young Global
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Tel-Aviv, Israel
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
December&nbsp;29, 2005
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-2</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 32pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Report of independent registered public accounting firm
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
To the stockholders
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Omrix Biopharmaceuticals Inc.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We have audited the consolidated balance sheets of Omrix
Biopharmaceuticals Inc. and its subsidiaries (&#147;the
Company&#148;) at December&nbsp;31, 2003 and the consolidated
statements of operations, changes in stockholders&#146;
deficiency and cash flows for each of the two years in the
period ended December&nbsp;31, 2003. Our audit also included the
accompanying financial statement schedule. These financial
statements and schedule are the responsibility of the
Company&#146;s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the
Company&#146;s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In our opinion, based on our audits, the consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of the Company at
December&nbsp;31, 2003, and the related consolidated results of
operations and cash flows for each of the two years in the
period ended December&nbsp;31, 2003, in conformity with
generally accepted accounting principles as applied in the
United States of America.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Also, in our opinion the related financial statement schedule
when considered in relation to the basic financial statement
taken as a whole, presents fairly in all material respects the
information set forth therein.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
/s/ <FONT style="font-variant:SMALL-CAPS">ZIV HAFT
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Certified Public Accountants (Isr.)
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
BDO member firm
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Tel-Aviv, Israel
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
December&nbsp;29, 2005
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-3</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Omrix Biopharmaceuticals, Inc.</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<A name='301'></A>
</DIV>

<!-- link1 "Consolidated balance sheets" -->

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Consolidated balance sheets
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="52%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Note</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="18" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>(U.S.&nbsp;dollars in thousands)</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="19" align="left" valign="top">
    <B>ASSETS</B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,038</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Account receivables:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade, net of allowance for doubtful accounts of $1,466, $16 and
    $23 at December&nbsp;31, 2003 and 2004 and September&nbsp;30,
    2005 (unaudited), respectively</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,786</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,279</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,597</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Inventory</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,284</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,685</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,198</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term receivables</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>678</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>385</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property, plant and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,205</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred charges and other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>822</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,845</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>24,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27,610</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The accompanying notes are an integral part of the consolidated
financial statements.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-4</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Omrix Biopharmaceuticals, Inc.</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Consolidated balance sheets
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Pro forma</B></TD><TD></TD>
</TR>

<TR>
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>stockholders&#146;</B></TD><TD></TD>
</TR>

<TR>
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>deficiency at</B></TD><TD></TD>
</TR>

<TR>
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR>
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Note</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="8">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>(U.S.&nbsp;dollars in thousands, except share and per</B></TD><TD></TD>
</TR>

<TR>
    <TD colspan="8">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>share data)</B></TD><TD></TD>
</TR>

<TR>
    <TD colspan="8">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="24" align="left" valign="top">
    <B>LIABILITIES AND STOCKHOLDERS&#146; DEFICIENCY</B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Short-term credit from banks and current maturities of long-term
    loans</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable and accruals:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,856</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,244</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Convertible promissory notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,202</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,823</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term loans, net of current maturities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>158</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Convertible notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Convertible promissory notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,938</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other long-term liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total long-term liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,908</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53,528</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,862</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Commitments and contingent liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Temporary equity:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Series&nbsp;A and B Convertible Redeemable Preferred stock of
    $0.01&nbsp;par value&#151;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Authorized: 17,000,000&nbsp;shares, 2,500,000&nbsp;shares and
    none at December,&nbsp;31, 2003 and 2004 and at
    September&nbsp;30, 2005 (unaudited), respectively; Issued and
    outstanding: 631,688&nbsp;shares, 1,038,523&nbsp;shares and none
    at December&nbsp;31, 2003, 2004 and at September&nbsp;30, 2005
    (unaudited), respectively; Aggregate liquidation preference of
    $10,121 at December&nbsp;31, 2004; 20,000,000&nbsp;shares
    authorized and none issued and outstanding pro forma (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,019</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholders&#146; deficiency:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock of $0.01&nbsp;par value&#151;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Authorized; 35,000,000, 37,500,000 and 40,000,000&nbsp;shares at
    December&nbsp;31, 2003 and 2004 and at September&nbsp;30, 2005
    (unaudited); respectively; Issued: 9,560,583, 9,560,583 and
    29,915,654&nbsp;shares at December&nbsp;31, 2003 and 2004 and at
    September&nbsp;30, 2005 (unaudited): Outstanding: 9,540,988,
    9,540,988 and 29,896,059&nbsp;shares at December&nbsp;31, 2003
    and 2004 and at September&nbsp;30, 2005 (unaudited); Authorized:
    120,000,000&nbsp;shares pro forma; Issued: XXX shares pro-
    forma; Outstanding: XXX shares pro-forma (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional paid-in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred stock-based compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(25</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(19</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Treasury stock, at cost (19,595&nbsp;shares at December&nbsp;31,
    2003 and 2004 and at September&nbsp;30, 2005 (unaudited))</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(44</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(44</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(44</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated other comprehensive loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,177</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,922</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(974</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated deficit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(64,126</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(70,851</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(92,165</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholders&#146; deficiency</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(37,689</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(46,146</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,121</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities and stockholders&#146; deficiency</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,845</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>24,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The accompanying notes are an integral part of the consolidated
financial statements.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-5</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Omrix Biopharmaceuticals, Inc.</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
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<A name='302'></A>
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<!-- link1 "Consolidated statements of operations" -->

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Consolidated statements of operations
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Nine months ended</B></TD><TD></TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Note</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="26" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>(U.S.&nbsp;dollars in thousands, except share and per share data)</B></TD><TD></TD>
</TR>


<TR>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,019</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Development services and grants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,939</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,152</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,947</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,171</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,598</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,622</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Development services and grants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,641</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total cost of revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,263</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,908</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and development, clinical and regulatory expenses, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,014</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, marketing, general and administrative expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,717</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,946</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,823</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Financial expenses, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,982</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income (expenses), net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27,805</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued dividend and induced conversion of Preferred stock and
    warrants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(121</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(61</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,491</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss for common stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>21,314</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss per share&#151;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic net loss per share of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.74</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted net loss per share of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.90</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average number of shares of common stock outstanding
    during the year used to compute basic net loss per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,556,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,765,222</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average number of shares of common stock outstanding
    during the year used to compute diluted net loss per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,556,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,822,917</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma basic net loss per share of common stock (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma diluted net loss per share of common stock (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average number of shares of common stock used in
    computing pro forma net loss per common stock amounts&#151;
    basic (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average number of shares of common stock used in
    computing pro forma net loss per share of common stock&#151;
    diluted (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The accompanying notes are an integral part of the consolidated
financial statements.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-6</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<!-- Landscape -->
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Omrix Biopharmaceuticals, Inc.</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<A name='303'></A>
</DIV>

<!-- link1 "Consolidated statements of changes in stockholders&#146; deficiency" -->

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Consolidated statements of changes in stockholders&#146;
deficiency
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 7pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Common stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Additional</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Deferred</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Accumulated other</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Total</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Share</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>paid-in</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>stock-based</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Treasury</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>comprehensive</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>comprehensive</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>capital</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>capital</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>compensation</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>income (loss)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>deficit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>loss</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Total</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="39" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="34" align="center" nowrap><B>(U.S.&nbsp;dollars in thousands, except share and per share data)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at January&nbsp;1, 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,560,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>28,528</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(52,047</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(19,591</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repurchase of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(19,595</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*)&nbsp;&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(44</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(44</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Comprehensive loss:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,513</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,513</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,513</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,661</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,661</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,661</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total comprehensive loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(8,174</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at December&nbsp;31, 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,528</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(44</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(57,560</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,809</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Compensation related to non- employee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Comprehensive loss:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,566</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6,566</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,566</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,349</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,349</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,349</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total comprehensive loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(9,915</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at December&nbsp;31, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(44</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,177</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(64,126</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(37,689</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred stock-based compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(30</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of deferred stock- based compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock-based compensation to non- employees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Comprehensive loss:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,604</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6,604</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,604</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,745</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,745</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,745</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued dividend on Preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(121</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(121</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total comprehensive loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(8,349</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at December&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(25</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(44</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,922</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(70,851</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(46,146</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Recapitalization Agreement:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Conversion of convertible notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,926,262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,688</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Conversion of Preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,406,792</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,338</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Conversion of warrants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,785</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,785</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of deferred stock- based compensation (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred compensation related to employee stock option grants
    (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock-based compensation to non- employees (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Warrants that were issued in contemplation with long-term loan
    (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Comprehensive loss:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,805</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(27,805</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,805</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustments (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,948</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Induced conversion of Preferred stock and warrants (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,491</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total comprehensive loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(24,857</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at September&nbsp;30, 2005 (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,896,059</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>86,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(19</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(44</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(974</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(92,165</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6,121</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 7pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I>*)&nbsp;</I></TD>
    <TD align="left">
    <I>Represents an amount less than $1.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 7pt;color: #000000; background: #ffffff; margin-top: 36pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The accompanying notes are an integral part of the consolidated
financial statements.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-7</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Omrix Biopharmaceuticals, Inc.</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<A name='304'></A>
</DIV>

<!-- link1 "Consolidated statements of cash flows" -->

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Consolidated statements of cash flows
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Nine months ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>(U.S.&nbsp;dollars in thousands)</B></TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from operating activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,513</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6,566</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6,604</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(7,302</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(27,805</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments required to reconcile net loss to net cash provided
    by (used in) operating activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation of property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>733</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>659</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>541</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of intangible assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of deferred charges</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>139</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss (gain)&nbsp;from sale of property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increase (decrease) in accrued severance pay, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(36</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued interest and exchange differences on long-term loans</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(35</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued interest and exchange differences on long-term deposits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(26</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock-based compensation and amortization of deferred stock
    compensation to employees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Inventory write-offs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>97</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrealized foreign exchange differences, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,506</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,766</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,694</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,786</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest and amortization of discount on convertible notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,148</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,868</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>246</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Financing charges related to inducement and extinguishment of
    convertible notes and warrants(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,932</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Decrease (increase) in accounts receivable:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(554</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(738</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(810</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,768</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(19</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(554</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(228</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Decrease (increase) in inventory</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,356</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,651</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,504</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(526</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increase (decrease) in accounts payable and accruals:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,777</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(491</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(434</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,824</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,804</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,584</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,429</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(728</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,439</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,872</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,877</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from investing activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment in restricted cash</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(250</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase of property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(85</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(328</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,661</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,592</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(580</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from sale of property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment in other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(585</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayment of (investment in) long-term deposits, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>295</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash used in investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(63</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(485</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,653</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,584</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(870</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The accompanying notes are an integral part of the consolidated
financial statements.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-8</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Omrix Biopharmaceuticals, Inc.</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Consolidated statements of cash flows
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Nine months ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended, December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="22" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>(U.S.&nbsp;dollars in thousands)</B></TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from financing activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Short-term credit from banks, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(243</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(143</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,446</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>417</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(230</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Debt issuance costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(180</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(257</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from long-term loans</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>446</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,100</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayment of long-term loans</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(141</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(241</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(309</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(183</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(450</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance of convertible preferred stock, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,892</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,892</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayment of convertible promissory notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,500</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,500</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from issuance of warrants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(154</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,072</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,238</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Translation differences from cash balances of subsidiary</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(61</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(45</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increase (decrease) in cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,572</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>549</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance of cash and cash equivalents at beginning of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,489</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance of cash and cash equivalents at end of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,038</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    (1)&nbsp;In connection with the Recapitalization Agreement, the
    Company recorded the following:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;&nbsp;Issuance of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>204</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Conversion of convertible promissory notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,501</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Conversion of convertible notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,407</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Conversion of preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,313</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Conversion of warrants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,785</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock issuance costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>127</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional paid-in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58,037</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Financing charges related to inducement and extinguishment of
    convertible notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,932</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    (2)&nbsp;Supplemental disclosure of cash flow information:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash paid during the period for:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;&nbsp;Interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>207</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    (3)&nbsp;Non-cash investing and financing activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repurchase of treasury shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-cash investments in property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The accompanying notes are an integral part of the consolidated
financial statements.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-9</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>OMRIX BIOPHARMACEUTICALS, INC.</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Notes to consolidated financial statements
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>U.S.&nbsp;dollars in thousands except share and per share
data</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<A name='305'></A>
</DIV>

<!-- link1 "NOTE 1: GENERAL" -->

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;1:</B></TD>
    <TD>
    <B>GENERAL</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Omrix Biopharmaceuticals, Inc. (&#147;the Company&#148;) is a
biopharmaceutical company that develops and markets innovative
biological products for the biosurgical and passive
immunotherapy markets. The Company&#146;s research and
development and manufacturing activities are performed mainly by
its Israeli subsidiary, Omrix Biopharmaceuticals Ltd.
(&#147;Omrix Ltd.&#148;) and its European activities are
performed mainly by its European subsidiary, Omrix
Biopharmaceuticals S.A. (&#147;Omrix S.A.&#148;). The Company
has one inactive subsidiary in Israel, Biopex Ltd.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company&#146;s currently marketed biosurgical product is a
fibrin sealant distributed in the U.S.&nbsp;under the trade name
&#147;Crosseal&#148; and in Europe and other territories under
the trade name &#147;Quixil&#148;. The Company&#146;s marketed
immunotherapy products are marketed in Israel and Europe and are
used for the treatment of immune deficiencies and infectious
diseases.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Quixil/Crosseal was approved by the United States Food and Drug
Administration (&#147;FDA&#148;) in 2003 and in Europe by
different countries, regulatory agencies and the European
Medicines Agency (&#147;EMEA&#148;) at different times,
beginning in 1999 through 2003, and it is marketed by Ethicon,
Inc. (&#147;Ethicon&#148;), a Johnson and Johnson company,
mainly in the U.S. and Europe, and directly by the Company or
local distributors in other territories.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company&#146;s products are manufactured in a plant which is
leased from Magen David Adom, an Israeli not-for-profit
organization (&#147;MDA&#148;) (see Note&nbsp;12d).
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Agreements with Ethicon:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In September 2003, the Company entered into a distribution and
supply agreement (&#147;the Ethicon 2003 Agreement&#148;) with
Ethicon for a period of 10&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The agreement stipulates, inter alia, that Ethicon is entitled
to exclusive distribution rights for certain biosurgical
products in the majority of the European countries. Sale price
to Ethicon is determined as a percentage of the sale price to
end-customers, subject to certain adjustments.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition to the product sales, the Company is entitled to
certain upfront and milestone payments.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Concurrently with the Ethicon 2003 Agreement, the Company and
Ethicon entered into a collaborative development agreement
(&#147;the 2003 Development Agreement&#148;) for the development
of new biosurgical products. Under the terms of the Development
Agreement, Ethicon agreed to finance a development plan of new
biosurgical products. In addition, the Company is entitled to
receive certain payments based on the achievement of defined
regulatory milestones.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In July 2004, the Company and Ethicon amended the Ethicon 2003
Agreement and the Development Agreement (&#147;the Ethicon 2004
Amendments&#148;). Under the Ethicon&nbsp;2004 Amendments, the
Company and Ethicon agreed to add the U.S. and Canada as
exclusive territories. In addition, the dates of certain future
milestones under the Development Agreement were changed and
additional milestones were set.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In accordance with the terms of the Ethicon 2003 Agreement and
the Ethicon 2004 Amendments, the Company received $9,000 through
December&nbsp;31, 2004 in upfront and milestone fees. Income in
respect of this consideration is recognized over the remaining
term of the agreement (see Note&nbsp;2j). At December&nbsp;31,
2004, the balance of deferred income with respect to
Ethicon&#146;s agreements amounted to $8,367.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-10</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As for major customers, see
Note&nbsp;18.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;2:</B></TD>
    <TD>
    <B>SIGNIFICANT ACCOUNTING POLICIES</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The accompanying consolidated financial statements are prepared
in accordance with U.S.&nbsp;generally accepted accounting
principles (&#147;U.S.&nbsp;GAAP&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Use of estimates:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The preparation of financial statements in conformity with
U.S.&nbsp;GAAP 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.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial statements in
U.S.&nbsp;dollars:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The accompanying financial statements have been prepared in
U.S.&nbsp;dollars.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Omrix Ltd. conducts the majority of its operations in Israel.
The majority of its revenues and expenses are denominated in
U.S.&nbsp;dollars. The Company&#146;s management believes that
the dollar is the primary currency of the economic environment
in which Omrix Ltd. operates. Thus, the functional and reporting
currency of Omrix Ltd. is the U.S.&nbsp;dollar. Accordingly,
monetary accounts maintained in currencies other than the dollar
are remeasured into dollars in accordance with Statement of the
Financial Accounting Standards Board No.&nbsp;52, &#147;Foreign
Currency Translation&#148; (&#147;SFAS&nbsp;No.&nbsp;52&#148;).
All transaction gains and losses of the remeasurement of
monetary balance sheet items are reflected in the consolidated
statements of operations as financial income or expenses, as
appropriate.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Omrix S.A.&#146;s functional currency has been determined to be
its local currency. Accordingly, assets and liabilities are
translated at year-end exchange rates and statement of
operations items are translated at average exchange rates
prevailing during the year. Such translation adjustments are
recorded as a separate component of accumulated other
comprehensive income (loss), &#147;foreign currency translation
adjustments&#148; in the statements of stockholders&#146;
deficiency.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Principles of consolidation:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated upon
consolidation.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
d.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unaudited information:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The consolidated financial statements include the unaudited
consolidated balance sheet at September&nbsp;30, 2005, the
related statements of operations for the nine-month periods
ended September&nbsp;30, 2004 and 2005, the consolidated
statements of cash flows for the nine-month periods ended
September&nbsp;30, 2004 and 2005 and the statement of changes in
stockholders&#146; deficiency for the nine-month period ended
September&nbsp;30, 2005, presented in accordance with accounting
principles generally accepted for interim financial reporting.
This unaudited information has been prepared by the Company on
the same basis as the audited annual consolidated financial
statements and, in management&#146;s opinion, reflects all
adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial information,
for the periods presented. Accordingly, they do not include all
of the information and footnotes required by U.S.&nbsp;GAAP for
audited financial statements. Results for interim periods are
not necessarily indicative of the results expected for the
entire year.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
e.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash equivalents:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Cash equivalents are short-term, highly liquid investments that
are readily convertible to cash with an original maturity of
three months or less when purchased.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-11</B>
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
f.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Inventory is stated at the lower of cost or market value. Cost
is determined as follows:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Raw materials and products in progress&#151;on the basis of
    specific costs. Finished products&#151;on the basis of
    production costs including materials, labor and direct and
    indirect manufacturing expenses.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Inventory write-offs are provided to cover risks arising from
    products with short term expiration dates in inventory and when
    market prices are lower than cost.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
g.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Property, plant and equipment are stated at cost, net of
accumulated depreciation. Depreciation is calculated by using
the straight-line method over the estimated useful lives of
assets.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Annual rates of depreciation are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>%</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Machinery and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10-33</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Office furniture and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7-20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Computers and software</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Vehicles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Leasehold improvements are depreciated over the shortest term of
the estimated useful life or the lease term. Payments on account
of the new plant facility were not subject to depreciation.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
h.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment of long-lived assets:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company&#146;s long-lived assets are reviewed for impairment
in accordance with Statement of Financial Accounting Standards
No.&nbsp;144, &#147;Accounting for the Impairment or Disposal of
Long-Lived Assets&#148; (&#147;SFAS&nbsp;No.&nbsp;144&#148;),
whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.
Recoverability of an asset to be held and used is measured by a
comparison of the carrying amount of an asset to the future
undiscounted cash flows expected to be generated by the asset.
If such asset is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying
amount of the asset exceeds its fair value. Through
December&nbsp;31, 2004, no impairment losses were identified.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
i.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Convertible securities:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Convertible notes are accounted for in accordance with the
provisions of EITF Issue No.&nbsp;98-5 &#147;Accounting for
Convertible Securities with Beneficial Conversion Features&#148;
(&#147;EITF&nbsp;98-5&#148;) and EITF Issue
<FONT style="white-space: nowrap">No.&nbsp;00-27,</FONT>
&#147;Application of Issue No.&nbsp;98-5 to Certain Convertible
Instruments&#148;
<FONT style="white-space: nowrap">(&#147;EITF&nbsp;00-27&#148;).</FONT>
Under these pronouncements, the Company, where applicable,
recorded a beneficial conversion feature that is being amortized
as additional discount on the debt and recorded this in
financial expense. The Company has also considered EITF
No.&nbsp;05-2, &#147;The Meaning of Conventional Convertible
Debt Instrument&#148; in EITF Issue
<FONT style="white-space: nowrap">No.&nbsp;00-19,</FONT>
&#147;Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company&#146;s Own
Stock&#148;. The implementation of EITF&nbsp;05-2 did not have
any material effect, accordingly, through December&nbsp;31,
2004, no embedded derivative instruments have been classified as
liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
j.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue recognition:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company derives its revenues from product sales, research
and development services and research grants.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-12</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company recognizes revenue in accordance with Staff
Accounting Bulletin&nbsp;No.&nbsp;104, &#147;Revenue
Recognition&#148; (&#147;SAB&nbsp;104&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company entered into distribution, licensing, supply and
collaborative agreements that generate significant upfront fees
and/or subsequent milestone payments earned upon completion of
certain milestones. The Company concluded that under
<FONT style="white-space: nowrap">EITF&nbsp;00-21,</FONT>
&#147;Revenue Agreements with Multiple Deliverables&#148;
<FONT style="white-space: nowrap">(&#147;EITF&nbsp;00-21&#148;),</FONT>
these arrangements should be accounted for as one unit of
accounting.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Nonrefundable upfront fees, guaranteed time based payments and
performance-based milestone payments under agreements providing
for the Company&#146;s continuing involvement in the form of
research and development or manufacturing efforts are recognized
as revenues ratably over the manufacturing period that is the
last deliverable over which there are continuing commitments for
the Company to perform under these agreements.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Deferred revenue is recognized for payments received in advance
of the culmination of the earnings process. Deferred revenue
expected to be recognized within the next twelve months is
included in other accounts payable and accruals.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Revenues from development services in collaborative agreements
are mainly related to reimbursement of development costs and are
recognized as the related costs are incurred.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
When the selling price is based on the actual selling price of
the distributor to its end users, the Company recognizes
revenues for products shipped during the period based on the
estimated selling price to the end users. The estimates for the
selling price to end users are based on information, which is
timely available, from the distributor to the Company.
Adjustments are made in the following quarter reflecting the
difference between the Company&#146;s estimates and actual
reported selling prices. To date, adjustments have not been
significant.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Revenues from product sales that require no continuing
performance on the Company&#146;s part are recognized when
persuasive evidence of an agreement exists, delivery has
occurred, the fee is fixed or determinable, no further
obligation exists and collectability is probable. The Company
does not grant the right of return to its customers.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Revenue related to U.S.&nbsp;National Institute of Health grants
are related to the reimbursement of qualifying research and
development expenses. Revenue is recognized as related research
and development expenses are incurred. Grant payments received,
but not yet earned, are recorded as deferred revenue.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
k.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development,
clinical and regulatory expenses:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Costs consist primarily of salary and related costs for
personnel, as well as costs related to materials, supplies and
equipment depreciation. All research and development costs are
expensed as incurred. Expenses are presented net of grants from
the Government of Israel.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Non royalty-bearing grants from the government of Israel for
funding for approved research and development projects are
recognized at the time the Company is entitled to such grants,
on the basis of the costs incurred. During the years ended
December&nbsp;31, 2002, 2003 and 2004, the Company recognized as
a deduction from expenses incurred $54, $123 and $77,
respectively, for grants from the government of Israel.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
l.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value of financial
instruments:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The carrying amounts of cash and cash equivalents, trade
receivables, other accounts receivable, short and long-term
credit from banks and others, trade payables, other accounts
payable and accruals and convertible promissory notes
approximate their fair value.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-13</B>
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The fair value of long-term loans (including the Convertible
Notes and the Convertible Promissory Notes) is estimated by
discounting the future cash flows using current interest rates
for loans of similar terms and maturities. The carrying amount
of the long-term loans approximates their fair value.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
m.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standard No.&nbsp;109,
&#147;Accounting for Income Taxes&#148;
(&#147;SFAS&nbsp;No.&nbsp;109&#148;). SFAS&nbsp;No.&nbsp;109
prescribes the use of the liability method whereby deferred tax
asset and liability account balances are determined based on
differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are
expected to reverse. The Company provides a valuation allowance,
if necessary, to reduce deferred tax assets to their estimated
realizable value.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Results for tax purposes for Omrix Ltd. are measured and
reflected in real terms in accordance with the change in the
Israeli Consumer Price Index (&#147;CPI&#148;). As explained in
b. above, the consolidated financial statements are presented in
U.S.&nbsp;dollars. In accordance with paragraph&nbsp;9(f) of
SFAS&nbsp;No.&nbsp;109, the Company has not provided deferred
income taxes on the differences resulting from changes in
exchange rates and indexing for tax purposes.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
n.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Severance pay:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Omrix Ltd.&#146;s liability for severance pay is calculated
pursuant to Israel&#146;s Severance Pay Law, based on the most
recent salary of the employee multiplied by the number of years
of employment, at the balance sheet date. Employees are entitled
to one month&#146;s salary for each year of employment or a
portion thereof. The Company&#146;s liability for all of its
Israeli employees is covered by monthly deposits for insurance
policies and/or pension funds and by accruals. The value of
these policies and/or funds is recorded as an asset in the
Company&#146;s balance sheet. The deposited funds include
profits accumulated to the balance sheet date. The deposited
amounts may be withdrawn only upon the fulfillment of the
obligations pursuant to Israel&#146;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 profits.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Severance expense for the years ended December&nbsp;31, 2002,
2003 and 2004, amounted to $(15), $35 and $80, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
o.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net loss per share:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company applies the two-class method as required by EITF No.
03-6, &#147;Participating Securities and the
Two-Class&nbsp;Method&#148; under FASB Statement No.&nbsp;128,
Earnings per Share (&#147;EITF No.&nbsp;03-6&#148;). EITF
No.&nbsp;03-6 requires the income per share for each class of
shares to be calculated assuming that 100% of the Company&#146;s
earnings are distributed as dividends to each class of shares
based on their contractual rights.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In compliance with EITF No.&nbsp;03-6, the series of preferred
stock do not participate in losses, and therefore are not
included in the computation of net loss per share.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Basic net loss per share is computed using the weighted average
number of common stock outstanding during the period. Diluted
net loss per share is computed based on the weighted average
number of common stock outstanding during the period, plus
dilutive potential. Common stock is considered outstanding
during the period in accordance with Statement of Financial
Accounting Standards No.&nbsp;128, &#147;Earnings Per
Share&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
For the years ended December&nbsp;31, 2002, 2003 and 2004, and
for nine months ended September&nbsp;30, 2004 and 2005
(unaudited), all outstanding stock options, warrants and
preferred stock have been excluded from the calculation of the
diluted net loss per share since their effect was anti-dilutive,
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-14</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
except for preferred stock that were included in diluted loss
per share calculations using the if converted method for the
nine-month period ended September&nbsp;30, 2005 (see
Note&nbsp;17).
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
p.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company accounts for its employee stock option plans using
the intrinsic value method prescribed by APB&nbsp;25,
&#147;Accounting for Stock Issued to Employees&#148; and related
interpretations. Accordingly, the compensation cost relating to
stock options is charged on the date of grant of such options,
to stockholders&#146; deficiency, under deferred compensation,
and is thereafter amortized as expense by the straight-line
method over the vesting period.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
SFAS&nbsp;No.&nbsp;148, &#147;Accounting for Stock-Based
Compensation&#151;Transition and Disclosure&#148;
(&#147;SFAS&nbsp;No.&nbsp;148&#148;) amends
SFAS&nbsp;No.&nbsp;123, &#147;Accounting for Stock-Based
Compensation&#148; (&#147;SFAS no.&nbsp;123&#148;) to provide
alternative methods of a voluntary change to the fair value
based methods of accounting for stock-based employee
compensation. In addition, SFAS&nbsp;No.&nbsp;148 amends the
disclosure requirements of SFAS&nbsp;No.&nbsp;123 to require
more prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect for the method used on
reported results.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As provided for in SFAS&nbsp;No.&nbsp;148, the Company has
elected to continue to follow APB No.&nbsp;25 and related
interpretations in accounting for its employee stock options.
Compensation expense, if any, is generally based on the
difference between the exercise price of an option or the amount
paid for the award and the market price or fair value of the
underlying common stock at the date of the grant. To the extent
that compensation expense is recognized with respect to stock
options issued to employees or directors, such expense is
amortized over the vesting period of such options.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company applies SFAS&nbsp;No.&nbsp;123 and Emerging Issues
Task Force No.&nbsp;96-18 &#147;Accounting for Equity
Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services&#148; (&#147;EITF&nbsp;96-18&#148;), with respect to
options and warrants issued to non-employees.
SFAS&nbsp;No.&nbsp;123 and EITF&nbsp;96-18 require the use of
option valuation models to measure the fair value of the options
and warrants at the measurement date.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-15</B>
</DIV>
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<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table illustrates the effect on net loss
attributed to common stockholders and net loss per share,
assuming that the Company had applied the fair value recognition
provision of SFAS&nbsp;No.&nbsp;123 on its stock-based employee
compensation:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Nine months ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="20" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="13">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss attributable to common stockholders as reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>21,314</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deduct&#151;stock-based employee compensation expense included
    in the reported net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Add&#151;total stock-based employee compensation expense
    determined under fair value based method</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma net loss attributable to common stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,629</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,646</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,755</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>21,332</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic net loss per share as reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.74</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma basic net loss per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.74</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted net loss per share as reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.90</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma diluted net loss per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.90</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The fair value of each option granted is estimated on the date
of the grant using the Minimum Value model with the following
weighted average assumptions:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="73%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividend yield</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Risk-free interest rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.15</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.01</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.67</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected life in years</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Volatility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
q.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated other comprehensive
income (loss):
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Comprehensive income (loss), presented in stockholders&#146;
deficiency, includes foreign currency translation adjustments.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
r.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Concentration of credit risk:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
cash equivalents, short-term investments, marketable securities
and trade receivables.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Cash and cash equivalents are invested in dollars, Euros and NIS
(mainly in dollars) with major banks in the U.S. and Israel.
Management believes that the financial institutions that hold
the Company&#146;s investments are financially sound and,
accordingly, minimal credit risk exists with respect to these
investments.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company&#146;s trade receivables are generally derived from
sales and services rendered to large and well established
organizations located primarily in the United States, Israel and
Europe. The Company
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-16</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
does not expect any credit losses in excess of the allowance for
doubtful accounts included in the financial statements.
Allowance for doubtful accounts is determined for specific debts
doubtful of collection and amounted to $1,466 and $16 at
December&nbsp;31, 2003 and 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
s.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recently issued accounting
pronouncements in the United States:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
On December&nbsp;16, 2004, the Financial Accounting Standards
Board issued Statement No.&nbsp;123 (revised 2004),
&#147;Share-Based Payment&#148;
(&#147;Statement&nbsp;123(R)&#148;), which is a revision of FASB
Statement No.&nbsp;123, &#147;Accounting for Stock-Based
Compensation&#148; (&#147;Statement&nbsp;123&#148;). Generally,
the approach in Statement&nbsp;123(R) is similar to the approach
described in Statement&nbsp;123. However, Statement&nbsp;123
permitted, but did not require, share-based payments to
employees to be recognized based on their fair values while
Statement&nbsp;123(R) requires all share-based payments to
employees to be recognized based on their fair values.
Statement&nbsp;123(R) also revises, clarifies and expands
guidance in several areas, including measuring fair value,
classifying an award as equity or as a liability and attributing
compensation cost to reporting periods. Statement 123(R) will be
applicable to the Company in the first fiscal year beginning
after January&nbsp;1, 2006. The adoption of
Statement&nbsp;123(R) is not expected to have a significant
effect on the Company&#146;s results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In March 2005, the SEC released SEC Staff Accounting
Bulletin&nbsp;No. 107, &#147;Share-Based Payment&#148;
(&#147;SAB&nbsp;107&#148;). SAB&nbsp;107 provides the SEC
staff&#146;s position regarding the application of
SFAS&nbsp;123(R) and contains interpretive guidance related to
the interaction between SFAS&nbsp;123(R) and certain SEC rules
and regulations, and also provides the SEC staff&#146;s views
regarding the valuation of share-based payment arrangements for
public companies. SAB&nbsp;107 highlights the importance of
disclosures made relating to the accounting for share-based
payment transactions. The Company is currently reviewing the
effect of SAB&nbsp;107, however, it does not believe that
SAB&nbsp;107 will have a material effect on its financial
position, results of operations or cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In November 2004, the FASB issued Statement of Financial
Accounting Standard No.&nbsp;151, &#147;Inventory Costs, an
Amendment of ARB No.&nbsp;43, Chapter&nbsp;4.&#148;
(&#147;SFAS&nbsp;No.&nbsp;151&#148;). SFAS&nbsp;No.&nbsp;151
amends Accounting Research Bulletin (&#147;ARB&#148;)
No.&nbsp;43, Chapter&nbsp;4, to clarify that abnormal amounts of
idle facility expense, freight handling costs and wasted
materials (spoilage)&nbsp;should be recognized as current-period
charges. In addition, SFAS&nbsp;No.&nbsp;151 requires that the
allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production
facilities. SFAS&nbsp;No.&nbsp;151 is effective for inventory
costs incurred during fiscal years beginning after June&nbsp;15,
2005. The Company does not expect that the adoption of
SFAS&nbsp;No.&nbsp;151 will have a material effect on its
financial position or results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In May 2005, the FASB issued Statement of Financial Accounting
Standard No.&nbsp;154 (&#147;SFAS&nbsp;154&#148;),
&#147;Accounting Changes and Error Corrections,&#148; a
replacement of APB No.&nbsp;20, &#147;Accounting Changes&#148;
and SFAS&nbsp;No.&nbsp;3, &#147;Reporting Accounting Changes in
Interim Financial Statements&#148;. SFAS&nbsp;154 provides
guidance on the accounting for and reporting of accounting
changes and error corrections. APB No.&nbsp;20 previously
required that most voluntary changes in accounting principles be
recognized by including in net income for the period of the
change the cumulative effect of changing to the new accounting
principle. SFAS&nbsp;154 requires retroactive application to
prior periods&#146; financial statements of a voluntary change
in accounting principles unless it is impracticable.
SFAS&nbsp;154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December&nbsp;15, 2005.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-17</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;3:</B></TD>
    <TD>
    <B>OTHER RECEIVABLES</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="79%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="8" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restricted
    cash<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>250</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Advances to suppliers</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>137</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Government authorities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>298</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid expenses and other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,115</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,800</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>Restricted cash related to letters of credit issued by a bank
    to suppliers.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;4:</B></TD>
    <TD>
    <B>INVENTORY</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Raw materials</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,866</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,054</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,063</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Products in progress</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>318</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Finished
    products<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,903</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,284</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>At December&nbsp;31, 2003 and 2004 and at September&nbsp;30,
    2005, includes inventory at a customer site, for which revenue
    was not yet recognized, in a total amount of $1,877, $0 and $815
    (unaudited), respectively.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
For the years ended December&nbsp;31, 2002, 2003 and 2004, the
Company wrote-off approximately $497, $505 and $177,
respectively, to reflect products with short term expiration
dates and product market prices that are lower than cost. These
write-offs were included in the cost of revenues.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-18</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;5:</B></TD>
    <TD>
    <B>PROPERTY, PLANT AND EQUIPMENT, NET</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="76%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Machinery and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,435</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,572</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Office furniture and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>422</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Computers and software</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>663</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Vehicles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>170</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Leasehold improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>248</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>235</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,937</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,062</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated depreciation:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Machinery and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,848</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,651</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Office furniture and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>337</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Computers and software</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>564</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Vehicles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>166</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>150</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Leasehold improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>166</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>160</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,862</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments on account of property, plant and
    equipment<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>971</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciated cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,171</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>The Company intends to expand its production facilities by
    building a new production facility in Israel. At
    December&nbsp;31, 2004 a payment of $971 on account of a new
    plant facility was not subject to depreciation.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Depreciation expenses for the years ended December&nbsp;31,
2002, 2003 and 2004 were $733, $656 and $659, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As for charges and pledges, refer to Note&nbsp;12.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;6:</B></TD>
    <TD>
    <B>DEFERRED CHARGES AND OTHER ASSETS</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible assets:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
On June&nbsp;26, 2005, the Company acquired from a former
supplier a perpetual and exclusive license to use all
intellectual property rights related to a certain component of
the application device used for the Company&#146;s biosurgical
products. The total consideration, which amounted to $585, will
be amortized over the estimated useful life of this intangible
asset, which management estimates to be 10&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Amortization expenses for the nine-month period ended
September&nbsp;30, 2005 were $15 (unaudited)&nbsp;and are
included in cost of product sales.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred charges:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Costs related to the issuance of loans and convertible debts are
amortized over the term of the notes as interest expense.
Deferred charges amounted to $230 and $134 at December&nbsp;31,
2003 and 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-19</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;7:</B></TD>
    <TD>
    <B>CONVERTIBLE PROMISSORY NOTES</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Composed as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="8" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Principal</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,632</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,800</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,432</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2002, the Company
issued two series of 10% secured convertible promissory notes
(the &#147;Convertible Promissory Notes&#148;) in the amount of
$11,132 out of which $5,600 amended the notes that were issued
in 2001. In addition to interest payments, certain Convertible
Promissory Notes, due in August 2004, entitled the holders to an
additional payment of $1.5&nbsp;million upon maturity. This
additional payment is recorded as additional interest and
recognized over the term of the notes. The Convertible
Promissory Notes could only be converted into common stock upon
the closing of the Company&#146;s &#147;next equity
financing&#148; as defined in the Convertible Promissory Notes,
at 80% of the purchase price then paid by the investors. In
addition, the Convertible Promissory Notes carried certain yield
preference upon a &#147;change of control&#148; as defined in
the Convertible Promissory Notes. On August&nbsp;30, 2004, the
Company repaid part of the Convertible Promissory Notes in a
principal amount plus accrued interest of $3,657. The maturity
date for the balance of the principal of the remaining
Convertible Promissory Notes, in the amount of $8,632, was
deferred to January&nbsp;29, 2005. No beneficial conversion
feature was recorded in connection with the Convertible
Promissory Notes.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Issuance costs relating to the Convertible Promissory Notes, in
the amount of $180, were recorded as deferred charges and were
amortized to interest expense over the life of the notes, using
the interest method.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 2005, certain
Convertible Promissory Notes, representing a principal amount of
$7,149, were converted as part of the Recapitalization Agreement
in consideration for 5,473,349&nbsp;shares of common stock (see
Note&nbsp;13b). Note holders that did not participate in the
Recapitalization Agreement, holding a principal amount of
$1,483, entered into a new Convertible Promissory Note agreement
which mature on December&nbsp;31, 2007 and that carry an annual
interest rate of 10%. These new Convertible Promissory Notes are
not readily convertible and may only be converted upon the
closing of the Company&#146;s &#147;next equity financing&#148;
as defined in the Convertible Promissory Notes agreements, into
shares issued in the next equity financing at the lower of 80%
of the purchase price then paid by the investors and
$2.25&nbsp;per security. No beneficial conversion feature was
recorded in connection with these new Convertible Promissory
Notes.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;8:</B></TD>
    <TD>
    <B>ACCOUNTS PAYABLE AND ACCRUALS&#151;OTHER</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="79%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="8" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,718</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payroll and related expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,041</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Government authorities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>268</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>256</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholders and affiliates</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued expenses and other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,841</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,856</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-20</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;9:</B></TD>
    <TD>
    <B>SHORT-TERM CREDIT FROM BANKS AND LONG-TERM LOANS</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term loans:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Annual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>interest rate at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Bank
    loans<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5-7.5</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,261</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Hercules
    loans<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11.45</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,970</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less&#151;current maturities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(236</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(377</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,690</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>158</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,541</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><I>(1)</I></TD>
    <TD align="left">
    <I>The bank loans are denominated in NIS. The loans at
    December&nbsp;31, 2004 mature in 2006.</I></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><I>(2)</I></TD>
    <TD align="left">
    <I>See also c below.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Short-term bank credit and loans:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Annual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>interest rate at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shot-term credit from bank</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.4</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,881</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Short-term loan</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.1-7</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>233</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current maturities of long-term loans</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>377</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,491</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Total credit available at December&nbsp;31, 2004 amounted to
$278.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;31, 2005, the
Company entered into a loan agreement with Hercules Technology
Growth Capital (the &#147;2005 loan agreement&#148;) to borrow
up to $5,000 by October&nbsp;1, 2005. This loan bears interest
at a rate of 11.45%&nbsp;per annum. At September&nbsp;30, 2005,
the Company used the entire facility, which is due by March 2008.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
According to the 2005 loan agreement, the Company was obligated
to pay interest on the first day of each month until
October&nbsp;1, 2005, followed by equal monthly installments of
principal plus accrued interest through March&nbsp;1, 2008. The
2005 loan agreement can be repaid at any time with a premium
over the remaining principal equal to 2.5% if repayment is prior
to March&nbsp;31, 2006, 1.25% if it is between March&nbsp;31,
2006 and March&nbsp;31, 2007 and 0.5% if it is after
March&nbsp;31, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The 2005 loan agreement was followed by the issuance of a
warrant for the purchase of up to 149,522&nbsp;shares of common
stock at a price of $4.18&nbsp;per share. This warrant expires
on the earlier of March&nbsp;31, 2012 or three years after the
consummation of an IPO. On the commitment date, the Company
allocated the proceeds between the 2005 loan agreement and the
warrant as required by APB&nbsp;14, &#147;Accounting for
Convertible Debt and Debt Issued with Stock Purchase
Warrants&#148; (&#147;APB&nbsp;14&#148;) (see also
Note&nbsp;13f). As a result, the Company recorded debt discount
arising from the fair value allocation to the warrant in the
total amount of $75, which is amortized as interest expense from
the commitment date to the stated redemption date using the
interest method.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Issuance costs allocated to the 2005 loan agreement, in the
amount of $162, were recorded as deferred charges and are
amortized to interest expense over the life of the loan.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-21</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;10:</B></TD>
    <TD>
    <B>CONVERTIBLE NOTES</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="8" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Par value</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less&#151;discount, net of accumulated accretion</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,067</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,433</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,896</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,895</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>22,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>24,328</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In December 1998 and May 1999, the Company raised $20,000 (gross
proceeds) by issuance of warrants, common stock and convertible
notes (&#147;the Convertible Notes&#148;). The Convertible Notes
were due on December&nbsp;31, 2008, bore annual interest of
4.25% and were convertible into shares of common stock, at any
time, for $7.40&nbsp;per share.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The abovementioned warrants had an exercise price of
$5.55&nbsp;per share of common stock, exercisable at any time,
and they had expiration date of 10&nbsp;years from issuance. At
inception, the Company allocated the proceeds between the common
stock, warrants and Convertible Notes as required by APB&nbsp;14.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As a result, the Company recorded discount on the Convertible
Notes in the amount of $2,064 with respect to a beneficial
conversion feature that was amortized immediately as required
under EITF&nbsp;98-5. As the Convertible Notes were convertible
into common stock at the holder&#146;s discretion, the discount
arising from the fair value allocation to the warrants under
APB&nbsp;14 in a total amount of $1,891 has been amortized to
interest expense from the commitment date to the stated
redemption date using the interest method.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Issuance costs allocated to the Convertible Notes, in the amount
of $332, were recorded as deferred charges and were amortized to
interest expense using the interest method from the commitment
date to the stated redemption date using the interest method.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Convertible Notes and warrants were part of the
Recapitalization Agreement (see Note&nbsp;13b) and were
converted into common stock on January&nbsp;13, 2005.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;11:</B></TD>
    <TD>
    <B>OTHER LONG-TERM LIABILITIES</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="76%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    MDA (see Note&nbsp;12d)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>400</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued severance pay</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>240</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>640</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;12:</B></TD>
    <TD>
    <B>COMMITMENTS AND CONTINGENT LIABILITIES</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company leases premises
under long-term operating lease agreements mainly in Israel (see
also d. below), the majority of which expire in the year 2010.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-22</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Future minimum non-cancelable operating lease payments under
those leases, at December&nbsp;31, 2004, for the next five years
and thereafter, are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="89%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,281</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,216</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,170</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,164</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,100</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2010 and thereafter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,100</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under vehicle lease agreements,
the Company is committed to pay monthly lease payments. The
projected lease payments for the next three years and
thereafter, are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="91%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>267</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>217</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>158</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008 and thereafter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>51</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1996, the Company entered
into an agreement with the New York Blood Center, Inc.
(&#147;NYBC&#148;) that was amended in February 2002, to
license, on a non-exclusive basis, certain virus inactivation
technology of NYBC for use in its manufacturing process. Under
the terms of the agreement, as amended, which is for a period
ending at the expiration of the last applicable patent, (2009),
NYBC is entitled to royalties of up to 5.25% on the net sales of
all products manufactured using the licensed technology in
locations where the relevant patents are protected. During the
years ended December&nbsp;31, 2002, 2003 and 2004, the Company
recorded $0, $179 and $118, respectively, as an expense in cost
of product sales.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
d.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 1997, the Company
entered into a lease and operation agreement with MDA which was
replaced in July 2000 by a new lease and operation agreement
(the &#147;Lease Agreement&#148;). The July 2000 agreement was
subsequently amended on December&nbsp;16, 2004 (the
&#147;Amended Lease Agreement&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under the Lease Agreements and the Amended Lease Agreement with
MDA, the Company leases its manufacturing facility and certain
machinery and equipment from MDA. In addition, the Company is
committed to purchase certain amounts of plasma from MDA.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>The Lease Agreement</I>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
The Lease Agreement with MDA was for a period ending on
December&nbsp;31, 2014. The Company, at its own discretion, may
terminate the lease on December&nbsp;31, 2001 or 2006. Annual
lease fee was in the amount of $1,000. In addition, MDA was
entitled to additional annual rent payments of $500 commencing
on the date of FDA approval of the leased facility (which was
obtained in 2003).
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>The Amended Lease Agreement</I>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
The Amended Lease Agreement with MDA terminates on
December&nbsp;31, 2010. After December&nbsp;31, 2007, the
Company has the right to terminate this agreement by giving
12&nbsp;months advance written notice to MDA. If the Company
exercises this early termination right, the Company will be
required to pay MDA an amount equal to $500&nbsp;per year, or
such pro rata amount for a part of a year, from the date of
termination until December&nbsp;31, 2010.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under the terms of the Amended Lease Agreement, the Company
leases its manufacturing facility and certain machinery and
equipment from MDA in return for a rent and lease fee in the
amount of $700 plus a certain percent of the sales of products
to third parties in each fiscal year. Such fee shall not be less
than $1,100 and not more than $2,000&nbsp;per year. In addition,
the parties agreed to the
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-23</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
continuation of the plasma purchase obligation by the Company at
certain fixed prices and to provide the Company with the right
of first refusal for MDA plasma at higher prices.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Investments in the manufacturing facility</I>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Under the Lease Agreement, certain investment in the facility
resulting from new laws, regulations, directives, requirements
or instructions by legal authorities, and that may be necessary
to preserve appropriate licenses to market products
(&#147;Compulsory Investments&#148;), are to be borne entirely
or partially by MDA.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Under the agreement, the Company has agreed to finance all of
the required Compulsory Investments, including MDA&#146;s share,
which the Company is entitled to offset against the rent and
lease fee. Because the Compulsory Investments will be
transferred to MDA at the termination of the lease agreement,
the Company recorded its investments in Compulsory Investments
as prepaid rental fees in its financial statements and recorded
the reimbursements as lease incentives, both of which are
amortized over the term of the lease.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<I>Guarantee</I>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
Under the terms of the Lease Agreement, the Company is required
to maintain an unconditional bank guarantee in the amount of
$250 in order to secure various payments due to MDA. Such
guarantee is to be maintained for a period of six months after
the Company vacates the manufacturing facility. In addition, the
Company has provided MDA with a security interest on inventory
of uncompleted products and raw materials.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
e.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To secure a bank guarantee in
respect of lease agreements, bank deposits included in long-term
receivables in a total amount of $276 were restricted.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
f.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As security for its liabilities
to banks, the Company recorded fixed charges on property and
equipment of Omrix Ltd. and floating charges on various assets
of Omrix Ltd.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
g.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s employment
agreement with its Chief Executive Officer (&#147;the
CEO&#148;), who is a significant stockholder, includes a
consulting agreement which will be in effect upon termination of
his employment with the Company. Under the consulting agreement,
the CEO will receive $175 as annual fees paid monthly, of which
the first 6&nbsp;months are guaranteed. Upon consummation of the
consulting agreement, the CEO will be entitled to
100,000&nbsp;shares of the Company&#146;s common stock, of which
50% will vest immediately. The remaining 50% will vest over the
following 18&nbsp;months, provided that the CEO provides
services under the consulting agreement.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;13:</B></TD>
    <TD>
    <B>STOCKHOLDERS&#146; DEFICIENCY</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share capital:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The holders of common stock are
    entitled to one vote for each share held. Subject to the rights
    and preferences of the holders of any series of preferred stock
    which may at the time be outstanding, holders of common stock
    are entitled to dividends which the Company&#146;s board of
    directors may declare from time to time out of legally available
    funds. Dividends on the common stock are not cumulative.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    In the event of any liquidation, dissolution or
    <FONT style="white-space: nowrap">winding-up</FONT> of the
    Company&#146;s affairs, after payment of all of the
    Company&#146;s debts and liabilities, and subject to the rights
    and preferences of any series of preferred stock, the common
    stockholders will be entitled to receive their pro rata
    distribution of any remaining assets.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preferred stock confers on
    the holders thereof all the rights conferred by common stock and
    certain priorities upon liquidation. In addition, each preferred
    share shall be</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-24</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    convertible into one share of common stock. The conversion ratio
    shall be subject to certain standard anti-dilution provisions.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    The preferred stock had redemption rights, at the discretion of
    the holders, anytime after the earlier of
    (1)&nbsp;December&nbsp;31, 2008 or (2)&nbsp;the payment of the
    Convertible Notes with a redemption value of the stated
    liquidation preference on each class.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    The Company&#146;s preferred stock was converted to common stock
    in connection with the Recapitalization Agreement (see
    Note&nbsp;13b).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    The Series B Convertible Preferred Stock had cumulative
    non-compounding dividends at 5% of the liquidation preference
    per share per year.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October 2002, 19,595 shares
    of common stock were repurchased by the Company for the amount
    of $44.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recapitalization agreement:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
On January&nbsp;13, 2005, the Company, its stockholders, all
Convertible Notes holders and certain Convertible Promissory
Note holders entered into an agreement for the conversion of
securities of the Company into common stock
(&#147;Recapitalization Agreement&#148;) and certain other
agreements regarding stockholders&#146; rights.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Pursuant to the Recapitalization Agreement, the Company
exchanged all of the Convertible Notes, part of the Convertible
Promissory Notes and certain warrants that were issued in
connection with the Convertible Notes, into shares of common
stock. In addition, the Company induced the conversion of its
Series&nbsp;A Convertible Preferred Stock and Series&nbsp;B
Convertible Preferred Stock into shares of common stock. The
number of shares of common stock issued to each instrument
holder was stated in the Recapitalization Agreement between the
Company and all participating investors.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The financial statements for the period ended September&nbsp;30,
2005, include financing charges in the amount of $20,932 related
to the Convertible Notes induced conversion as required under
SFAS&nbsp;84, &#147;Induced Conversion&#148; and APB Opinion
No.&nbsp;26, &#147;Early Extinguishments of Debt&#148; for the
Convertible Promissory Notes that were not readily convertible.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, these financial statements include an amount of
$6,491 attributed to the excess carrying amount of preferred
stock and warrants over the value of common stock received by
their holders upon conversion of preferred stock and warrants
pursuant to the Recapitalization Agreement as required by EITF
D-42, &#147;The Effect on the Calculation of Earnings per Share
for the Redemption or Induced Conversion of Preferred
Stock&#148; and EITF D-53, &#147;Computation of Earnings per
Share for a Period that Includes a Redemption or an Induced
Conversion of a Portion of a Class of Preferred Stock&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, expenses incurred with respect to the
Recapitalization Agreement in the amount of $635 were allocated
between the different components of the transaction. $509 of
those costs were recorded as financial expenses in the
consolidated statement of operations for the nine month period
ended September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the
Convertible Notes issuance in 1998 and 1999 (see Note&nbsp;10),
the Company issued several classes of warrants:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All Convertible Note holders
    received warrants for the purchase of 667,445 common stock of
    the Company. Each warrant entitled the holder to purchase one
    share of common stock of the Company at a price of
    $5.55&nbsp;per share (subject to certain adjustments) until the</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-25</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    expiration date of such warrant. All of these warrants were
    eliminated in the Recapitalization Agreement (see also b above).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Warrants for 509,197 shares of
    common stock in connection with investment and advisory services
    rendered in connection with the 1998 and 1999 financing
    (&#147;the Advisory Warrants&#148;). Of these warrants, 449,410
    warrants have terms identical to those issued to the investors
    in the private placement (see&nbsp;1 above). Warrants for an
    additional 59,787 shares of common stock had identical terms,
    except for an exercise price per share of $6.17 (subject to
    certain adjustments).</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    The fair value of the warrants was estimated to be $1,765 by
    using the Black-Scholes option-pricing model at the measurement
    date.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
d.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, the Company issued
631,688&nbsp;shares of Series&nbsp;A Convertible Preferred stock
at $0.01&nbsp;par value per share in consideration of $5,000.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
e.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;15, 2004, the
Company raised $5,000 ($4,892&#151;net of issuance costs) in a
private placement in which 406,835&nbsp;shares of the
Company&#146;s Series&nbsp;B Convertible Preferred Stock, par
value of $0.01 per share, and warrants to
purchase&nbsp;100,000&nbsp;shares of common stock, par value of
$0.01 per share, were issued. Each warrant entitles the holder
to purchase one share of common stock of the Company at a price
of $12.29&nbsp;per share (subject to certain adjustments). The
exercise price of these warrants was amended to $4.18&nbsp;per
share as part of the recapitalization. According to the terms of
the warrants, if the Company declares a dividend, it shall set
aside such dividend for payment to the warrant holder upon
exercise of the warrant had the warrant been fully exercised
immediately prior to the date on which the divided was declared.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The fair value of the above warrants was estimated to be
insignificant by using the Black-Scholes option-pricing model at
the measurement date.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
f.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the 2005 loan
agreement (see also Note&nbsp;9c), the Company issued warrants
for up to 149,522&nbsp;shares of common stock at an exercise
price of $4.18&nbsp;per share. This warrant terminates on the
earlier of March&nbsp;31, 2012, or three years after the
consummation of an IPO. On the commitment date, the Company
allocated the proceeds between the 2005 loan agreement and the
warrants as required by APB&nbsp;14.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The fair value of the warrants of $75 was estimated by using the
Black-Scholes option-pricing model at the measurement date,
using the following measurements: expected volatility of 37%;
risk-free interest rates of 4.4%; and expected lives of
5.5&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
g.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock option plans and stock
options:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Options granted under the Company&#146;s stock option plans are
exercisable within no more than ten years from the date of
grant. The exercise price of the options may not be less than
the fair market value of the shares for which the options are
exercisable at the date of grant, and options generally vest
over a four year period of employment.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Company&#146;s 2004
    Equity Incentive Plan (the &#147;2004 Plan&#148;) and the 2005
    Equity Incentive Plan for Israeli Employees (the &#147;2005
    Plan&#148;), which is a sub-plan of the 2004 Plan, the Company
    may issue up to 3,275,636&nbsp;shares of common stock to
    directors, officers, employees and consultants of the Company
    and its subsidiary. At September&nbsp;30, 2005, 600,000 options
    were granted under the 2004 Plan and the 2005&nbsp;Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    2.&nbsp;In January 2005, the Company&#146;s 1998 Stock Incentive
    Plan (the &#147;1998 Plan&#148;) for the issuance of up to
    900,000&nbsp;shares of common stock to officers, key employees,
    non-employee</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-26</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    directors and consultants was terminated. Options granted and
    not forfeited under the 1998 Plan prior to termination survived
    the termination of the Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    3.&nbsp;In addition to options under the 2004 Plan, the 2005
    Plan and the 1998 Plan, the Company issued options exercisable
    into 788,623 shares of common stock, to certain consultants and
    investors in connection with financing transactions and other
    services, which are still outstanding.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following is a summary of the status of the Company&#146;s
stock option plans to its employees:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap><B>Year ended December&nbsp;31,</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>price</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="25" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance outstanding at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>777,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>512,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>626,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.08</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Changes during the year:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted&#151;at market price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Forfeited</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>364,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(186,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7.36</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance outstanding at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>512,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>626,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>622,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.06</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance exercisable at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>180,375</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>198,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>327,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.49</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table summarizes information about options to
employees outstanding at December&nbsp;31, 2004 under the plans:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>outstanding</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exercisable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>remaining</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>price of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="right" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>contractual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>options</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="right" nowrap><B>price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>life</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exercisable</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="22" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>$7.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>82,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7.76</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>$6.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>140,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.81</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>140,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6.17</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>$1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>622,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>327,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.49</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The weighted average fair values and exercise prices of options
granted during the years ended December&nbsp;31, 2002, 2003 and
2004 were:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="69%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="center" nowrap><B>Exercise price higher</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap><B>than fair value</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap><B>Year ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average exercise prices</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average fair values on grant date</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
h.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2004, a major stockholder
entered into an agreement with one of the Company&#146;s
employees according to which the major stockholder granted the
employee 250,000 options to
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-27</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
purchase common stock. According to the agreement, the grant
terms were not fixed and were subject to the Company&#146;s
board of directors modification. During 2005, the Company&#146;s
Board of Directors approved modification of the grant.
Accordingly, the number of options increased to 325,000 options
of which the terms of only 25,000 options remain not fixed. The
options vest over a four year period of employment.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
As required by AIN-APB&nbsp;25, &#147;Accounting for Stock
Issued to Employees: Accounting Interpretations of APB Opinion
No.&nbsp;25&#148;, the Company accounted for the award with
non-fixed terms as a variable award. At the date on which the
Company&#146;s Board of Directors fixed the terms, the Company
measured the value on the option at that date and accounted for
that grant prospectively as a fixed grant under APB&nbsp;25.
Total compensation cost as a result of this grant amounted to $5
and $14 for the year ended December&nbsp;31, 2004, and for the
nine months ended September&nbsp;30, 2005 (unaudited). The
option granted for the major stockholder&#146;s share was
accounted for as capital contribution.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
i.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to specific agreements
signed with non-employee service providers, the Company has
granted options to purchase common stock as described below.
Each option entitles the holder to purchase one share of common
stock of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table summarizes information about options
outstanding and exercisable at December&nbsp;31, 2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Options for</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>common</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>per</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Options</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Issuance date</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>share</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>exercisable</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    February 2000</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    March 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    August 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    October 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,952</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>184,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>147,452</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The charges for stock compensation relating to options granted
to non-employees were $0.2, $35 and $8 in 2002, 2003 and 2004,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The fair value of options granted was estimated by using the
Black-Scholes option-pricing model at the measurement dates. The
Company used the following weighted average assumptions in its
measurements: expected volatility of 42-47% for 2003 and 2004;
risk-free interest rates (in dollar terms) of 3.4-4.4% for 2003
and 2004; and expected lives of
<FONT style="white-space: nowrap">5-10&nbsp;years</FONT> for
2003 and 2004.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;14:</B></TD>
    <TD>
    <B>TAXES ON INCOME</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company, Omrix S.A., Omrix
Ltd. and Biopex are separately taxed under the domestic tax laws
of the state of incorporation of each entity.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax laws applicable to the
companies in Israel:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Measurement of taxable income under the Income Tax (Inflationary
Adjustments) Law, 1985:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    In accordance with the above law, results for tax purposes are
    measured and reflected in real terms in accordance with the
    changes in the Israeli CPI.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax rates applicable to the
Group companies:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The income of the Israeli
    subsidiaries (other than income from &#147;approved
    enterprises,&#148; see 3. below) is taxed at the regular rate.
    Through December&nbsp;31, 2003, the corporate tax was</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-28</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    36%. In July 2004, an amendment to the Income Tax Ordinance was
    enacted. One of the provisions of this amendment gradually
    reduce the corporate tax rate from 36% to 30%, in the following
    manner: the rate for 2004 will be 35%, in 2005&#151;34%, in
    2006&#151;32%, and in 2007 and thereafter&#151;30%.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;25, 2005, the
    Israeli Parliament passed the second and third readings of the
    proposed Income Tax Ordinance Amendment (No.&nbsp;147 and Ad Hoc
    Provision) Law, 2005 (the &#147;2005 Amendment&#148;). The 2005
    Amendment further reduces the corporate tax rates stipulated
    under the 2004 amendment, and provides for the gradual
    reduction, commencing from January&nbsp;1, 2006, in the
    following manner: the rate in 2006 will be 31%, in
    2007&#151;29%, in 2008&#151;27%, in 2009&#151;26%, and in 2010
    and thereafter&#151;25%.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Since a full valuation allowance is currently provided against
    all of the Israeli related deferred tax assets, the
    abovementioned amendment has no effect on the financial
    statements.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to another amendment to
    the Income Tax Ordinance, which became effective in 2003,
    capital gains are taxed at a reduced rate of 25% from
    January&nbsp;1, 2003, instead of the regular corporate tax rate
    at which such gains were taxed until the aforementioned date.
    The aforesaid amendment stipulates that with regard to the sale
    of assets acquired prior to January&nbsp;1, 2003, the reduced
    tax rate will be applicable only for the gain allocated to
    capital gains earned after the implementation of the amendment,
    which will be calculated, as prescribed by said amendment.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
d.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Encouragement Laws in Israel:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    1.&nbsp;Tax benefits under the law for the Encouragement of
    Capital Investments, 1959 (the &#147;Law&#148;):</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Under the Law, by virtue of the &#147;Approved Enterprise&#148;
    status granted to Omrix Ltd., Omrix Ltd. is entitled to certain
    tax benefits. Due to reported losses for tax purposes, the
    benefit period has not yet commenced.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Omrix Ltd. is entitled to additional tax benefits as a
    &#147;foreign investors&#146; company,&#148; as defined by the
    Law.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    The main tax benefits available to Omrix Ltd. are:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    a)&nbsp;Reduced tax rates:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    During the period of benefits, 10&nbsp;years for a foreign
    investors&#146; company as defined by the Law, commencing in the
    first year in which the Company earns taxable income from the
    Approved Enterprises (provided the maximum period to which it is
    restricted by law has not elapsed), the following reduced tax
    rates, or tax exemptions, apply:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Tax exemption on income from Approved Enterprise for a period of
    four years, after which the income from this enterprise is
    taxable at the rate of 10%-20% for an additional three to six
    years, depending on the level of foreign investors in the
    Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    The period of tax benefit, as detailed above, is limited to the
    earlier of 12&nbsp;years from the &#147;operational year&#148;
    or 14&nbsp;years from the year our program received
    &#147;approved enterprise&#148; status (2009 for Omrix Ltd.).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    In the event of distribution of cash dividends out of income,
    which was tax exempt, the Company would have to pay the 10% tax
    in respect of the amount distributed, as stated above.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-29</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accelerated depreciation:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Omrix Ltd. is entitled to claim, for tax purposes, accelerated
    depreciation for five tax years commencing in the first year of
    operation of each asset, with respect to machinery and equipment
    used by the Approved Enterprise.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Conditions for entitlement to
    the benefits:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    The entitlement to the above benefits is conditional upon Omrix
    Ltd.&#146;s fulfilling the conditions stipulated by the Law,
    regulations published thereunder and the instruments of approval
    for the specific investments in approved enterprises. In the
    event of failure to comply with these conditions, the benefits
    may be cancelled and Omrix Ltd. may be required to refund the
    amount of the benefits, in whole or in part, with the addition
    of interest. To date, Omrix Ltd. has not utilized any benefit
    under the Approved Enterprise status. Management believes that
    Omrix Ltd. has complied with all relevant conditions.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;1, 2005, an
    amendment to the Investment Law came into effect (the
    &#147;Amendment&#148;) and has significantly changed the
    provisions of the Investment Law. The Amendment limits the scope
    of enterprises which may be approved by the Investment Center by
    setting criteria for the approval of a facility as an Approved
    Enterprise, with such provisions as those that generally require
    that at least 25% of the Approved Enterprise&#146;s income will
    be derived from export. Additionally, the Amendment enacted
    major changes in the manner in which tax benefits are awarded
    under the Investment Law so that companies no longer require
    Investment Center approval in order to qualify for tax benefits.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    However, the Investment Law provides that terms and benefits
    included in any certificate of approval already granted will
    remain subject to the provisions of the law as they were on the
    date of such approval. Therefore the Israeli subsidiary existing
    Approved Enterprise will generally not be subject to the
    provisions of the Amendment.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Law for the Encouragement of
    Industry (Taxation), 1969:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Omrix Ltd. currently qualifies as an &#147;industrial
    company&#148; under the above law. As such, the Company claimed
    amortization at the rate of 12.5% of patent rights purchased.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
e.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Carryforward losses:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
At December&nbsp;31, 2004, Omrix Ltd. had carryforward losses,
including a carryforward capital loss, amounting to
approximately $17,428, which may be carried forward
indefinitely. At December&nbsp;31, 2004, U.S.&nbsp;carryforward
losses related to the Company amounted to approximately $18,528,
which have expiration dates ranging from 2019 to 2024.
Utilization of U.S.&nbsp;net operating losses may be subject to
substantial annual limitation due to the &#147;change in
ownership&#148; provisions of the Internal Revenue Code of 1986
and similar state provisions. The annual limitation may result
in the expiration of net operating losses before utilization. At
December&nbsp;31, 2004, Omrix S.A. had carryforward losses of
approximately $18,520, which may be carried forward indefinitely.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-30</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
f.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
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. Significant components of the
Company&#146;s deferred tax liabilities and assets are as
follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="75%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="8" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred tax assets, reserves and allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>318</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net operating loss carryforward&#151;U.S.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,485</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net operating loss carryforward&#151;Belgium</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,357</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,020</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred tax asset before valuation allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,823</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valuation allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,408</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(13,823</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net deferred tax asset</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The entire change in valuation allowance is for the increase in
net operating loss during the year and changes to reserves and
allowances.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company expects that during the period in which tax losses
related to Omrix Ltd. are utilized, its income would be
substantially tax exempt. Accordingly, there will be no tax
benefit available from such losses and no deferred income taxes
have been included in these financial statements. Deferred taxes
in respect of other temporary differences are immaterial.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Management currently believes that it is more likely than not
that other deferred tax assets from carryforward losses will not
be realized in the foreseeable future. Accordingly, a valuation
allowance has been recorded for the entire amount.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
g.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss before income taxes is
comprised as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="68%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Domestic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,094</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,510</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,604</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
h.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2004, the
Belgian subsidiary and the Israeli subsidiaries tax returns for
all tax years through December&nbsp;31, 1998 and
December&nbsp;31, 2000, respectively, became final due to the
elapsed legal challenge period of the local tax authorities. No
other final tax assessments have been received yet.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-31</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;15:</B></TD>
    <TD>
    <B>FINANCIAL INCOME (EXPENSES), NET</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="13" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Financial expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest on loans, bank credit and others</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(122</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(169</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(203</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest and amortization of discount on convertible notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,619</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,148</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,804</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of deferred issuance costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(57</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(127</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(96</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,798</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,444</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,103</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Financial income:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,787</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,542</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest on short-term bank deposits and others</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,637</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(805</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(627</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,466</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;16:</B></TD>
    <TD>
    <B>OTHER INCOME (EXPENSES), NET</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gain (loss) from sale of property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(39</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gain from termination of agreement with distributor, net(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,215</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(39</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,226</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    In 2002, the Company entered into a distribution agreement with
    the American Red Cross (&#147;ARC&#148;) for distribution of
    Crosseal products in the U.S. and Canada. According to the
    agreement, the Company and ARC split equally the average selling
    price (&#147;ASP&#148;) to the end user. In addition, ARC was
    required to pay 2% of ASP as royalties.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    The Company recognized revenues under this arrangement upon
    shipment of product by ARC to their end user (sale through) and
    when the fee is fixed and determinable. Advanced payments by ARC
    were recorded as deferred revenues until all revenue recognition
    criteria are met.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    The agreement was terminated in July 2004. Pursuant to the
    termination agreement, the company received from ARC
    (1)&nbsp;all unsold inventory, (2)&nbsp;a waiver for any claim
    for advance payments previously made by ARC, and (3)&nbsp;17,000
    liters of plasma to be supplied by ARC in four equal annual
    installments, at no additional consideration.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    At the termination date, ARC plasma did not comply with certain
    regulatory standards required by the Company in order to use
    this plasma in its manufacturing process. As the Company had no
    alternative future use for this plasma, the Company did not
    assign any value to this element of the consideration.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Upon termination, the Company recorded $1,215 in other income
    representing the balance of deferred revenue net of the cost of
    obsolete inventory returned.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    In the future, if ARC&#146;s plasma will comply with the
    required standards, the Company will record, upon receiving the
    plasma, the value of such inventory as other income.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-32</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 26pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;17:</B></TD>
    <TD>
    <B>NET LOSS PER SHARE</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table sets forth the computation of the basic and
diluted losses per share:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Numerator:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Nine months ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="20" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss available to common stockholders for basic net loss per
    share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>21,314</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Induced conversion of Preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,706</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss available to common stockholders for diluted net loss
    per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>26,020</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Denominator:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Nine months ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="21" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>Number of shares</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average number of shares of common stock for basic net
    loss per share of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,556,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,765,222</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Effect of dilutive securities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares of preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*) &#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*) &#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*) &#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*) &#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57,695</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Denominator for diluted net loss per share of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,556,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,540,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,822,917</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><I>*)</I></TD>
    <TD align="left">
    <I>Anti-dilutive.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;18:</B></TD>
    <TD>
    <B>MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The Company operates in one reportable segment (see Note&nbsp;1
for a brief description of the Company&#146;s business). The
following data is presented in accordance with Statement of
Financial Accounting Standards No.&nbsp;131, &#147;Disclosure
About Segments of an Enterprise and Related Information&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following present total revenues for the years ended
December&nbsp;31, 2002, 2003 and 2004 and long-lived assets at
December&nbsp;31, 2003 and 2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="68%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues from sales to unaffiliated customers:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Israel</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,127</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    United States</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,434</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,766</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Europe</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,727</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,916</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Central and Latin America</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>695</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,700</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Others</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,567</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-33</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Notes to consolidated financial statements</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 26pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="76%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-lived assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Israel</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,143</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    United States</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Europe</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,171</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Revenues are attributed by product lines as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="13" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Biosurgical products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,211</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Development services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>659</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,950</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,097</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,161</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Passive immunotherapy products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,447</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Grants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>431</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,024</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,878</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,909</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,947</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,948</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Revenues from major customers (constituting 10% or more of the
Company&#146;s consolidated revenues) amounted to 50% and 38%
and 63% of revenues in the years ended December&nbsp;31, 2002
and 2003 and 2004, respectively, as set forth below:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2004</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>% of consolidated revenues</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer A</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer B</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer C</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*) &#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><I>*)</I></TD>
    <TD align="left">
    <I>Less than 10% of the Company&#146;s consolidated revenues.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;19:</B></TD>
    <TD>
    <B>SUBSEQUENT EVENTS (UNAUDITED)</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2005, the Company
granted to employees, director and consultant nine options to
purchase&nbsp;460,000 of the Company&#146;s shares of common
stock, at an exercise price of $5.00&nbsp;per share. The options
will vest over a four year period of employment and are
exercisable for a period of nine years. In addition, the Company
issued 20,833 restricted shares with similar vesting period to
an employee.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See Note&nbsp;12g with respect
to the amendment of the CEO agreement.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-34</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Omrix Biopharmaceuticals, Inc.</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<A name='306'></A>
</DIV>

<!-- link1 "Schedule II--Valuation and qualification accounts Three years ended December 31, 2004(U.S. $ in thousands)" -->

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Schedule&nbsp;II&#151;Valuation and qualification accounts
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Three years ended December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(U.S.&nbsp;$ in thousands)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="43%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Column A</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Column B</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Column C</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Column D</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Column E</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Column F</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Balance at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Charged to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Balance</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>beginning</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>cost and</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Translation</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>at end of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>of period</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>expenses</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Deductions</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>differences</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>period</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="20" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Allowance for doubtful accounts:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ended December&nbsp;31, 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>792</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,242</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ended December&nbsp;31, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,466</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ended December&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Allowance for inventory write-offs:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ended December&nbsp;31, 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>497</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ended December&nbsp;31, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>741</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ended December&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>741</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>649</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> F-35</B>
</DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<IMG src="y16354y1635400.gif" alt="OMRIX LOGO">
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 15pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>DEALER PROSPECTUS DELIVERY OBLIGATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Through and
including &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2006 (the 25th&nbsp;day after the date of this prospectus),
federal securities laws may require all dealers that effect
transactions in our common stock, whether or not participating
in this offering, to deliver a prospectus. This is in addition
to the dealers&#146; obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold
allotments or subscriptions.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Part&nbsp;II</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Information not required in prospectus
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>ITEM&nbsp;13.</B></TD>
    <TD>
    <B>OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The following table sets forth the costs, other than
underwriting discounts and commission, to be paid by the
Registrant in connection with the sale of the common stock being
registered. All amounts, except the Securities and Exchange
Commission registration fee and the National Association of
Securities Dealers Inc. filing fee, are estimated.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="81%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Amount</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>to be paid</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Securities and Exchange Commission registration fee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    National Association of Securities Dealers Inc. filing fee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Nasdaq National Market listing fee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accountants&#146; fees and expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Legal fees and expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Transfer agent and registrar fees and expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Printing and engraving expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Blue Sky fees and expenses (including legal fees)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Miscellaneous expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><I>*</I></TD>
    <TD align="left">
    <I>To be filed by amendment.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>ITEM&nbsp;14.</B></TD>
    <TD>
    <B>INDEMNIFICATION OF DIRECTORS AND OFFICERS.</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our certificate of incorporation provides that we will indemnify
our directors and officers to the fullest extent permitted by
the Delaware General Corporation Law, or DGCL. Section&nbsp;145
of the DGCL provides that a corporation has the power to
indemnify a director, officer, employee, or agent of the
corporation and certain other persons serving at the request of
the corporation in related capacities against expenses
(including attorneys&#146; fees), judgments, fines, and amounts
paid in settlements actually and reasonably incurred by the
person in connection with a threatened, pending, or completed
action, suit or proceeding to which he or she is or is
threatened to be made a party by reason of such position, if
such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal action or
proceeding, had no reasonable cause to believe his or her
conduct was unlawful, except that, in the case of actions
brought by or in the right of the corporation, indemnification
is limited to expenses (including attorney fees) actually and
reasonably incurred by the person in connection with defense or
settlement of such action or suit if the person acted in good
faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and no
indemnification shall be made with respect to any claim, issue,
or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Court of Chancery or other adjudicating court determines that,
despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
In addition, to the extent that a present or former director or
officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit, or proceeding
described above, or defense of any claim, issue, or matter
therein, such person shall be indemnified against expenses
(including attorneys&#146; fees) actually and reasonably
incurred by such person in connection therewith.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> II-1</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Part&nbsp;II</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Expenses (including attorneys&#146; fees) incurred by an officer
or director in defending any civil, criminal, administrative, or
investigative action, suit, or proceeding may be advanced by the
corporation upon receipt of an undertaking by such person to
repay such amount if it is ultimately determined that such
person is not entitled to indemnification by the corporation
under Section&nbsp;145 of the DGCL.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our certificate of incorporation provides that we will, to the
fullest extent permitted by law, indemnify, and upon request
shall advance expenses to, any person made or threatened to be
made a party to an action or proceeding by reason of the fact
that he or she (or his or her testators or in testate) is or was
our director or officer or serves or served at any other
corporation, partnership, joint venture, trust or other
enterprise in a similar capacity or as an employee or agent at
our request, including service with respect to employee benefit
plans, against expenses (including attorneys&#146; fees and
expenses), judgments, fines, penalties, and amounts paid in
settlement incurred in connection with the investigation,
preparation to defend, or defense of such action, suit,
proceeding, or claim. However, we are not required to indemnify
or advance expenses in connection with any action, suit,
proceeding, claim or counterclaim initiated by or on behalf of
such person.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Our certificate of incorporation also provides that, to the
fullest extent permitted by law, a director of the corporation
shall not be personally liable to the corporation or our
stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i)&nbsp;for any breach of
the director&#146;s duty of loyalty to the corporation or its
stockholders, (ii)&nbsp;for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law, (iii)&nbsp;for payments of unlawful dividends or
unlawful stock repurchases or redemptions, or (iv)&nbsp;for any
transaction from which the director derived an improper personal
benefit.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Any repeal or modification of these provisions of our
certificate of incorporation shall not adversely affect any
right or protection of a director of the corporation for or with
respect to any acts or omissions of that director occurring
prior to the amendment or repeal.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
We expect to obtain insurance policies under which our directors
and officers are insured, within the limits and subject to the
limitations of those policies, against certain expenses in
connection with the defense of, and certain liabilities which
might be imposed as a result of, actions, suits or proceedings
to which they are parties by reason of being or having been
directors or officers.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Prior to the completion of this offering, we will enter into
indemnification agreements with each of our officers and
directors under which we agreed to indemnify each of them
against: (a)&nbsp;expenses, judgments, and settlements paid in
connection with third-party claims and (b)&nbsp;expenses and
settlements paid in connection with claims on our behalf, in
each case provided that the director acted in good faith. In
addition, we agreed to indemnify each director to the extent
permitted by DGCL against all expenses, judgments, and amounts
paid in settlement unless the director&#146;s conduct
constituted a breach of his or her duty of loyalty to the
stockholders. Subject to the director&#146;s obligation to pay
us in the event that he or she is not entitled to
indemnification, we will pay the expenses of the director prior
to a final determination as to whether the director is entitled
to indemnification.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Reference is also made to the Underwriting Agreement filed as
Exhibit&nbsp;1.1 to the Registration Statement for information
concerning the underwriters&#146; obligation to indemnify us and
our officers and directors in certain circumstances.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>ITEM&nbsp;15.</B></TD>
    <TD>
    <B>RECENT SALES OF UNREGISTERED SECURITIES.</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Set forth below is information regarding securities sold by us
since January&nbsp;1, 2002 which were not registered under the
Securities Act of 1933 as amended, or Securities Act.
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> II-2</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Part&nbsp;II</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issuances and Sales of
    Preferred Stock</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    In July 2004, we issued and sold an aggregate of
    406,835&nbsp;shares of our Series&nbsp;B Convertible Preferred
    Stock at a price per share of $12.29 and a warrant to purchase
    up to 100,000&nbsp;shares of common stock for an aggregate
    offering price of approximately $5,000,000.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
No underwriters were involved in the foregoing sales of
securities. The securities described in this
paragraph&nbsp;(a)&nbsp;of Item&nbsp;15 were issued to a
U.S.&nbsp;investor in reliance upon the exemption from the
registration requirements of the Securities Act, as set forth in
Section&nbsp;4(2) under the Securities Act and Rule&nbsp;506 of
Regulation&nbsp;D promulgated thereunder relating to sales by an
issuer not involving any public offering, to the extent an
exemption from such registration was required. The purchaser of
shares of our stock described above represented to us in
connection with their purchase that they were an accredited
investor and were acquiring the shares for investment and not
distribution, that they could bear the risks of the investment
and could hold the securities for an indefinite period of time.
The purchaser received written disclosures that the securities
had not been registered under the Securities Act and that any
resale must be made pursuant to a registration or an available
exemption from such registration. The sales of these securities
were made without general solicitation or advertising.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issuances and Sales of
    Convertible Promissory Notes and New Convertible Promissory Notes</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2002, we sold two
    series of convertible promissory notes to 19&nbsp;investors for
    an aggregate offering price of approximately $11,131,700 in
    exchange for cash and refinancing of indebtedness.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of January 2005, new
    convertible promissory notes were held by six investors for an
    aggregate offering price of approximately $2,000,000, with an
    extended maturity and changes to compounded interest, conversion
    rights and removal of collateral.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
No underwriters were involved in the foregoing sales of
securities. The securities described in this
paragraph&nbsp;(b)&nbsp;of Item&nbsp;15 were issued to a
combination of U.S., European and other investors in reliance
upon the exemption from the registration requirements of the
Securities Act, as set forth in Section&nbsp;4(2) under the
Securities Act and Rule&nbsp;506 of Regulation&nbsp;D
promulgated thereunder relating to sales by an issuer not
involving any public offering, to the extent an exemption from
such registration was required. The purchasers of shares of our
notes described above represented to us in connection with their
purchase that they were accredited investors and were acquiring
the shares for investment and not distribution, that they could
bear the risks of the investment and could hold the securities
for an indefinite period of time. The purchasers received
written disclosures that the securities had not been registered
under the Securities Act and that any resale must be made
pursuant to a registration or an available exemption from such
registration. The sales of these securities were made without
general solicitation or advertising.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issuances of Common Stock</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 2005, 13 investors
    participated in the recapitalization plan and exchanged:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="18%"></TD>
    <TD width="1%"></TD>
    <TD width="81%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">an aggregate of $23,500,000
    principal face amount of 1998/1999 convertible notes and 667,455
    1998/1999 warrants for an aggregate of 12,059,595&nbsp;shares of
    common stock;
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> II-3</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Part&nbsp;II</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="18%"></TD>
    <TD width="1%"></TD>
    <TD width="81%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">an aggregate of $2,600,000
    principal amount of one of the 2002 convertible promissory notes
    series for an aggregate 2,102,114&nbsp;shares of common
    stock;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;<FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 10pt">an aggregate of $4,049,200
    principal amount of the other 2002 convertible promissory notes
    series for an aggregate 3,371,234&nbsp;shares of common stock.
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with this
    recapitalization, we also reclassified each share of
    Series&nbsp;A Convertible Preferred Stock into
    1.91524&nbsp;shares of our common stock to one accredited
    investor. In connection with this recapitalization, we
    reclassified each share of Series&nbsp;B Convertible Preferred
    Stock into 2.94212&nbsp;shares of our common stock to one
    accredited investor.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 2005 following the
    recapitalization, we exchanged $500,000 principal amount of the
    2002 convertible promissory notes for 415,335&nbsp;shares of
    common stock to one investor.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
No underwriters were involved in the foregoing sales of
securities. The securities described in this
paragraph&nbsp;(c)&nbsp;of Item&nbsp;15 were issued to a
combination of U.S., European and other investors in reliance
upon the exemption from the registration requirements of the
Securities Act, as set forth in Section&nbsp;4(2) under the
Securities Act and Rule&nbsp;506 of Regulation&nbsp;D
promulgated thereunder relating to sales by an issuer not
involving any public offering, to the extent an exemption from
such registration was required. The purchasers of shares of our
stock described above represented to us in connection with their
purchase that they were accredited investors and were acquiring
the shares for investment and not distribution, that they could
bear the risks of the investment and could hold the securities
for an indefinite period of time. The purchasers received
written disclosures that the securities had not been registered
under the Securities Act and that any resale must be made
pursuant to a registration or an available exemption from such
registration. The sales of these securities were made without
general solicitation or advertising.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issuances and Sales of Warrants</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2003, we issued
    warrants for the issuance of up to 100,000&nbsp;shares of common
    stock at a price of $4.40&nbsp;per share to one accredited
    investor.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July 2004, we issued
    warrants for the issuance of up to 100,000&nbsp;shares of common
    stock at a price of $12.29&nbsp;per share to one accredited
    investor. The exercise price was amended to be $4.18&nbsp;per
    share by the waiver and amendment agreement dated
    January&nbsp;13, 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2005, we issued
    warrants for the issuance of up to 179,426&nbsp;shares of common
    stock at a price of $4.18&nbsp;per share to two accredited
    investors.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
No underwriters were involved in the foregoing sales of
securities. The securities described in this
paragraph&nbsp;(d)&nbsp;of Item&nbsp;15 were issued to
U.S.&nbsp;investors in reliance upon the exemption from the
registration requirements of the Securities Act, as set forth in
Section&nbsp;4(2) under the Securities Act and Rule&nbsp;506 of
Regulation&nbsp;D promulgated thereunder relating to sales by an
issuer not involving any public offering, to the extent an
exemption from such registration was required. The purchasers of
shares of our stock described above represented to us in
connection with their purchase that they were accredited
investors and were acquiring the shares for investment and not
distribution, that they could bear the risks of the investment
and could hold the securities for an indefinite period of time.
The purchasers received written disclosures that the securities
had not been registered under the Securities
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> II-4</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Part&nbsp;II</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Act and that any resale must be made pursuant to a registration
or an available exemption from such registration. The sales of
these securities were made without general solicitation or
advertising.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock Option Grants and Grants
    of Restricted Shares</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October 2002, we issued to
    certain of our employees and directors options to purchase an
    aggregate of 100,000&nbsp;shares of our common stock at an
    exercise price of $1.00&nbsp;per share.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2003, we issued to
    certain of our employees and directors options to purchase an
    aggregate of 350,000&nbsp;shares of our common stock at an
    exercise price of $1.00&nbsp;per share.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January and March 2005, we
    issued to certain of our employees, directors and consultants
    options to purchase an aggregate of 600,000&nbsp;shares of our
    common stock at an exercise price of $2.25&nbsp;per share.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (4)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2005, we issued to
    certain of our employees, directors and consultants options to
    purchase an aggregate of 460,000&nbsp;shares of our common stock
    at an exercise price of $5.00 per share.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (5)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2005, we issued to
    a certain employee 20,833 restricted shares of our common stock.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
The stock option grants described in this
paragraph&nbsp;(e)&nbsp;of Item&nbsp;15 were made under written
compensatory plans or agreements in reliance on the exemption
provided by Rule&nbsp;701 promulgated under the Securities Act.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>ITEM&nbsp;16.</B></TD>
    <TD>
    <B>EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exhibits.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" nowrap><B><FONT color="#0000CA" face="helvetica,arial">Exhibit</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" nowrap><B><FONT color="#0000CA" face="helvetica,arial">Number</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap><B><FONT color="#0000CA" face="helvetica,arial">Exhibit</FONT></B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Underwriting Agreement</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Certificate of Incorporation</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.2*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amended and Restated Certificate of Incorporation (to be
    effective upon completion of the offering)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Bylaws</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.4*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amended and Restated Bylaws (to be effective upon
    completion of the offering)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Specimen Common Stock Certificate</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Investor Rights Agreement dated January&nbsp;13, 2005</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Warrant Agreement between Omrix Biopharmaceuticals, Inc. and
    Hercules Technology Growth Capital, Inc. dated March&nbsp;31,
    2005</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.4</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and Capricorn Venture Partners N.V. dated December&nbsp;31,
    1998</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.5</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and Wolfgang Stoiber dated December&nbsp;31, 1998</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.6</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and T. Scott Johnson dated September&nbsp;19, 2000</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> II-5</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Part&nbsp;II</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 14pt; ">

<TR style="font-size: 1pt;">
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" nowrap><B><FONT color="#0000CA" face="helvetica,arial">Exhibit</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" nowrap><B><FONT color="#0000CA" face="helvetica,arial">Number</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap><B><FONT color="#0000CA" face="helvetica,arial">Exhibit</FONT></B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.7</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Common Stock Purchase Warrant
    between Omrix Biopharmaceuticals, Inc. and The Marwood Group
    dated January&nbsp;20, 2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.8</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">First Amendment to Common Stock
    Purchase Warrant between Omrix Biopharmaceuticals, Inc. and
    Marwood Group LLC dated December&nbsp;1, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.9</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Warrant Agreement between Omrix
    Biopharmaceuticals, Inc. and Asant&#233; Partners LLC dated
    March&nbsp;31, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.10</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Common Stock Purchase Warrant
    between Omrix Biopharmaceuticals, Inc. and Johnson&nbsp;&#38;
    Johnson Development Corporation dated August&nbsp;11, 2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.11</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Waiver and Amendment Agreement
    between certain warrantholders and Omrix Biopharmaceuticals,
    Inc. dated January&nbsp;13, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.12</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">First Amendment and Waiver between
    Omrix Biopharmaceuticals, Inc. and Johnson &#38; Johnson
    Development Corporation dated January&nbsp;13, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.13</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Waiver Agreement between certain
    warrantholders and Omrix Biopharmaceuticals, Inc. dated
    February&nbsp;22, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.14</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Amended and Restated Senior
    Convertible 2005 Series&nbsp;A Promissory Note of Omrix
    Biopharmaceuticals, Inc. in the amount of $752,148 dated
    January&nbsp;29, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.15</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Amended and Restated Senior
    Convertible 2005 Series&nbsp;B Promissory Note of Omrix
    Biopharmaceuticals, Inc. in the amount of $154,555 dated
    January&nbsp;29, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">5</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.1*</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Opinion of Skadden, Arps, Slate,
    Meagher&nbsp;&#38; Flom LLP
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.1**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Lease and Operation Agreement
    between Omrix Biopharmaceuticals Ltd. and Magen David Adom in
    Israel dated July&nbsp;20, 2000
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.2**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Addendum to an Agreement between
    Magen David Adom in Israel and Omrix Biopharmaceuticals, Inc.
    dated as of December&nbsp;16, 2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.3**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Agreement between Omrix
    Biopharmaceuticals Ltd. and Medimop Medical Projects Ltd. dated
    June&nbsp;26, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.4**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Development Agreement between Omrix
    Biopharmaceuticals, Inc. and Ethicon, Inc. dated
    September&nbsp;22, 2003
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.5**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Amendment No.&nbsp;1 to Development
    Agreement between Omrix Biopharmaceuticals, Inc. and Ethicon,
    Inc. dated July&nbsp;15, 2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.6**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Distribution and Supply Agreement
    between Omrix Biopharmaceuticals, Inc. and Ethicon, Inc. dated
    September&nbsp;22, 2003
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.7**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Amendment No.&nbsp;1 to
    Distribution and Supply Agreement between Omrix
    Biopharmaceuticals, Inc. and Ethicon, Inc. dated July&nbsp;15,
    2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.8**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Patent and Know-How License
    Agreement between Omrix Biopharmaceuticals Ltd. and Amersham
    Biosciences AB dated February&nbsp;18, 2003
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.9**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Supply Agreement between Omrix
    Biopharmaceuticals Ltd. and PlastMed Ltd. dated March&nbsp;25,
    2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.10**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Addendum to Supply Agreement
    between Omrix Biopharmaceuticals Ltd. and PlastMed Ltd. dated
    June&nbsp;30, 2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.11</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Supply Agreement between Daiichi
    Pharmaceutical Co., Ltd and Omrix Biopharmaceuticals S.A. dated
    August&nbsp;24, 1999
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> II-6</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Part&nbsp;II</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 14pt; ">

<TR style="font-size: 1pt;">
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" nowrap><B><FONT color="#0000CA" face="helvetica,arial">Exhibit</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" nowrap><B><FONT color="#0000CA" face="helvetica,arial">Number</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap><B><FONT color="#0000CA" face="helvetica,arial">Exhibit</FONT></B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.12</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Planova Sales Agreement between
    Omrix Biopharmaceuticals Ltd. and Asahi Kasei Pharma Corporation
    dated March&nbsp;1, 2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.13</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Contract for the Supply of Vaccinia
    Immunoglobulin between Omrix Biopharmaceuticals S.A. and NHS
    Purchasing and Supply Agency dated December&nbsp;12, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.14</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Senior Loan and Security Agreement
    between Omrix Biopharmaceuticals, Inc. and Hercules Technology
    Growth Capital, Inc. dated March&nbsp;31, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.15</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">First Amendment to Senior Loan and
    Security Agreement between Omrix Biopharmaceuticals, Inc. and
    Hercules Technology Growth Capital, Inc. dated March&nbsp;31,
    2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.16</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Guaranty between Hercules
    Technology Growth Capital, Inc. and Omrix Biopharmaceuticals,
    S.A. dated March&nbsp;31, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.17</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Guaranty between Hercules
    Technology Growth Capital, Inc. and Omrix Biopharmaceuticals
    Ltd. dated March&nbsp;31, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.18</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Account&nbsp;Control Agreement
    between Hercules Technology Growth Capital, Inc. and Omrix
    Biopharmaceuticals, Inc. dated July&nbsp;6, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.19*</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Form of Indemnification Agreement
    between Omrix Biopharmaceuticals, Inc. and its directors and
    officers
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.20</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">2004 Equity Incentive Plan
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.21</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">2005 Equity Incentive Plan for
    Israeli Employees
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.22</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Employment Agreement between Omrix
    Biopharmaceuticals Ltd. and Nissim Mashiach dated
    September&nbsp;21, 1997
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.23</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Amended and Restated Employment
    Agreement between Omrix Biopharmaceuticals Ltd. and Michael
    Burshtine dated January&nbsp;1, 2006
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.24</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Consulting Agreement between Omrix
    Biopharmaceuticals, Inc. and Philippe Romagnoli dated
    October&nbsp;1, 2002
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.25</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Consulting Agreement, as amended in
    September 2004 between Omrix Biopharmaceuticals, Inc. and
    Philippe Romagnoli dated September&nbsp;23, 2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.26</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Director Agreement between Omrix
    Biopharmaceuticals, Inc. and Fredric Price dated
    January&nbsp;13, 2006
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.27</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Form of Undertaking to Maintain
    Confidentiality between Omrix Biopharmaceuticals Ltd. and its
    employees
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">21</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.1</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">List of subsidiaries of Omrix
    Biopharmaceuticals, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.1</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Consent of Kost, Forer,
    Gabbay&nbsp;&#38; Kasierer, a member of Ernst&nbsp;&#38; Young
    Global
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.2</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Consent of Ziv Haft, a BDO member
    firm
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.3*</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Consent of Skadden, Arps, Slate,
    Meagher&nbsp;&#38; Flom LLP (included in Exhibit&nbsp;5.1)
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">24</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.1</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Power of Attorney (set forth on the
    signature page to this registration statement)
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I>*</I></TD>
    <TD align="left">
    <I>To be filed by amendment.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><I>**</I></TD>
    <TD align="left">
    <I>Confidential treatment has been requested with respect to
    portions of this exhibit.</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> II-7</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Part&nbsp;II</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 20pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial Statement Schedules.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Financial statements filed as a part of this registration
statement are listed in the Index to Financial Statements on
<FONT style="white-space: nowrap">page&nbsp;F-1.</FONT> All
other financial statement schedules are omitted because they are
not applicable or not required, or because the required
information is included in the financial statements or notes
thereto.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B>ITEM&nbsp;17.</B></TD>
    <TD>
    <B>UNDERTAKINGS</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned registrant
hereby undertakes to provide to the underwriters at the closing
specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
(3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned registrant
hereby undertakes that:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (i)&nbsp;For purposes of determining any liability under the
    Securities Act, the information omitted from the form of
    prospectus filed as part of this registration statement in
    reliance upon Rule&nbsp;430A and contained in a form of
    prospectus filed by the registrant pursuant to
    Rule&nbsp;424(b)(1) or (4)&nbsp;or 497(h) under the Securities
    Act shall be deemed to be part of this registration statement as
    of the time it was declared effective.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the purpose of determining
    any liability under the Securities Act, each post-effective
    amendment that contains a form of prospectus shall be deemed to
    be a new registration statement relating to the securities
    offered therein, and the offering of such securities at that
    time shall be deemed to be the initial bona fide offering
    thereof.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> II-8</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Part&nbsp;II</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Signatures
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New
York on January&nbsp;18, 2006.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    OMRIX BIOPHARMACEUTICALS, INC.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>By:&nbsp;</TD>
    <TD align="center">
    /s/ Michael Burshtine</TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 3pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <DIV style="border-top: 1pt solid solid black; font-size: 1pt; margin-top: 2pt" align="left">&nbsp;</DIV></TD>
</TR>

<TR valign="top"  style="font-size: 10pt;color: #000000; background: #ffffff;">
    <TD>&nbsp;</TD>
    <TD align="left">
    Name: Michael Burshtine</TD>
</TR>

<TR valign="top"  style="font-size: 10pt;color: #000000; background: #ffffff;">
    <TD>&nbsp;</TD>
    <TD align="left">
    Title:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Senior Vice President and
    Chief&nbsp;Financial&nbsp;Officer</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="right" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> II-9</B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Part&nbsp;II</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Power of attorney
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Each person whose signature appears below hereby constitutes and
appoints Michael Burshtine and Philippe Romagnoli, and each of
them, as his true and lawful
<FONT style="white-space: nowrap">attorneys-in</FONT>-fact and
agents, with full power of substitution and resubstitution for
him and in his name, place and stead, in any and all capacities,
to sign any or all amendments or supplements to this
registration statement, whether pre-effective or post-effective,
including any subsequent registration statement for the same
offering which may be filed under Rule&nbsp;462(b) under the
Securities Act of 1933, as amended, and to file the same with
all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said
<FONT style="white-space: nowrap">attorneys-in</FONT>-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing necessary or appropriate to
be done with respect to this registration statement or any
amendments or supplements hereto in the premises, as fully to
all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said
<FONT style="white-space: nowrap">attorneys-in</FONT>-fact and
agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue
thereof.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed below by
the following persons, in the capacities and on the dates
indicated.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" nowrap><B>Title</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" nowrap><B>Date</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" align="left" nowrap><B>Signature</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    /s/ Robert Taub<BR>
    <HR size="1" noshade>Robert Taub</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    President, Chief Executive Officer and Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    January 18, 2006</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    /s/ Fredric D. Price<BR>
    <HR size="1" noshade>Fredric D. Price</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chairman of the Board of&nbsp;Directors</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    January 18, 2006</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    /s/ Michael Burshtine<BR>
    <HR size="1" noshade>Michael Burshtine</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Senior Vice President and Chief&nbsp;Financial Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    January 18, 2006</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    /s/ Jos B. Peeters<BR>
    <HR size="1" noshade>Jos B. Peeters</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    January 18, 2006</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    /s/ Steven St. Peter<BR>
    <HR size="1" noshade>Steven St. Peter</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    January 18, 2006</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    /s/ Douglas A. Cotter<BR>
    <HR size="1" noshade>Douglas A. Cotter</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    January 18, 2006</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 8pt;color: #000000; background: #ffffff;">
<B> II-10</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 16pt;color: #000000; background: #ffffff; margin-top: 14pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Exhibit index
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" nowrap><B><FONT color="#0000CA" face="helvetica,arial">Exhibit</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" nowrap><B><FONT color="#0000CA" face="helvetica,arial">Number</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap><B><FONT color="#0000CA" face="helvetica,arial">Exhibit</FONT></B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Underwriting Agreement</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Certificate of Incorporation</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.2*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amended and Restated Certificate of Incorporation (to be
    effective upon completion of the offering)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Bylaws</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.4*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amended and Restated Bylaws (to be effective upon
    completion of the offering)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Specimen Common Stock Certificate</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Investor Rights Agreement dated January&nbsp;13, 2005</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Warrant Agreement between Omrix Biopharmaceuticals, Inc. and
    Hercules Technology Growth Capital, Inc. dated March&nbsp;31,
    2005</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.4</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and Capricorn Venture Partners N.V. dated December&nbsp;31,
    1998</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.5</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and Wolfgang Stoiber dated December&nbsp;31, 1998</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.6</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and T. Scott Johnson dated September&nbsp;19, 2000</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.7</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and The Marwood Group dated January&nbsp;20, 2004</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.8</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    First Amendment to Common Stock Purchase Warrant between Omrix
    Biopharmaceuticals, Inc. and Marwood Group LLC dated
    December&nbsp;1, 2005</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.9</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Warrant Agreement between Omrix Biopharmaceuticals, Inc. and
    Asant&#233; Partners LLC dated March&nbsp;31, 2005</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.10</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and Johnson&nbsp;&#38; Johnson Development Corporation
    dated August&nbsp;11, 2004</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.11</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Waiver and Amendment Agreement between certain warrantholders
    and Omrix Biopharmaceuticals, Inc. dated January&nbsp;13, 2005</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.12</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    First Amendment and Waiver between Omrix Biopharmaceuticals,
    Inc. and Johnson &#38; Johnson Development Corporation dated
    January&nbsp;13, 2005</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.13</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Waiver Agreement between certain warrantholders and Omrix
    Biopharmaceuticals, Inc. dated February&nbsp;22, 2005</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.14</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Senior Convertible 2005 Series&nbsp;A
    Promissory Note of Omrix Biopharmaceuticals, Inc. in the amount
    of $752,148 dated January&nbsp;29, 2005</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.15</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Senior Convertible 2005 Series&nbsp;B
    Promissory Note of Omrix Biopharmaceuticals, Inc. in the amount
    of $154,555 dated January&nbsp;29, 2005</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>5</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Opinion of Skadden, Arps, Slate, Meagher&nbsp;&#38; Flom LLP</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.1**</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Lease and Operation Agreement between Omrix Biopharmaceuticals
    Ltd. and Magen David Adom in Israel dated July&nbsp;20, 2000</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.2**</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Addendum to an Agreement between Magen David Adom in Israel and
    Omrix Biopharmaceuticals, Inc. dated as of December&nbsp;16, 2004</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.3**</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Agreement between Omrix Biopharmaceuticals Ltd. and Medimop
    Medical Projects Ltd. dated June&nbsp;26, 2005</TD>
</TR>

</TABLE>
</CENTER>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Exhibit index</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 14pt; ">

<TR style="font-size: 1pt;">
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" nowrap><B><FONT color="#0000CA" face="helvetica,arial">Exhibit</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" nowrap><B><FONT color="#0000CA" face="helvetica,arial">Number</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap><B><FONT color="#0000CA" face="helvetica,arial">Exhibit</FONT></B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.4**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Development Agreement between Omrix
    Biopharmaceuticals, Inc. and Ethicon, Inc. dated
    September&nbsp;22, 2003
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.5**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Amendment No.&nbsp;1 to Development
    Agreement between Omrix Biopharmaceuticals, Inc. and Ethicon,
    Inc. dated July&nbsp;15, 2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.6**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Distribution and Supply Agreement
    between Omrix Biopharmaceuticals, Inc. and Ethicon, Inc. dated
    September&nbsp;22, 2003
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.7**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Amendment No.&nbsp;1 to
    Distribution and Supply Agreement between Omrix
    Biopharmaceuticals, Inc. and Ethicon, Inc. dated July&nbsp;15,
    2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.8**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Patent and Know-How License
    Agreement between Omrix Biopharmaceuticals Ltd. and Amersham
    Biosciences AB dated February&nbsp;18, 2003
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.9**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Supply Agreement between Omrix
    Biopharmaceuticals Ltd. and PlastMed Ltd. dated March&nbsp;25,
    2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.10**</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Addendum to Supply Agreement
    between Omrix Biopharmaceuticals Ltd. and PlastMed Ltd. dated
    June&nbsp;30, 2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.11</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Supply Agreement between Daiichi
    Pharmaceutical Co., Ltd and Omrix Biopharmaceuticals S.A. dated
    August&nbsp;24, 1999
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.12</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Planova Sales Agreement between
    Omrix Biopharmaceuticals Ltd. and Asahi Kasei Pharma Corporation
    dated March&nbsp;1, 2004
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.13</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Contract for the Supply of Vaccinia
    Immunoglobulin between Omrix Biopharmaceuticals S.A. and NHS
    Purchasing and Supply Agency dated December&nbsp;12, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.14</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Senior Loan and Security Agreement
    between Omrix Biopharmaceuticals, Inc. and Hercules Technology
    Growth Capital, Inc. dated March&nbsp;31, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.15</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">First Amendment to Senior Loan and
    Security Agreement between Omrix Biopharmaceuticals, Inc. and
    Hercules Technology Growth Capital, Inc. dated March&nbsp;31,
    2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.16</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Guaranty between Hercules
    Technology Growth Capital, Inc. and Omrix Biopharmaceuticals,
    S.A. dated March&nbsp;31, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.17</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Guaranty between Hercules
    Technology Growth Capital, Inc. and Omrix Biopharmaceuticals
    Ltd. dated March&nbsp;31, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.18</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Account&nbsp;Control Agreement
    between Hercules Technology Growth Capital, Inc. and Omrix
    Biopharmaceuticals, Inc. dated July&nbsp;6, 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.19*</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Form of Indemnification Agreement
    between Omrix Biopharmaceuticals, Inc. and its directors and
    officers
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.20</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">2004 Equity Incentive Plan
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.21</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">2005 Equity Incentive Plan for
    Israeli Employees
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.22</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Employment Agreement between Omrix
    Biopharmaceuticals Ltd. and Nissim Mashiach dated
    September&nbsp;21, 1997
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.23</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Amended and Restated Employment
    Agreement between Omrix Biopharmaceuticals Ltd. and Michael
    Burshtine dated January&nbsp;1, 2006
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.24</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Consulting Agreement between Omrix
    Biopharmaceuticals, Inc. and Philippe Romagnoli dated
    October&nbsp;1, 2002
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.25</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Consulting Agreement, as amended in
    September 2004 between Omrix Biopharmaceuticals, Inc. and
    Philippe Romagnoli dated September&nbsp;23, 2004
    </FONT></TD>
</TR>

</TABLE>
</CENTER>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>Exhibit index</B>
</DIV>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 14pt; ">

<TR style="font-size: 1pt;">
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" nowrap><B><FONT color="#0000CA" face="helvetica,arial">Exhibit</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" nowrap><B><FONT color="#0000CA" face="helvetica,arial">Number</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap><B><FONT color="#0000CA" face="helvetica,arial">Exhibit</FONT></B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.26</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Director Agreement between Omrix
    Biopharmaceuticals, Inc. and Fredric Price dated
    January&nbsp;13, 2006
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.27</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Form of Undertaking to Maintain
    Confidentiality between Omrix Biopharmaceuticals Ltd. and its
    employees
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">21</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.1</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">List of subsidiaries of Omrix
    Biopharmaceuticals, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.1</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Consent of Kost, Forer,
    Gabbay&nbsp;&#38; Kasierer, a member of Ernst&nbsp;&#38; Young
    Global
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.2</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Consent of Ziv Haft, a BDO member
    firm
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.3*</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Consent of Skadden, Arps, Slate,
    Meagher&nbsp;&#38; Flom LLP (included in Exhibit&nbsp;5.1)
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><FONT face="helvetica,arial">24</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT face="helvetica,arial">.1</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <FONT face="helvetica,arial">Power of Attorney (set forth on the
    signature page to this registration statement)
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 15%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I>*&nbsp;</I></TD>
    <TD align="left">
    <I>To be filed by amendment.</I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><I>**&nbsp;</I></TD>
    <TD align="left">
    <I>Confidential treatment has been requested with respect to
    portions of this exhibit.</I></TD>
</TR>

</TABLE>
</BODY>
</HTML>
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S-1
As filed with the Securities and Exchange Commission on
January 18, 2006.
Registration
No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OMRIX BIOPHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
2836
52-2147005
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
708 Third Avenue
New York, New York 10017
(212) 209-3902
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive
offices)
Michael Burshtine
Senior Vice President and Chief Financial Officer
Omrix Biopharmaceuticals, Inc.
708 Third Avenue
New York, New York 10017
(212) 209-3902
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
Phyllis G. Korff, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
(212) 735-3000
Facsimile: (212) 735-2000
Donald J. Murray, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019-6092
(212) 259-8000
Facsimile: (212) 259-6333
Approximate date of commencement of proposed sale to the
public:
As soon as practicable after this Registration
Statement is declared effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box:
o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Amount of
Title of Each Class of Securities to be Registered
Aggregate Offering Price(1)
Registration Fee
Common Stock, par value $0.01
$80,500,000
$8,613.50
(1)
Estimated solely for the purpose of calculating the amount of
    the registration fee pursuant to Rule 457(o) under the
    Securities Act of 1933, as amended.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
The information in
this preliminary prospectus is not complete and may be changed.
We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell
these securities and we are not soliciting offers to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
PRELIMINARY PROSPECTUS
Subject to completion
January 18, 2006
Shares
Common Stock
This is the initial public offering of our common stock. No
public market currently exists for our common stock. We are
offering all of
the                      shares
of our common stock offered by this prospectus. We expect the
public offering price to be between
$          and
$           per
share.
We have applied to have our common stock included for quotation
on the Nasdaq National Market under the symbol "OMRI."
Investing in our common stock involves a high degree of risk.
Before buying any shares, you should carefully read the
discussion of material risks of investing in our common stock in
"Risk factors" beginning on page 9 of this
prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
Per share
Total
Public offering price
$
$
Underwriting discounts and commissions
$
$
Proceeds, before expenses, to us
$
$
The underwriters may also purchase up to an
additional                      shares
of our common stock at the public offering price, less the
underwriting discounts and commissions payable by us, to cover
over-allotments, if any, within 30 days of the date of this
prospectus. If the underwriters exercise this option in full,
the total underwriting discounts and commissions will be
$                    ,
and our total proceeds, before expenses, will be
$                    .
The underwriters are offering the common stock as set forth
under "Underwriting." Delivery of the shares will be
made on or
about                     ,
2006.
Sole book-running manager
UBS Investment Bank
Co-lead manager
CIBC World Markets
Leerink Swann & Company
Oppenheimer & Co.
You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with additional information
different from that contained in this prospectus. We are
offering to sell, and seeking offers to buy, shares of our
common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of shares
of our common stock.
TABLE OF CONTENTS
Page
Prospectus summary
1
Risk factors
9
Special note regarding forward-looking
    statements
27
Use of proceeds
28
Dividend policy
29
Capitalization
30
Dilution
31
Selected consolidated financial data
33
Management's discussion and analysis
    of financial condition and results of operations
35
Business
54
Management
79
Certain relationships and related party
    transactions
89
Principal stockholders
92
Description of capital stock
95
Shares eligible for future sale
103
Material U.S. federal income and
    estate tax consequences to non-U.S. holders
105
Underwriting
108
Notice to investors
112
Legal matters
115
Experts
115
Where you can find additional
    information
116
Index to consolidated financial
    statements
F-1
Quixil is our registered trademark; Crosseal, Tisseel VH,
Tissucol, TachoComb H, TachoSil, Beriplast, FloSeal and CryoSeal
FS System are the trademarks and service marks of others.
i
Prospectus summary
This summary highlights selected information appearing
    elsewhere in this prospectus and does not contain all of the
    information that you should consider in making your investment
    decision. You should read this summary together with the more
    detailed information, including our financial statements and the
    related notes, elsewhere in this prospectus. You should
    carefully consider, among other things, the matters discussed in
    "Risk factors" and "Management's discussion
    and analysis of financial condition and results of
    operations." You should read this prospectus in its
    entirety.
Unless the context requires otherwise, the words
"Omrix," "we," "company,"
"us" and "our" refer to Omrix
Biopharmaceuticals, Inc. and its subsidiaries.
OUR COMPANY
Omrix is a commercial-stage biopharmaceutical company that
develops and markets innovative biological products. We utilize
our proprietary protein purification technology and
manufacturing know-how to develop biosurgical and passive
immunotherapy products.
In each of our product lines, we are developing novel and
easy-to
-use products
that address unmet market needs. Our biosurgical product line
includes products and product candidates that are used or are
intended to be used for the control of bleeding, or hemostasis,
and other surgical applications. We compete in the advanced
biosurgical hemostats market, which we believe is the fastest
growing segment of the surgical sealant market. We believe that
the advanced biosurgical hemostats market in the
U.S. currently represents approximately $275 million
of the worldwide $1 billion surgical sealant market and,
based on market trends, we expect these markets to grow
substantially.
Our passive immunotherapy product line includes antibody-rich
products and product candidates for the treatment of immune
deficiencies and infectious diseases, including potential
biodefense applications. We provide passive immunotherapy
products for the treatment of patients with immune deficiencies
and smallpox vaccine-related complications, and for the
prevention of reinfection of transplanted livers in liver
transplant patients with hepatitis B virus, or HBV.
OUR PRODUCTS
Our core competency is applying our proprietary protein
purification technology and our manufacturing know-how to
develop and commercialize protein-based products. We develop and
market biosurgical and passive immunotherapy products.
Biosurgical products and product candidates
Crosseal/ Quixil
Crosseal/ Quixil is our marketed fibrin sealant product used for
hemostasis in surgical procedures. It is marketed as Crosseal in
the U.S. and as Quixil outside the U.S. by Ethicon, Inc., a
Johnson and Johnson company, or Ethicon, under our supply and
distribution agreement with them. Ethicon has been marketing
Quixil as an adjunct to hemostasis in liver and orthopedic
surgeries in the EU and several other European countries since
2003 and Crosseal as an adjunct to hemostasis in liver surgery
in the U.S. since 2004. In addition, we have been marketing
Quixil directly in Israel since 1998 for similar indications and
through local distributors in Mexico since 2000 as an adjunct to
hemostasis for general surgical use. We recently received
approval for Quixil as an adjunct to hemostasis for general
surgical use, and regulatory licenses have been issued for this
indication by Germany, the United Kingdom, France, Italy and
Brazil.
1
We believe that Crosseal/ Quixil has several competitive
advantages over other liquid fibrin sealants on the market.
Crosseal/ Quixil:
•
is readily available for spraying
    and dripping because it can be prepared from thawed product in
    approximately one minute in the operating room;
•
contains a suite of naturally
    occurring proteins in its biological active component, or BAC,
    which results in a clot that we believe has better adherence to
    tissue and greater elasticity;
•
avoids the possibility of an
    adverse reaction associated with bovine (cow) proteins
    because it does not contain animal-derived components; and
•
can be refrigerated in a liquid
    form, thereby avoiding waste of unused product, for up to
    30 days after thawing.
In 2004, Frost & Sullivan awarded the Product
Differentiation Leadership Award to Ethicon as a result of
Ethicon's inclusion of Quixil in its product portfolio. The
award is presented each year to a company that best demonstrates
the ability to develop or advance products with more innovative
capabilities than competing companies and products.
For the year ended December 31, 2004 and the nine months
ended September 30, 2005, we recognized $5.2 million
and $5.0 million, respectively, in revenues from our direct
commercial sales and sales to Ethicon and our other distributors
of Crosseal/Quixil, including revenues recognized from upfront
fees and milestone payments.
Crosseal II/Quixil II
We are developing our second generation fibrin sealant,
Crosseal II/Quixil II, in collaboration with Ethicon.
It differs from our current fibrin sealant in that it
incorporates our second generation BAC, or BAC II, and as a
result, does not require a stabilizing agent. The presence of
this stabilizing agent resulted in Crosseal/Quixil being
contraindicated for neurosurgery. We expect that this
contraindication will be removed upon approval of Crosseal
II/Quixil II. We are seeking to obtain approval for
Crosseal II/Quixil II as an adjunct to hemostasis for
general surgical use in the U.S. and the EU. To obtain this
approval for Crosseal II/Quixil II in the U.S., we
must demonstrate effective hemostasis in two types of surgical
procedures. In July 2005, we began a multi-center Phase III
clinical trial with Crosseal II/Quixil II for
hemostasis in peripheral vascular surgery in 150 patients
in the U.S. and the EU. We expect to add a multi-center
Phase III trial with Crosseal II/Quixil II for
hemostasis in kidney surgery in the U.S.
Hemostatic bio-device
We are developing, in collaboration with Ethicon, a novel
hemostatic bio-device that builds on our
Crosseal II/Quixil II technology. This hemostatic
bio-device product candidate is designed for the management and
rapid control of bleeding, including severe or brisk bleeding,
and for use on active bleeding sites. This type of bleeding is
difficult to control and is characterized by fast flow and high
pressure. There is no surgical sealant currently marketed to
induce the rapid formation of a clot at a brisk bleeding site
because the volume and pressure of the bleeding in these
situations displaces the clot formed with traditional fibrin
sealants. Our hemostatic bio-device product candidate, comprised
of our BAC II and thrombin embedded in a biodegradable
device, is designed to address this unmet market need. We are
conducting pre-clinical tests with this product candidate in
laboratory animals. Upon completing these tests, we expect to
conduct a Phase I/II clinical pilot study in Israel, which
will be followed by clinical trials in the U.S.
Thrombin stand-alone and flowable thrombin
We are developing our thrombin stand-alone product with Ethicon
for general surgical use, primarily for use in neurosurgery.
Consistent with our strategy of developing product extension
candidates to address market demand, our thrombin stand-alone
product candidate is derived from human plasma
2
and is a product extension of our fibrin sealant. It is intended
for cases, such as certain types of neurosurgery, where the
physician desires a more gradual onset of clotting than that
provided by standard fibrin sealants. Our product candidate is a
liquid that is poured directly on the site or onto an applicator
device. It is designed to provide effective hemostasis without
the risk of adverse reactions associated with the bovine
thrombin contained in other available thrombin stand-alone
products. We are conducting a multi-center Phase III
clinical trial with thrombin stand-alone as an adjunct to
hemostasis for general surgical use in approximately
300 patients in the U.S.
We are also developing a flowable thrombin product, which is a
product extension that combines our thrombin stand-alone product
candidate with a medical device provided by Ethicon. This
product candidate is designed to be delivered as part of a
complete and
easy-to
-use application
kit. It is being developed primarily for cases in which more
control in application is desired. We plan to file a 510(k)
Premarket Notification with the FDA for our flowable thrombin
after obtaining approval of our thrombin stand-alone product
candidate in the U.S.
Passive immunotherapy products and product candidates
VIG
Vaccinia immunoglobulin, or VIG, is a product that is designed
to treat smallpox vaccine-related complications. We supply VIG
to government organizations. To date, we have sold VIG to three
governments, including to the United Kingdom Department of
Health under a contract we were awarded by the United Kingdom in
December 2005. Under this agreement, we expect to receive
approximately $20 million by the end of the third quarter
of 2006.
HT-VIG
High titer VIG, or HT-VIG, is a more concentrated form of VIG
that can be used in smaller volumes for the same indication and
we believe can also be used for the treatment of smallpox.
Unlike VIG, which can only be administered intravenously, HT-VIG
can also be administered intramuscularly by non-specialized
medical personnel, which allows for treatment of more patients
in urgent situations. We produced HT-VIG using our proprietary
high titer, or HT, technology. We expect to begin testing HT-VIG
in animals in the first quarter of 2006. In 2003, the
U.S. National Institutes of Health, or NIH, awarded us a
grant for the development of this product candidate.
IVIG
Intravenous immunoglobulin, or IVIG, is a product that is
primarily used to provide ongoing treatment for primary immune
deficiencies by providing a broad selection of antibodies that
mimic a healthy immune system. We market IVIG in Israel for
immune deficiency indications. For the year ended
December 31, 2004 and the nine months ended
September 30, 2005, we recognized $8.7 million and
$7.8 million in revenues, respectively, from sales of IVIG
in Israel.
HBIG
Hepatitis B immunoglobulin, or HBIG, is a product that is used
to prevent reinfection of a transplanted liver with HBV in
patients with chronic HBV infection. Reinfection with HBV can
destroy the transplanted liver and, to prevent reinfection,
these patients require lifelong treatment for HBV. We market
HBIG in Israel, and for the year ended December 31, 2004
and the nine months ended September 30, 2005, we recognized
$1.8 million and $1.9 million in revenues,
respectively, from sales of HBIG in Israel.
WNIG
West Nile virus immunoglobulin, or WNIG, is a product we are
developing to treat severe infection with the West Nile virus.
We have received orphan drug designation for WNIG from the FDA
for this indication. The NIH is currently enrolling
approximately 100 patients for a multi-center Phase I/
II clinical trial that they are conducting in the U.S. for
the treatment of severe West Nile virus infection
3
with our WNIG product candidate. In September 2005, we received
a grant from the NIH for the development of this product
candidate.
OUR PROTEIN PURIFICATION TECHNOLOGY
Our proprietary protein purification technology is designed to
purify proteins from human plasma while maintaining their
natural structure to preserve their full range of biological
activities. This technology is used to manufacture our
biosurgical and passive immunotherapy products and product
candidates. We can employ this technology on a commercial scale
to either isolate proteins of interest or remove unwanted
proteins from raw materials such as human plasma or plasma
fractions. Both the remaining plasma fractions and the proteins
we selectively remove can be used in our products and product
candidates.
OUR COMPETITIVE STRENGTHS
We believe that our key competitive strengths include:
•
Commercial Application of our
    Protein Purification Technology and
    Know-How.
Our core
    competency is applying our proprietary protein purification
    technology and our manufacturing know-how to develop and
    commercialize protein-based, plasma-derived products. We have
    years of experience in employing our technology on a commercial
    scale and utilizing our manufacturing know-how in sourcing and
    selecting our raw materials. In addition, we utilize the same
    technology across our biosurgical and passive immunotherapy
    product lines, thereby generating economies of scale.
•
Easy-to-Use, Effective and Safe
    Products.
We apply our
    protein purification technology and manufacturing know-how to
    provide
easy-to
-use,
    effective and safe products to hospitals and clinics.
•
Flexible and Scaleable
    Manufacturing
    Capability.
We
    capitalize on the versatility of our protein purification
    technology and the depth of our manufacturing know-how to
    deliver products to markets where we have identified unmet needs
    that match our field of expertise. In addition, the design of
    our manufacturing facility allows us to accommodate different
    volume production batches, enabling us to efficiently produce
    the various quantities required by our customers. For example,
    our small-volume batch production capabilities enable us to
    rapidly address emerging market needs and capitalize on these
    opportunities.
•
Broad Collaboration with
    Ethicon.
Through our
    relationship with Ethicon, we have gained access to their
    extensive sales, distribution and marketing infrastructure for
    our biosurgical products and product candidates. We also benefit
    from their technological and financial support in the research
    and clinical development of our biosurgical product candidates.
OUR BUSINESS STRATEGY
Our strategy is to utilize our core competencies to develop and
market innovative products that address important unmet medical
needs. We aim to make our biosurgical products the treatment of
choice in surgical hemostasis, and our passive immunotherapy
products the treatment of choice for immune deficiencies and for
existing and emerging infectious disease, including potential
bioterrorism threats. To achieve these goals, our strategy
includes the following key elements:
•
Focus on additional indications
    for existing products and product extensions;
•
Develop and launch products that
    integrate biological components and medical devices for the
    biosurgical market;
•
Expand our core
    technology; and
•
Utilize strategic collaborations
    to develop new products and enter new geographic markets.
4
RISKS RELATED TO OUR BUSINESS AND BUSINESS STRATEGY
Our business is subject to numerous risks that could prevent us
from successfully implementing our business strategy. These
risks are highlighted in the section entitled "Risk
factors" immediately following this prospectus summary. We
have incurred significant losses since our inception, and as of
September 30, 2005, we had an accumulated deficit of
$92.2 million.
OUR CORPORATE INFORMATION
We were founded in July 1995 as Omrix Biopharmaceuticals S.A., a
Belgian company, which is currently our wholly owned subsidiary.
In December 1998, we were incorporated in the state of Delaware.
Our principal executive offices are located at 708 Third Avenue,
New York, New York 10017, and our telephone number is
(212) 209-3902. We have a manufacturing facility in Kiryat
Ono, near Tel Aviv, Israel as well as a research and development
facility in Rechovot, Israel. Our European regulatory affairs,
marketing and logistics support offices are located in Brussels,
Belgium. As of December 31, 2005, we had approximately
150 employees. We maintain an Internet website at
www.omrix.com. We have not incorporated by reference into this
prospectus the information on our website, and you should not
consider it to be a part of this prospectus.
5
The Offering
Common stock we are offering
shares
Common stock to be outstanding after this offering
shares
Use of proceeds
We estimate that the net proceeds to us from this offering after
    expenses will be approximately
    $                    ,
    or approximately
    $                    if
    the underwriters exercise their over-allotment option in full,
    assuming an initial public offering price of
    $          per
    share. We intend to use the net proceeds from this offering to
    expand our manufacturing capabilities, fund our plan to
    penetrate the market for biosurgical products in Japan and other
    countries, and for working capital and other general corporate
    purposes. For additional information, see the section of this
    prospectus entitled "Use of proceeds."
Risk factors
See "Risk factors" beginning on page 9 of this
    prospectus for a discussion of factors you should carefully
    consider before deciding to invest in shares of our common stock.
Proposed Nasdaq National Market symbol
OMRI
The number of shares of our common stock outstanding after this
offering is based on 29,916,892 shares outstanding as of
December 31, 2005 and excludes, as of that date:
•
2,026,796 shares of our
    common stock issuable upon exercise of outstanding options at
    exercise prices ranging from $1.00 to $7.76 per share, with a
    weighted average exercise price of $3.07 per share;
•
shares
    of our common stock issuable upon conversion of approximately
    $2 million principal amount of our new convertible
    promissory notes, which we describe in the section of this
    prospectus entitled "Management's discussion and
    analysis of financial condition and results of operations—
    Liquidity and capital resources," at a conversion price of
    $           per
    share (which would be determined based on the price of the
    shares sold to the public in this offering);
•
1,968,507 shares of our
    common stock available for future grant under our 2004 Equity
    Incentive Plan and 2005 Equity Incentive Plan for Israeli
    Employees; and
•
888,623 shares of our common
    stock issuable upon exercise of warrants outstanding as of
    December 31, 2005, at a weighted average exercise price of
    $5.03 per share.
Unless otherwise indicated, all information in this prospectus
assumes the underwriters do not exercise their option to
purchase up
to                      shares
of our common stock to cover over-allotments.
6
Summary consolidated financial data
The following summary consolidated statement of operations data
for the years ended December 31, 2002, 2003 and 2004 is
derived from our audited consolidated financial statements,
which are included elsewhere in this prospectus. The following
summary consolidated statement of operations data for the nine
months ended September 30, 2004 and 2005 and consolidated
balance sheet data as of September 30, 2005 is derived from
our unaudited interim condensed consolidated financial
statements, which are included elsewhere in this prospectus.
Operating results for the nine months ended September 30,
2005 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005. This
information is only a summary, and you should read these data
together with "Management's discussion and analysis of
financial condition and results of operations" and with our
consolidated financial statements, the related notes and other
financial information included in this prospectus.
Nine months ended
Year ended December 31,
September 30,
Consolidated statement of operations data:
2002
2003
2004
2004
2005
(unaudited)
(in thousands, except percentages and per share data)
Revenues:
Product sales
$
11,822
$
14,232
$
17,567
$
12,451
$
16,019
Development services and grants
404
715
2,381
1,939
3,152
Total revenues
12,226
14,947
19,948
14,390
19,171
Cost of revenues:
Product sales
9,753
13,601
15,421
11,598
12,622
Development services and grants
—
715
2,121
1,751
2,641
Total cost of revenues
9,753
14,316
17,542
13,349
15,263
Gross profit
2,473
631
2,406
1,041
3,908
Operating expenses:
Research and development, clinical and regulatory expenses, net
3,441
2,751
2,980
2,671
2,014
Selling, marketing, general and administrative expenses
3,701
3,826
4,790
3,013
4,717
Total operating expenses
7,142
6,577
7,770
5,684
6,731
Operating loss
(4,669
)
(5,946
)
(5,364
)
(4,643
)
(2,823
)
Financial expenses,
    net
(1)
805
627
2,466
3,885
24,982
Other income (expenses), net
(39
)
7
1,226
1,226
—
Net loss
(5,513
)
(6,566
)
(6,604
)
(7,302
)
(27,805
)
Accrued dividend and induced conversion of preferred stock and
    warrants
(2)
—
—
(121
)
(61
)
6,491
Net loss for common stockholders
$
(5,513
)
$
(6,566
)
$
(6,725
)
$
(7,363
)
$
(21,314
)
Basic net loss per share of common stock
$
(0.58
)
$
(0.69
)
$
(0.70
)
$
(0.77
)
$
(0.74
)
Diluted net loss per share of common stock
$
(0.58
)
$
(0.69
)
$
(0.70
)
$
(0.77
)
$
(0.90
)
Weighted average number of shares of common stock
    outstanding-basic
9,556,501
9,540,988
9,540,988
9,540,988
28,765,222
Weighted average number of shares of common stock
    outstanding-diluted
9,556,501
9,540,988
9,540,988
9,540,988
28,822,917
Other data:
Biosurgical product sales
$
693
$
2,469
$
5,211
$
3,369
$
4,991
Passive immunotherapy product sales
$
7,948
$
8,968
$
10,447
$
7,857
$
9,748
Gross margin of product sales
18
%
4
%
12
%
7
%
21
%
(Footnotes on following page)
7
(1)
For the nine months ended September 30, 2005, includes
    $20,932 in connection with our recapitalization which we
    describe in the section of this prospectus entitled
    "Management's discussion and analysis of financial
    conditions and results of operations — Results of
    operations — Nine months ended September 30, 2004
    and 2005 — Financial expenses, net."
(2)
For the nine months ended September 30, 2005, represents
    the excess of the carrying amount of preferred stock and
    warrants over the value of the common stock received by the
    holders upon conversion under the recapitalization agreement.
As of September 30, 2005
Consolidated balance sheet data:
Actual
As adjusted
(1)
(unaudited)
(in thousands)
Cash and cash equivalents
$
6,038
$
Working capital
2,375
Total assets
27,610
Total debt
11,212
Accumulated deficit
(92,165
)
Stockholders' equity (deficiency)
(6,121
)
(1)
As adjusted to give effect to our sale of shares of common
    stock in this offering at an assumed initial public offering
    price of
    $          per
    share, after deducting underwriting discounts and commissions
    and estimated offering expenses to be paid by us, and our
    receipt of the net proceeds therefrom.
8
Risk factors
Investing in our common stock involves a high degree of risk.
You should carefully consider and evaluate all of the
information in this prospectus, including the risk factors
listed below, before you decide to purchase our common stock.
Our business, financial condition or results of operations could
be affected adversely by any of these risks. The trading price
of our common stock could decline due to any of these risks, and
you might lose all or part of your investment in our common
stock.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
We have a history of operating losses and might never achieve
or maintain profitability.
We have experienced significant operating losses since our
inception in 1995. We recognized an operating loss of
$5.4 million and a net loss of $6.6 million on total
revenues of $19.9 million in the year ended
December 31, 2004 and an operating loss of
$2.8 million and a net loss of $27.8 million on total
revenues of $19.2 million for the nine-month period ended
September 30, 2005. As of September 30, 2005, we had
an accumulated deficit of $92.2 million and total
stockholders' deficiency of $6.1 million. Our losses
may increase in the future as we expand our manufacturing
capabilities, fund our research and development activities and
seek additional regulatory approvals. These losses, among other
things, have had and will continue to have an adverse effect on
our working capital, total assets and stockholders' equity.
We may not generate sufficient revenues from product sales in
the future to achieve or maintain profitable operations. Even if
we do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis. If we are
unable to achieve and maintain profitability, the market value
of our common stock will decline.
We have an exclusive relationship with Ethicon relating to
the distribution and development of our fibrin sealant and other
hemostasis products, and our resulting dependence on Ethicon
exposes us to significant product commercialization and
development risks.
In September 2003, we entered into a distribution and supply
agreement and a development agreement with Ethicon. Under the
distribution and supply agreement, we granted to Ethicon the
exclusive right, in certain territories, to market, sell and
distribute Crosseal/ Quixil, our current fibrin sealant product,
and other fibrin sealant and hemostasis products that are being
developed under the development agreement, for use in
professional medical settings for hemostasis and sealing
indications. Under the distribution and supply agreement, we are
required to supply finished products to Ethicon, and they are
required to purchase a minimum amount of these products from us.
Additionally, under the development agreement we are developing
new products with Ethicon, including Crosseal II/
Quixil II and our hemostatic bio-device product candidate.
As part of the development agreement, Ethicon has agreed to
devote internal resources to the development of products
included in the collaboration and to pay all of the agreed to
development costs as well as half of our development-related
labor costs.
Our revenues from the sale of Crosseal/ Quixil, and the revenues
for any other product that Ethicon distributes under the
agreement, will depend heavily on the efforts of Ethicon.
Ethicon has significant discretion in determining the efforts
and resources it applies to sales of our products. Furthermore,
regardless of the effort and resources it invests, Ethicon may
not be effective in marketing our products. In addition, Ethicon
is a large medical device company with global operations and its
own corporate agenda, which may not be consistent with our best
interests. For example, Ethicon may change its strategic focus
or pursue alternative technologies in a manner that results in
reduced revenues to us.
The initial terms of the distribution and supply agreement and
the development agreement expire in September 2013. The
development agreement is subject to earlier termination if work
has been
9
Risk factors
completed and milestone payments made, or if there is a material
breach by either party and such breach has not been cured, or
upon the bankruptcy or insolvency of either party. The
development agreement is also subject to automatic termination
if the distribution and supply agreement is terminated. Ethicon
may terminate the distribution and supply agreement:
•
for any or no reason at any time
    after March 23, 2006 by providing us with at least six
    months prior written notice and complying with certain other
    conditions;
•
upon our material breach or
    non-compliance with applicable law and if such breach or
    non-compliance is not cured; or
•
upon our bankruptcy or similar
    insolvency event.
Further, we are required under the distribution and supply
agreement to supply Ethicon with minimum product quantities
based on forecasts provided to us by Ethicon. If we are unable
to satisfy these supply obligations, we will be obligated to pay
to Ethicon a liquidated damages penalty and Ethicon may
terminate the agreement.
If our relationship with Ethicon were to terminate, we would
have to either enter into a marketing and distribution
arrangement with another party or market and distribute these
products ourselves. We may not be able to enter into such an
agreement with another company with similar resources to
commercialize these products and perform these functions on
acceptable terms or at all. To market and distribute these
products on our own, we would first have to develop a sales and
marketing organization and a distribution infrastructure,
neither of which we currently have. Developing these resources
would be an expensive and lengthy process and would have a
material adverse effect on our revenues and profitability.
Moreover, a termination of our relationship with Ethicon would
seriously compromise the development program for our hemostasis
product candidates. For example:
•
we would experience significant
    delays in the development of any product candidate then in
    development, including our hemostatic bio-device;
•
we would have to assume full
    responsibility for further development, including funding these
    programs; and
•
we would lose access to Ethicon
    intellectual property that relates to products covered by the
    development agreement, and as a result we might be unable to
    develop these products at all.
Any of these outcomes would result in delays in our ability to
distribute our products and commercialize our product candidates
and would increase our expenses, all of which would have a
material adverse effect on our business, results of operations
and financial condition.
Our collaboration with Ethicon is multi-faceted and involves a
complex sharing of control over decisions, responsibilities,
costs and benefits. There are numerous potential sources of
disagreement between us and Ethicon, including with respect to
product development, marketing strategies, manufacturing and
supply issues and rights relating to intellectual property. For
example, the distribution and supply agreement provides that we
and Ethicon are to negotiate the transfer price at which we will
supply the hemostatic bio-device to Ethicon. We expect that if
this product candidate is successfully developed and
commercialized, it will be an important element of our
relationship with Ethicon and a source of significant revenues
to us. However, we have not yet reached agreement with Ethicon
on pricing, and we may be unable do so. Ethicon has
significantly greater financial and managerial resources than we
do, which it could draw upon in the event of a dispute. A
disagreement between Ethicon and us could lead to lengthy and
expensive dispute resolution proceedings as well as to extensive
financial and operational consequences to us, and have a
material adverse effect on our business, results of operations
and financial condition.
10
Risk factors
If our products do not achieve market acceptance, we will be
unable to generate significant revenues from them.
The commercial success of our products will depend primarily on
convincing surgeons, physicians, hospital pharmacists and other
medical practitioners to use our products. To accomplish this,
we, together with our collaborators, such as Ethicon and any
other marketing or distribution collaborators, will have to
convince members of the medical community of the benefits of our
products through, for example, published papers, presentations
at scientific conferences and additional clinical trials.
Medical providers will not use our products unless we can
demonstrate that they consistently produce results comparable or
superior to existing products and have acceptable safety
profiles and costs. If we are not successful in these efforts,
market acceptance of our products could be limited.
Additionally, we do not have long-term safety data for many of
our products, particularly our fibrin sealant products. If
long-term patient studies suggest that the use of our products
or similar products produced by others are associated with
adverse side effects, our products may not achieve market
acceptance. Even if we demonstrate the safety and effectiveness
of our products, surgeons, physicians and other medical
practitioners may continue to use other products simply because
those products are already widely accepted or are based on
established technologies. Additional factors that might
influence market acceptance of our products include:
•
convenience and ease of use;
•
availability of alternative and
    competing products or therapies;
•
effectiveness of our or our
    collaborators' marketing, distribution and pricing
    strategies; and
•
publicity concerning our products
    as well as our competitors' products.
If, due to any of these factors, our products do not achieve
broad market acceptance, we will be unable to generate
significant revenues from them, which would have a material
adverse effect on our business, cash flows and results of
operations.
We may not be able to successfully develop and commercialize
our product candidates, including our Crosseal II/
Quixil II or hemostatic bio-device.
Our future growth will depend in large part on our ability to
develop successfully, obtain regulatory approval for and
commercialize our product candidates, including our:
•
second generation fibrin sealant,
    Crosseal II/ Quixil II, for expanded indications;
•
hemostatic bio-device, for the
    management and rapid control of bleeding, including severe or
    brisk bleeding, and for use on active bleeding sites;
•
thrombin stand-alone and a
    flowable thrombin, for general hemostasis; and
•
HT-VIG for smallpox
    vaccine-related complications and treatment of smallpox.
We will have to conduct significant additional tests with
respect to these product candidates, including clinical trials,
and obtain regulatory approval before we can commercialize them.
To market a product for the treatment of a disease or for
surgical use, we must demonstrate to the applicable regulatory
authorities, such as the FDA and the European Medicines Agency,
or EMEA, that the product is safe and effective for its intended
use. Product development is a long, expensive and uncertain
process and entails both preclinical testing, which consists of
laboratory testing using chemical and animal models, as well as
clinical testing, which consists of using the product candidate
in humans in a clinical setting.
11
Risk factors
We are currently conducting clinical trials on three product
candidates and preclinical studies on two product candidates,
and we expect to conduct additional trials and studies in the
future. It takes several years to complete regulatory testing
for a product candidate, and failure can occur at any stage. We
may suffer significant setbacks in advanced clinical trials,
even after obtaining promising results in earlier studies. At
any point during clinical trials, undesirable side effects could
be detected. These side effects could interrupt, delay or halt
clinical trials of the product candidate being tested and
related product candidates and could result in the FDA, the EMEA
or other regulatory authorities denying approval of such product
candidates for any or all targeted indications.
Based on results at any stage of product development, we may
decide to repeat or redesign preclinical studies or clinical
trials, conduct entirely new studies or discontinue development
of one or more of our product candidates. In addition, our
product candidates may not demonstrate sufficient safety and
efficacy in pending or any future preclinical testing or
clinical trials to obtain the requisite regulatory approvals and
even if such approvals are obtained for a product candidate, it
may never become a viable commercial product.
If the third parties with which we contract for preclinical
studies and clinical trials do not perform in an acceptable
manner, or if we suffer setbacks in these clinical trials, we
may be unable to develop and commercialize our product
candidates as anticipated.
We rely on third parties, including Ethicon, contract research
organizations and outside consultants, to assist us in managing
and monitoring all of our preclinical studies and clinical
trials. These third parties may not successfully carry out their
contractual obligations, meet expected deadlines or follow
regulatory requirements, including clinical, laboratory and
manufacturing guidelines. Our reliance on these third parties
may result in delays in completing, or in failing to complete,
these trials if they fail to perform with the speed and
competency we expect. If clinical testing of our product
candidates is delayed for any of the above-mentioned reasons, we
will be unable to meet our anticipated development or
commercialization timelines, which would have a material adverse
effect on our business.
If the limited number of suppliers on which we rely fail to
supply us with the raw materials and other components we use in
manufacturing our products, we might be unable to satisfy
product demand.
We depend on third parties for the supply of certain raw
materials we use to produce our products as well as for
important components of our products. The raw materials we use
in our production processes consist primarily of plasma,
synthetic materials and chemicals and other disposable
materials. We purchase each of the following raw materials and
disposables for our marketed products from single suppliers:
•
nanofiltration filters, which we
    use for virus removal and purchase from Asahi Kasei Pharma
    Corporation;
•
a resin, which we use to remove
    plasminogen and produce BAC II, and purchase from Amersham
    Biosciences AB;
•
the specialized application
    device, which we sell as part of our Crosseal/ Quixil product
    package and purchase from PlastMed Ltd., or Plastmed; and
•
tranexamic acid, which we use as a
    stabilizing agent in the current version of Crosseal/ Quixil and
    purchase from Daiichi Pharmaceuticals Co., Ltd.
12
Risk factors
Our reliance on these suppliers exposes us to significant risks.
These third parties might:
•
be unable or unwilling to provide
    us with sufficient materials to meet our demands;
•
fail to meet our standards of
    quality or other specifications;
•
increase significantly the prices
    they charge us for materials; or
•
not carry out their contractual
    duties or meet anticipated deadlines, which could result in
    delays in obtaining or maintaining regulatory approvals or in
    satisfying customer orders.
If our sole suppliers are unwilling or unable to timely supply
us with materials meeting our specifications, we may not be able
to locate any alternative suppliers or enter into commercially
reasonable agreements with suppliers in a timely manner or at
all. Even if we are able to locate, qualify and enter into an
agreement with a new supplier, it would take approximately six
to twelve months to obtain regulatory clearance before a new
supplier could begin supplying the relevant product to us. If we
are delayed in establishing a secondary supply source for any
raw material or component that we purchase from a single source,
or cannot do so at an acceptable cost, we may suffer a shortage
of commercial supply of that product or a higher cost of
procuring the product, either of which would have a material
adverse effect on our revenues, business and financial
prospects. We have long-term agreements with all of our
sole suppliers, except for Daiichi
Pharmaceuticals Co., Ltd.
A shutdown at our sole manufacturing site would significantly
interrupt our production capabilities, which could have drastic
consequences to us, including threatening our financial
viability.
We currently manufacture all of our products at our sole
commercial manufacturing facility, which is located near Tel
Aviv, Israel. Accordingly, we face risks inherent in operating a
single manufacturing facility, since any disaster, such as a
fire, terrorist attack or military action, could significantly
interrupt our manufacturing capability. These risks are
exacerbated by the facility's location in Israel, an area
that has historically experienced significant geopolitical
instability. We currently do not have alternative production
plans in place or disaster-recovery facilities available. In
case of a disaster or a shutdown, we will have to establish
alternative manufacturing sources. This would require
substantial capital on our part, which we may not be able to
obtain on commercially acceptable terms or at all. Additionally,
we would likely experience months or years of production delays
as we build or locate replacement facilities and seek and obtain
necessary regulatory approvals. If this occurs, we will be
unable to satisfy customer orders on a timely basis, if at all.
Also, operating any new facilities may be more expensive than
operating our current facility. Further, our business
interruption insurance may not adequately compensate us for any
losses that may occur and we would have to bear the additional
cost of any disruption. For these reasons, a significant
disruptive event at our manufacturing facility could have
drastic consequences on us, including threatening our financial
viability.
As described below, we are currently planning to establish a
second manufacturing facility, also to be located in Israel.
Once this facility is operational we may close the original
facility. Even if we maintain both facilities, we would still be
subject to a significant risk of disruption if either facility
experiences a disaster or shutdown.
If we are unable to expand our manufacturing capacity as
planned, we may be unable to satisfy demand for our products.
We believe we will have to expand our manufacturing capacity to
meet anticipated demand for our products. We are currently
planning to increase production capacity for fibrin sealant
products at our existing facility to meet anticipated demand
through 2008 and to construct a new facility in Jerusalem,
13
Risk factors
Israel to meet our needs thereafter. We may not be able to
obtain the requisite regulatory approvals for the increase in
production capacity at our existing facility on a timely basis,
or at all, and while we believe that our new facility will be
completed in 2009, we may not be able to complete the
construction of this facility within our anticipated time frame
or budget. Even if we complete the construction in a timely
manner, we may not be able to obtain the requisite regulatory
approvals for the facility on a timely basis, or at all. If we
cannot obtain necessary approvals for these contemplated
expansions, or complete the planned construction, in a timely
manner, our ability to meet demand for our products would be
adversely affected.
Additionally, under our distribution and supply agreement with
Ethicon, we are required to supply their anticipated demand for
the fibrin sealant products covered by the agreement. This may
require that we develop additional manufacturing capacity on a
timely basis to meet those demands. To the extent that we are
unable to expand our manufacturing capacity as anticipated, our
ability to meet product demands by Ethicon could be impaired or
delayed and we would be in breach of our agreement with them.
If our competitors develop and market products faster than we
do or if those products are more effective than our products,
our commercial opportunities will be reduced or eliminated.
The biopharmaceutical industry is characterized by intense
competition and rapidly evolving technology. Many of our
competitors have significantly greater resources and expertise
than we do in research and development, manufacturing,
preclinical testing and clinical trials, regulatory matters and
marketing and sales. These organizations also compete with us in
recruiting and retaining qualified scientific and management
personnel, establishing clinical trial sites and patient
registration for clinical trials and acquiring and licensing
technologies.
If we, in collaboration with Ethicon or any other marketing
partner we may have, cannot successfully compete with new or
existing products or technologies, sales of our products and our
profitability will suffer. Competitors may use their extensive
resources to develop products that are more effective, safer,
more convenient or less costly than any that we are developing.
Our ability to compete effectively will depend in part on our
ability to continually enhance and introduce new indications for
our existing products and develop or acquire and market new
products.
Our products are derived from human plasma, and are therefore
subject to the risk of biological contamination inherent in
plasma-derived products. This risk could adversely affect our
ability to obtain raw materials and market our products.
Our fibrin sealants and passive immunotherapy products are
derived from donated human plasma. Many disease-causing viruses,
bacteria and other pathogens are present in the plasma of
infected individuals. If infected individuals donate plasma, the
plasma would likely contain those pathogens. As a result, the
sourcing of plasma, and the production of products derived from
plasma, is regulated extensively by the FDA, EMEA and other
medical product and health care regulatory agencies. We rely on
our suppliers to maintain compliance with regulations
promulgated by such agencies. The failure to comply with these
regulations or the accidental contamination of plasma could
adversely affect our ability to source plasma at commercially
reasonable prices. Moreover, public perception about the safety
of plasma-derived products could adversely affect the market for
our products.
Concern over the safety of plasma-derived products, driven in
part by past screening failures in the industry and the
appearance of new infectious agents like HIV, has resulted in
the adoption of rigorous screening procedures by regulatory
authorities, and screening procedures are likely to become
stricter and more involved over time. As screening procedures
have become more rigorous, potential donors have been
disqualified and other potential donors have been discouraged
from donating due to
14
Risk factors
their reluctance to undergo the required screening procedures.
Increasingly stringent measures could adversely affect plasma
supplies, with a corresponding adverse effect on our ability to
obtain raw materials at a commercially acceptable price or at
all.
The safety concerns associated with plasma-derived products also
affect our ability to market our products. Medical events or
studies that raise or substantiate concerns about the safety of
our or other similar products would negatively impact public
perception of all plasma-derived products and of the plasma
donation process. Further, any failure in screening, whether by
us or by other manufacturers of these products, could adversely
affect our reputation, the support we receive from the medical
community and overall demand for our products.
A shortfall in the availability of smallpox vaccine could
adversely affect our ability to manufacture an adequate amount
of our VIG or to fulfill contractual obligations.
We manufacture VIG from the plasma of donors that have been
vaccinated with the smallpox vaccine. If there is a shortfall in
the available supply of the smallpox vaccine, or in plasma
donors who are willing to be vaccinated with the smallpox
vaccine, the availability of plasma for this product will be
reduced. In such an event, we may not have access to sufficient
amounts of plasma from donors vaccinated with the smallpox
vaccine to meet our obligations under existing or future supply
agreements for VIG and may be subject to claims for breach under
our supply agreements. If we are unable to purchase such plasma
at all, we would be forced to stop manufacturing VIG, which
would eliminate the revenues we receive from this product, and
the development of our HT-VIG product candidate would be delayed
or halted.
If our sole supplier of plasma for manufacture of our WNIG
product candidate on which we rely fails to supply us with
plasma, we might be unable to manufacture our WNIG product
candidate.
The development of our WNIG product candidate requires the
purchase of donated plasma that contains antibodies against the
West Nile fever virus. We purchase this plasma from a single
source in Israel. If this third party is unable or unwilling to
provide us with sufficient quantities of plasma to meet our
demands or fails to meet our standards of quality or other
specification, we may not be able to locate any alternative
suppliers or enter into commercially reasonable agreements with
suppliers in a timely manner or at all. Consequently, even if we
are able to get appropriate regulatory approvals for our WNIG
product candidate, but are unable to obtain sufficient
quantities of plasma for commercial manufacturing, we may not be
able to manufacture our WNIG product candidate.
Our international operations expose us to the risk of
fluctuations in currency exchange rates.
We operate in international markets. We generate significant
revenues and incur operating expenses outside the
U.S. principally in New Israeli Shekels, or NIS, and Euros.
However, the amount of our revenues denominated in a particular
currency typically varies from the amount of expenses
denominated in that currency, which exposes us to losses
resulting from currency fluctuations. In 2004, the percentages
of our revenues and expenses denominated in U.S. dollars,
NIS and Euros were as follows:
Currency
Revenues
Expenses
U.S. dollars
64%
44%
NIS
28%
37%
Euros
8%
19%
15
Risk factors
Our NIS and Euro denominated expenses consist principally of
salaries and related personnel expenses, as well as lease
payments. We anticipate that a material portion of our expenses
will continue to be denominated in NIS and Euros. In addition,
we expect to be paid in British pounds under the contract we
were awarded by the United Kingdom to provide VIG to the United
Kingdom Department of Health. If the U.S. dollar weakens
against the NIS or Euro, there will be an adverse impact on our
profit margins. Similarly, if the U.S. dollar strengthens
against a currency in which we record revenues, the
dollar-denominated amount of those revenues would be reduced.
In addition, our financial statements are stated in
U.S. dollars while the intercompany balances of our Belgian
subsidiary's financial reports are denominated in Euros.
This difference creates financial expenses or income related to
intercompany balances that are recorded in our consolidated
financial statements.
Also currency fluctuations will increase or decrease our cost
structure relative to those of our competitors, which could
affect the demand for our products and affect our competitive
position. We currently do not undertake any hedging activities
to address these fluctuations.
If we lose the services of our key management or scientific
personnel, scientific collaborators or other advisors, our
business would suffer.
The success of our business is highly dependent on our
management as well as our senior manufacturing and scientific
personnel. We also rely on our scientific collaborators and
other advisors, particularly with respect to our research and
development efforts. In addition, we require additional skilled
personnel in areas such as business and clinical development. We
do not maintain key-person life insurance on any of our
officers, employees or consultants. In addition, although we
have employment agreements with key members of management, each
of our employees, subject to applicable notice requirements, may
terminate his or her employment at any time. The pool of
individuals with relevant experience in biopharmaceuticals is
limited, and retaining and training personnel with the skills
necessary to operate our business effectively is challenging,
costly and time-consuming. If we lose the services of any key
personnel, our business, financial condition and results of
operations could be materially and adversely affected.
If product liability lawsuits are brought against us, we
might incur substantial liabilities and could be required to
limit the commercialization of our products.
We are exposed to the risk of product liability claims inherent
in businesses that test, manufacture, market and sell
biopharmaceutical products. We may be subject to claims against
us even if the injury is due to the actions of others. For
example, if the medical personnel that use our products on
patients are not properly trained or are negligent in the use of
our products, the patient may be injured through the use of our
product, which may subject us to claims. In addition, because
our products are derived from human plasma, they may be
contaminated by viruses, bacteria or other pathogens despite our
screening, virus removal and other safety procedures. Should
this occur, patients could become infected by these pathogens
through the use of our products. Moreover, our safety procedures
have been designed based on our knowledge of known pathogens.
Occasionally, new pathogens appear and contaminate blood
supplied prior to their being identified as a health threat, as
was the case with HIV. Our safety procedures might be inadequate
to guard against any such new pathogen.
If we are involved in any product liability litigation, such
litigation would consume substantial amounts of our financial
and managerial resources and might result in adverse publicity,
regardless of the ultimate outcome of the litigation. Although
we believe we have appropriate insurance coverage, we may not be
able to maintain our clinical trial insurance or product
liability insurance at an acceptable cost or at all. In any
event, liability insurance is subject to deductibles and coverage
16
Risk factors
limitations and may not provide adequate coverage against
potential claims or losses. A successful product liability claim
brought against us could cause us to incur substantial
liabilities.
Our operations involve biological and hazardous materials
that may cause injury for which we could be liable for
damages.
Our manufacturing and research and development activities
sometimes involve the controlled use and disposal of potentially
harmful biological materials, hazardous materials, chemicals and
infectious disease agents. Although we believe that our safety
procedures for handling, storing and disposing of such materials
comply with the standards prescribed by applicable regulations,
we cannot completely eliminate the risk of contamination or
injury from these materials. We also occasionally contract with
third parties for the disposal of some of these materials. In
addition, our collaborators and service providers may be working
with these types of materials in connection with our
collaborations. In the event of an accident or contamination, we
could be held responsible for any injury caused to persons or
property by exposure to, or release of, these materials and
could be held liable for significant damages, civil penalties or
fines, which may not be covered by or may exceed our insurance
coverage.
Additionally, we are subject on an ongoing basis to a variety of
laws and regulations governing the use, storage, handling and
disposal of these materials and specified waste products. The
cost of continued compliance with current or new laws and
regulations might be significant and could negatively affect our
profitability, and current or future environmental regulation
may impair our ongoing research, development or manufacturing
efforts.
Variable demand by governments for passive immunotherapy
products for biodefense applications or our inability to obtain
additional government contracts for such products may reduce our
revenues from this area of our passive immunotherapy product
line.
We provide passive immunotherapy products to governments to meet
potential bioterrorism threats. Revenues from our passive
immunotherapy products for biodefense applications are
unpredictable and are driven by a number of factors, many of
which are beyond our control, including:
•
fluctuations in government demand
    for passive immunotherapy products for biodefense applications
    influenced by budgetary preference and shifts in the perception
    of the relevance of a bioterrorism threat;
•
the termination of key government
    contracts;
•
our success in obtaining
    additional government contracts through a bidding
    process; and
•
the development of new biodefense
    products that are superior to or eliminate the need for our
    products.
Even if our products are in demand, we may not be able to obtain
follow-on and additional government contracts. Our inability to
obtain such contracts may be significant because during certain
periods these contracts may account for a substantial portion of
our revenues. For example, in December 2005, we were awarded an
approximately $20 million contract by the United Kingdom to
provide VIG to the United Kingdom Department of Health, under
which we will be paid through the third quarter of 2006. If
contracts of such volume are not issued by governments or we are
unable to obtain them, our revenues from this area of our
passive immunotherapy product line will be reduced.
17
Risk factors
RISKS RELATED TO GOVERNMENT REGULATION
The regulatory approval process for our product candidates is
lengthy, and we may not be able to obtain all of the regulatory
approvals required to manufacture and commercialize our product
candidates.
Many of our products are still under development, and we will
not be able to commercialize these products until we have
obtained the requisite regulatory approvals from federal, state
and local government authorities, including the FDA and EMEA. To
obtain regulatory approval of a product candidate, we or our
collaboration partners must demonstrate to the satisfaction of
the applicable regulatory agency that such product candidate is
safe and effective for its intended uses. In addition, we must
show that the facilities used to produce the product candidate
are in compliance with applicable manufacturing regulations,
which under FDA regulations are called current Good
Manufacturing Practices, or cGMP. In general, these requirements
mandate that manufacturers follow elaborate design, testing,
control, documentation and other quality assurance procedures
throughout the entire manufacturing process. The process of
obtaining regulatory approvals typically takes several years and
requires the expenditure of substantial capital and other
resources. Despite the time, expense and resources invested by
us in the approval process, we may not be able to demonstrate
that our product candidates are safe and effective, in which
event we would not receive the regulatory approvals required to
market them.
The FDA, EMEA and other regulatory authorities generally approve
products for particular indications. For example, Crosseal has
only received approval in the U.S. as an adjunct to
hemostasis in liver surgery. Our product candidates may not be
approved for all of the indications that we request, which would
limit the indications for which we can promote them and
adversely impact our ability to generate revenues. If the
approvals we obtain are limited, we may choose to conduct
costly, post-marketing
follow-up
studies to
expand the product indications, but those studies may not
produce data sufficient to permit approval for an expanded
product indication.
The type and magnitude of the testing required for regulatory
approval varies depending on the product candidate and the
disease or condition for which it is being developed. Regulatory
agencies can delay, limit or deny approval of a product for many
reasons, including:
•
regulatory officials might
    interpret data from pre-clinical and clinical testing in
    different ways than we and our collaboration partners interpret
    it and conclude that the product candidate is not safe and
    effective;
•
regulatory agencies might not
    approve our manufacturing processes or facilities or the
    processes or facilities of our collaboration partners; or
•
regulatory agencies might change
    their approval polices or adopt new regulations which can delay
    approval and add significant additional costs.
Any delay or failure by us or our collaboration partners to
obtain regulatory approvals for our product candidates would
adversely affect our ability to generate revenues from them and
could impose significant additional costs on us. Regulatory
approval in one country does not ensure regulatory approval in
another, but a failure or delay in obtaining regulatory approval
in one country may negatively impact the regulatory approval
process in others.
Moreover, we cannot predict the impact of new government
regulations that might adversely affect the discovery,
development, production of our product candidates and the
manufacturing and marketing of our products. We may be required
to incur significant costs to comply with future laws or
regulations.
18
Risk factors
Post-approval manufacturing and marketing of our products is
subject to substantial government regulation and failure to
comply with such regulation could result in fines and withdrawal
of approvals.
Even after our products receive regulatory approvals, we and any
collaboration partner of ours are subject to extensive ongoing
government regulation regarding commercial activities. The FDA,
EMEA or other regulatory authorities may impose additional
limitations on the indicated uses for which a product may be
marketed, subsequently withdraw approval or take other actions
against us or our products for many reasons, including
subsequent discoveries of previously unknown problems or safety
issues with the product. Also, based on subsequent events or
other circumstances that may come to our attention, we may
voluntarily take action to limit the marketing or use of one or
more of our products. For example, in 1999, subsequent to Quixil
being licensed as an adjunct to hemostasis in liver surgery in
the United Kingdom, there were two reported fatal adverse
reactions suspected to be associated with its use in
neurosurgical procedures. In order not to delay the ongoing
mutual recognition process throughout Europe, we requested that
a contraindication for use in neurosurgery be added to the label
for Crosseal/ Quixil.
In addition, as described below, manufacturing activities are
also heavily regulated. Failure to comply with applicable
regulatory requirements could result in warning letters, fines,
civil penalties, injunctions, recall or seizure of products,
total or partial suspension of production, withdrawal of
approvals and criminal prosecution.
We and our partners are prohibited from marketing our
products for indications other than those specifically approved
by regulatory agencies. We could be subject to enforcement
actions if we fail to adhere to these restrictions.
We are subject to inspection and market surveillance by the FDA,
EMEA and other regulatory authorities for compliance with
regulations that prohibit the promotion of a medical product for
a purpose or indication other than those for which approval has
been granted. While a medical product manufacturer may not
promote a product for such "off label" use, doctors
are allowed, in the exercise of their professional judgment in
the practice of medicine, to use a product in ways not approved
by regulatory authorities. In particular, while we have received
regulatory approval to promote the use of Crosseal as an adjunct
to hemostasis in liver surgery only and Quixil as an adjunct to
hemostasis for general surgical use in certain European
countries and as an adjunct to hemostasis in liver and
orthopedic surgeries in other European countries, we are aware
that Crosseal/ Quixil is also used by doctors for hemostasis in
other types of surgery. Further, in addition to regulatory
prohibitions against off-label use, there are safety concerns
associated with the practice, since off-label use is generally
not supported by the rigorous clinical trials required to
support approved uses. A pattern of widespread off-label use
could cause the FDA, the EMEA or other regulatory authorities to
scrutinize our and Ethicon's marketing activities regarding
Crosseal/ Quixil.
Off-label marketing regulations are subject to varying evolving
interpretations. Regulatory authorities have broad enforcement
power, and a failure by us or our collaboration partners to
comply with these regulations can result in penalties, including
warning letters, fines, product recalls or seizures,
injunctions, withdrawals of previously approved marketing
applications and criminal prosecutions. For example, in May
2004, we received a warning letter from the FDA regarding the
failure of a convention poster for Crosseal to provide
sufficient information regarding risks associated with Crosseal
and its contraindications and to accurately describe its
indication as an adjunct to hemostasis in liver surgery. In
response to the letter, we undertook a number of corrective
actions. Furthermore, because Crosseal/ Quixil is marketed in
the U.S. and the EU primarily by Ethicon, we are exposed to the
risk that Ethicon's promotional activities will not fully
comply with regulatory requirements.
19
Risk factors
If we and our third-party suppliers do not maintain high
standards of manufacturing in accordance with cGMP and other
manufacturing regulations, our development and commercialization
activities could suffer significant interruptions or delays.
We and any third-party suppliers on which we currently or may in
the future rely, including the supplier of the application
device for Crosseal/ Quixil, must continuously adhere to cGMP
and corresponding manufacturing regulations of regulatory
authorities outside of the U.S. In complying with these
regulations, we and our third-party suppliers must expend
significant time, money and effort in the areas of design and
development, testing, production, record-keeping and quality
control to assure that our products meet applicable
specifications and other regulatory requirements. The failure to
comply with these requirements could result in an enforcement
action against us, including the seizure of products and
shutting down of production. Any of these third-party suppliers
and we also may be subject to audits by the FDA, EMEA and other
regulatory agencies. If any of our third-party suppliers or we
fail to comply with cGMP or other applicable manufacturing
regulations, our ability to develop and commercialize our
products could suffer significant interruptions.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
We are dependent in part on our patents. The validity,
enforceability and commercial value of our rights under our
patents are highly uncertain.
Our success is dependent in part on obtaining, maintaining and
enforcing patent and other intellectual property rights. We seek
to obtain and maintain patents and other intellectual property
rights to restrict the ability of others to market products that
compete with our products. However, the patent position of
biopharmaceutical firms is highly uncertain and involves many
complex legal and technical issues. There is no clear policy
involving the breadth of claims allowed under, or the degree of
protection afforded to, patents in this area.
Patent applications we file or license from others may not
result in the issuance of a patent. Moreover, the issuance of a
patent is not conclusive as to its validity or enforceability.
Patents, if issued, may be challenged and either invalidated
altogether or substantially narrowed as to scope or determined
to be unenforceable. Consequently, we do not know how much
protection, if any, patents will provide to us if we attempt to
enforce them.
Our patents may not contain claims that are sufficiently broad
to prevent others from practicing our technologies or developing
competing products. Competitors may be able to use technologies
in competing products that perform substantially the same as our
technologies but avoid infringing our patent claims. Under such
circumstances, our patents would be of little commercial value
to us.
We may not be able, alone or with our collaborators and
licensors, to prevent misappropriation of our proprietary
rights, particularly in countries where the laws may not protect
such rights as fully as in the U.S. Thus, any patents that
we own or license from third parties may not provide
commercially meaningful protection from competition.
For many of the technologies we employ in our business, we
rely on maintaining competitively sensitive know-how and other
information as trade secrets, which may not sufficiently protect
this information. Disclosure of this information could impair
our competitive position.
As to many technical aspects of our business, we have concluded
that competitively sensitive information is either not
patentable or that for competitive reasons it is not
commercially advantageous to seek patent protection. In these
circumstances, we seek to protect this know-how and other
proprietary information by maintaining it in confidence as a
trade secret. For example, some of
20
Risk factors
the intellectual property we have developed in relation to our
core protein purification technology is not patented but instead
is maintained by us in the form of know-how and trade secrets.
To maintain the confidentiality of our trade secrets, we
generally enter into confidentiality agreements with our
employees, consultants and collaborators upon the commencement
of their relationships with us. These agreements require that
all confidential information developed by the individual or made
known to the individual by us during the course of the
individual's relationship with us be kept confidential and
not disclosed to third parties. Our agreements with employees
also provide that inventions conceived by the individual in the
course of rendering services to us shall be our exclusive
property. However, we may not obtain these agreements in all
circumstances, and individuals with whom we have these
agreements may not comply with the terms of these agreements.
The disclosure of our trade secrets would impair our competitive
position. Adequate remedies may not exist in the event of
unauthorized use or disclosure of our confidential information.
Further, to the extent that our employees, consultants or
contractors use trade secret technology or know-how owned by
others in their work for us, disputes may arise as to the
ownership of related inventions.
Our commercial success depends significantly on our ability
to operate without infringing the patents and other proprietary
rights of third parties.
In the event that our technologies infringe or violate the
patent or other proprietary rights of third parties, we may be
prevented from pursuing product development, manufacturing or
commercialization of our products that utilize such
technologies. There may be patents held by others of which we
are unaware that contain claims that our products or operations
infringe. In addition, given the complexities and uncertainties
of patent laws, there may be patents of which we know that we
may ultimately be held to infringe, particularly if the claims
of the patent are determined to be broader than we believe them
to be. Adding to this uncertainty, in the U.S., patent
applications filed in recent years are confidential for
18 months, while older applications are not publicly
available until the patent issues. As a result, avoiding patent
infringement may be difficult.
If a third party claims that we infringe its patents, any of the
following may occur:
•
we may become liable for
    substantial damages for past infringement if a court decides
    that our technologies infringe upon a competitor's patent;
•
a court may prohibit us from
    selling or licensing our product without a license from the
    patent holder, which may not be available on commercially
    acceptable terms or at all, or which may require us to pay
    substantial royalties or grant cross-licenses to our
    patents; and
•
we may have to redesign our
    product so that it does not infringe upon others' patent
    rights, which may not be possible or could require substantial
    funds or time.
In addition, employees, consultants, contractors and others may
use the trade secret information of others in their work for us
or disclose our trade secret information to others. Either of
these events could lead to disputes over the ownership of
inventions derived from that information or expose us to
potential damages or other penalties.
If any of these events occurs, our business will suffer and the
market price of our common stock will likely decline.
We may incur substantial costs as a result of litigation or
other proceedings relating to patent and other intellectual
property rights.
There has been substantial litigation and other proceedings
regarding patent and intellectual property rights in the
biopharmaceutical industry. We may be forced to defend claims of
infringement brought by our competitors and others, and we may
institute litigation against others who we believe are
infringing our intellectual property rights. The outcome of
intellectual property litigation is subject to
21
Risk factors
substantial uncertainties and may, for example, turn on the
interpretation of claim language by the court, which may not be
to our advantage, or on the testimony of experts as to technical
facts upon which experts may reasonably disagree. Our
involvement in intellectual property litigation could result in
significant expense to us. Some of our competitors have
considerable resources available to them and a strong economic
incentive to undertake substantial efforts to stop or delay us
from commercializing products. We, on the other hand, are a
relatively small company with comparatively few resources
available to us to engage in costly and protracted litigation.
Moreover, regardless of the outcome, intellectual property
litigation against or by us could significantly disrupt our
development and commercialization efforts, divert our
management's attention and quickly consume our financial
resources.
In addition, if third parties file patent applications or issue
patents claiming technology that is also claimed by us in
pending applications, we may be required to participate in
interference proceedings with the U.S. Patent Office or in
other proceedings outside the U.S., including oppositions, to
determine priority of invention or patentability. Even if we are
successful in these proceedings, we may incur substantial costs,
and the time and attention of our management and scientific
personnel will be diverted in pursuit of these proceedings.
RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK
There is no established trading market for our common stock,
and the price of our common stock may be highly volatile or may
decline regardless of our operating performance.
Prior to this offering, there has been no public market for our
common stock. We cannot predict the extent to which a trading
market for our common stock will develop or be sustained after
this offering. The initial public offering price will be
determined by negotiations between us and the representatives of
the underwriters, based on factors that may not be indicative of
future performance, and may not bear any relationship to the
price at which our common stock will trade upon completion of
this offering. You may be unable to sell your shares of common
stock at or above the initial public offering price.
The trading price of our common stock could be highly volatile
in response to various factors, many of which are beyond our
control, including:
•
developments concerning
    Crosseal II/ Quixil II, the hemostatic bio-device or
    any of our product candidates;
•
new products introduced or
    announced by us or our competitors;
•
announcements of technological
    innovations by us or our competitors;
•
expiration or termination of
    licenses, research contracts or other collaboration agreements;
•
conditions or trends in the
    regulatory climate in the biopharmaceutical industry;
•
intellectual property, product
    liability or other litigation against us;
•
actual or anticipated variations
    in our operating results;
•
changes in financial estimates by
    securities analysts;
•
changes in the market valuations
    of similar companies; and
•
sales of shares of our common
    stock, particularly sales by our officers, directors and
    significant stockholders.
22
Risk factors
In addition, equity markets in general, and the market for small
biopharmaceutical companies in particular, have experienced
substantial price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of
companies traded in those markets. Changes in economic
conditions in the U.S., the EU or globally could also impact our
ability to grow profitably. These broad market and industry
factors may materially affect the market price of our common
stock, regardless of our business or operating performance. In
the past, following periods of volatility in the market price of
a company's securities, securities class-action litigation
has often been instituted against that company. Such litigation,
if instituted against us, could cause us to incur substantial
costs and divert management's attention and resources,
which could have a material adverse effect on our business,
financial condition and results of operations.
You will experience immediate and substantial dilution as a
result of this offering and may experience additional dilution
in the future.
If you purchase common stock in this offering, you will pay more
for your shares than the amounts paid by existing stockholders
for their shares. In addition, you will experience immediate and
substantial dilution insofar as the initial public offering
price will be substantially greater than the tangible book value
per share of our outstanding common stock after giving effect to
this offering. In the past, we issued options to acquire shares
of common stock at prices significantly below the initial public
offering price. To the extent these options are ultimately
exercised, you will incur further dilution. For additional
information, see the section of this prospectus entitled
"Dilution."
The ownership interests of our officers, directors and
largest stockholders could conflict with the interests of our
other stockholders.
Following completion of this offering, our directors, executive
officers and holders of 5% or more of our outstanding common
stock will beneficially own
approximately           %
of our common stock (assuming no exercise of the
underwriters' over-allotment option and no exercise of
outstanding options or warrants). In particular, MPM BioVentures
I LLC and its affiliates will
own           %
of our common stock and Robert Taub will
own           %
of our common stock. As a result, our directors, executive
officers and holders of 5% or more of our outstanding common
stock, acting together, or MPM BioVentures I LLC and its
affiliates, or Robert Taub, may be able to significantly
influence all matters requiring approval by our stockholders,
including the election of directors and approval of mergers or
other significant corporate transactions. The interests of this
group of stockholders may not always coincide with our interests
or the interests of other stockholders. This concentration of
ownership could also have the effect of delaying, deferring or
preventing a change in our control or impeding a merger or
consolidation, takeover or other business combination that could
be favorable to you.
We have broad discretion in the use of the net proceeds from
this offering and our use of the offering proceeds may not yield
a favorable return on your investment.
We expect to use the net proceeds from this offering to expand
our manufacturing capabilities, fund our plan to penetrate the
market for biosurgical products in Japan and other countries,
and for working capital and other general corporate purposes,
including acquiring businesses, products or technologies that
are complementary to our current or future business and product
lines. However, our management has broad discretion over how
these proceeds are used and could spend the proceeds in ways
with which you may not agree. We may not invest the proceeds of
this offering effectively or in a manner that yields a favorable
or any return, and consequently, this could result in financial
losses that could have a material adverse effect on our
business, cause the price of our common stock to decline or
delay the development of our product candidates.
23
Risk factors
Certain provisions of Delaware law and our organizational
documents could delay or discourage takeover attempts that
stockholders may consider favorable.
Certain provisions of our second amended and restated
certificate of incorporation, which we refer to as our
certificate of incorporation, and second amended and restated
bylaws, which we refer to as our bylaws, both of which will
become effective upon the closing of this offering, and
applicable provisions of Delaware corporate law may make it more
difficult for or prevent a third party from acquiring control of
us or changing our board of directors and management. These
provisions:
•
allow the authorized number of
    directors to be changed only by resolution of our board of
    directors,
•
allow our board of directors to
    designate the terms of and issue, without stockholder approval,
    series of preferred stock with voting or other rights or
    preferences that could operate to dilute the stock ownership of
    a potential hostile acquirer to prevent an acquisition that is
    not approved by our board of directors;
•
require that stockholder action
    must be effected at a duly called stockholder meeting and
    prohibit stockholder action by written consent;
•
limit who may call meetings of our
    stockholders;
•
require our stockholders to comply
    with advance notice procedures to nominate candidates for
    election to our board of directors or to place
    stockholders' proposals on the agenda for consideration at
    meetings of stockholders; and
•
require the approval of the
    holders of 80% of the outstanding shares of our capital stock
    entitled to vote to amend certain provisions of our certificate
    of incorporation and bylaws.
In addition, Section 203 of the Delaware General
Corporation Law, or DGCL, generally prohibits us from engaging
in any business combination with certain persons who own 15% or
more of our outstanding voting stock without the approval or our
board of directors. These provisions could make it difficult for
a third party to acquire us, or for members of our board of
directors to be replaced, even if doing so would be beneficial
to our stockholders. Any delay or prevention of a change of
control transaction or changes in our board of directors or
management could deter potential acquirers or prevent the
completion of a transaction in which our stockholders could
receive a substantial premium over the then current market price
for their shares.
Future sales of our common stock may cause the market price
of our common stock to fall.
Sales of a substantial number of shares of our common stock in
the public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of
our common stock. After this offering, we will have
outstanding                      shares
of common stock based on the number of shares outstanding as
of                     ,
2006. This includes the shares that we are selling in this
offering, which may be resold in the public market immediately.
The
remaining                      shares
are currently restricted as a result of securities laws or
lock-up
agreements but
will be able to be sold in the near future. Moreover, after the
expiration of the
lock-up
period
described in the section of this prospectus entitled
"Shares eligible for future sale—
Lock-up
agreements" the holders
of                      shares
of our common stock
and                      shares
of common stock issuable upon the exercise of outstanding
warrants, will have rights, subject to certain conditions, to
require us to file registration statements to permit the resale
of their shares in the public market or to include their shares
in registration statements that we may file for ourselves or
other stockholders. We also intend to register all shares of
common stock that we may
24
Risk factors
issue under our stock plans. For additional information, see the
section of this prospectus entitled "Shares eligible for
future sale."
We have never operated as a public company and fulfilling our
obligations incident to being a public company will be expensive
and time consuming.
As a private company with limited resources, we have maintained
a small finance and accounting staff. As a public company, the
Sarbanes-Oxley Act of 2002 and the related rules and regulations
of the SEC, as well as the rules of the Nasdaq National Market,
will require us to implement additional corporate governance
practices and adhere to a variety of reporting requirements and
complex accounting rules. Compliance with these public company
obligations will increase our legal and financial compliance
costs and place significant additional demands on our finance
and accounting staff and on our financial, accounting and
information systems.
In particular, as a public company, our management will be
required to conduct an annual evaluation of our internal
controls over financial reporting and include a report of
management on our internal controls in our annual reports on
Form 10-K.
In
addition, we will be required to have our independent public
accounting firm attest to and report on management's
assessment of the effectiveness of our internal controls over
financial reporting. Under current rules, we will be subject to
these requirements beginning with our annual report on
Form 10-K
for our
fiscal year ending December 31, 2007. If we are unable to
conclude that we have effective internal controls over financial
reporting or, if our independent auditors are unable to provide
us with an attestation and an unqualified report as to the
effectiveness of our internal controls over financial reporting,
investors could lose confidence in the reliability of our
financial statements, which could result in a decrease in the
value of our common stock.
RISKS RELATED TO OUR OPERATIONS IN ISRAEL
Political and military instability and other factors may
adversely affect our operations in Israel.
All of our manufacturing and research and development facilities
and personnel and a substantial portion of our administrative
facilities and personnel are located in Israel. Accordingly,
political, economic and military conditions in Israel directly
affect our operations. Since the establishment of the State of
Israel in 1948, a number of armed conflicts have taken place
between Israel and its Arab neighbors. Although Israel has
entered into various agreements with Egypt, Jordan and the
Palestinian Authority, there has been an increase in unrest and
terrorist activity, which began in September 2000 and which has
continued with varying levels of severity into 2005. Any armed
conflict, political instability or continued violence in the
region may have an adverse effect on our business and our
results of operations and adversely affect the share price of
companies with significant Israeli operations such as us.
In addition, since we do not have a detailed disaster recovery
plan that would allow us to quickly resume business activity, we
could experience serious disruptions if events associated with
this conflict result in any serious damage to our sole
manufacturing facility, which is located in Israel, and our
business interruption insurance may not adequately compensate us
for any losses that may occur. Any losses or damages incurred by
us could have a material adverse effect on our business.
Our operations could be disrupted as a result of the
obligation of key personnel in Israel to perform military
service.
Generally, all male adult citizens and permanent residents of
Israel under the age of 54 are, unless exempt, obligated to
perform military reserve duty annually. Additionally, all
Israeli residents of this age are subject to being called to
active duty at any time under emergency circumstances. Many of
our
25
Risk factors
officers and employees are currently obligated to perform annual
reserve duty. In response to the increase in terrorist activity
and the Palestinian uprising, there have been, at times,
significant call-ups of military reserves, and it is possible
that there will be additional call-ups in the future. Our
operations could be disrupted by the absence for a significant
period of one or more of our executive officers or key employees
due to military service, which could have a material adverse
effect on our business and financial condition.
The Israeli government programs and tax benefits in which we
have participated and in which we currently participate, or from
which we may receive benefits, require us to meet certain
conditions. These programs or benefits may be terminated or
reduced in the future, which could increase our costs.
Part of our investment in fixed assets at our manufacturing
facility near Tel Aviv, Israel has been granted Approved
Enterprise status under the Israeli Law for Encouragement of
Capital Investments, 1959, or the Investments Law. As a result,
we are eligible to receive tax benefits. These benefits are
conditioned upon our fulfilling certain requirements stipulated
in the Investments Law and its regulations, and the criteria set
forth in the specific certificate of approval, including making
specified investments in fixed assets and equipment and
financing a percentage of those investments with our share
capital. If we do not meet these requirements in the future, our
tax benefits may be reduced or canceled and we could be required
to refund any tax benefits already received at that time.
In addition, these programs and tax benefits may not be
continued in the future at their current levels or at all, and
our requests for future participation in these programs for any
future expansion of our manufacturing facilities may not be
approved. Changes in the policy of the Israeli Government in
particular, and the termination or reduction of these programs
and tax benefits specifically, could increase our tax rates,
thereby reducing our net profits or increasing our net losses,
or otherwise materially adversely affect us.
It may be difficult to enforce a U.S. judgment against
us, our officers and the Israeli experts named in this
prospectus outside the U.S., or to assert U.S. securities
laws claims outside of the U.S.
The majority of our executive officers are not residents of the
U.S., and the majority of our assets and the assets of these
persons are located outside the U.S. Therefore, it may be
difficult to enforce a U.S. court judgment based upon the
civil liability provisions of the U.S. federal securities
laws against us or any of these persons in a U.S. or
foreign court, or to effect service of process upon these
persons in the U.S. Additionally, it may be difficult to
assert U.S. securities law claims in actions originally
instituted outside of the U.S. Foreign courts may refuse to
hear a U.S. securities law claim because foreign courts may
not be the most appropriate forums in which to bring such a
claim. Even if a foreign court agrees to hear a claim, it may
determine that the law of the jurisdiction in which the foreign
court resides, and not U.S. law, is applicable to the
claim. Further, if U.S. law is found to be applicable, the
content of applicable U.S. law must be proved as a fact,
which can be a time-consuming and costly process, and certain
matters of procedure would still be governed by the law of the
jurisdiction in which the foreign court resides. As a result of
the difficulty associated with enforcing a judgment against us,
you may not be able to collect any damages awarded by either a
U.S. or foreign court.
26
Special note regarding forward-looking statements
This prospectus contains forward-looking statements. The
forward-looking statements are contained principally in, but not
limited to, the sections entitled "Risk factors,"
"Management's discussion and analysis of financial
condition and results of operations" and
"Business." Forward-looking statements provide our
current expectations or forecasts of future events.
Forward-looking statements include statements about our
expectations, beliefs, plans, objectives, intentions,
assumptions and other statements that are not historical facts.
Words or phrases such as "anticipate,"
"believe," "continue," "ongoing,"
"estimate," "expect," "intend,"
"may," "plan," "potential,"
"predict," "project" or similar words or
phrases, or the negatives of those words or phrases, may
identify forward-looking statements, but the absence of these
words does not necessarily mean that a statement is not
forward-looking.
Forward-looking statements are subject to known and unknown
risks and uncertainties and are based on potentially inaccurate
assumptions that could cause actual results to differ materially
from those expected or implied by the forward-looking
statements. Our actual results could differ materially from
those anticipated in forward-looking statements for many
reasons, including the factors described in the section entitled
"Risk factors" in this prospectus. Accordingly, you
should not unduly rely on these forward-looking statements,
which speak only as of the date of this prospectus.
Unless required by law, we undertake no obligation to publicly
revise any forward-looking statement to reflect circumstances or
events after the date of this prospectus or to reflect the
occurrence of unanticipated events. You should, however, review
the factors and risks we describe in the reports we will file
from time to time with the Securities and Exchange Commission,
or the SEC, after the date of this prospectus.
27
Use of proceeds
We estimate that we will receive approximately
$           million
in net proceeds from the sale of our common stock in this
offering, assuming an initial public offering price of
$                    and
after deducting underwriting discounts and commissions and
estimated offering expenses. Each $1.00 increase (decrease) in
the assumed initial public offering price of
$          per
share would increase (decrease) the net proceeds to us from this
offering by
$           million,
assuming that the number of shares offered by us, as set forth
on the cover page of this prospectus, remains the same. If the
underwriters exercise their over-allotment option in full, we
estimate that our net proceeds will be approximately
$           million.
We currently expect to use the net proceeds of this offering as
follows:
•
approximately
    $           million
    to expand our manufacturing capabilities;
•
approximately
    $           million
    to fund our plan to penetrate the market for biosurgical
    products in Japan and other countries; and
•
the balance for working capital
    and other general corporate purposes.
In addition, we may use a portion of the net proceeds from this
offering to acquire businesses, products or technologies that
are complementary to our current or future business and product
lines, but we currently have no commitments, agreements, or
understandings relating to any of these types of transactions.
We believe that the net proceeds from this offering, together
with our existing cash, cash equivalents and short-term
investments, will be sufficient to meet our projected operating
requirements for at least the next 12 months.
The allocation of the net proceeds of this offering described
above represents our best current estimate of our projected
operating requirements. Our management will have broad
discretion in the application of the net proceeds and we reserve
the right to change the use of these proceeds in response to
certain contingencies such as the results of our
commercialization activities, competitive developments,
opportunities to acquire or in-license products, technologies or
businesses and other factors.
28
Dividend policy
We have not declared or paid any cash dividends to date. We
currently intend to retain future earnings, if any, to fund the
development and expansion of our business and do not anticipate
paying cash dividends on our common stock in the foreseeable
future. Any future determination to pay dividends will be at the
discretion of our board of directors and will depend on a number
of factors, including our financial condition, results of
operations, capital requirements, restrictions contained in
future financing instruments and other factors that our board of
directors may deem relevant. Under our senior loan and security
agreement with Hercules Technology Growth Capital, Inc., we
agreed to not declare or pay any cash dividends without
Hercules' prior written consent. We expect to repay any
outstanding amounts under this agreement in 2006, at which time
this agreement will terminate.
29
Capitalization
The following table sets forth our cash, cash equivalents,
short-term investments and capitalization as of
September 30, 2005:
•
on an actual basis; and
•
on an as adjusted basis to give
    effect to the sale of the shares of common stock by us in this
    offering at an assumed initial public offering price of
    $               per
    share, after deducting underwriting discounts and commissions
    and estimated offering expenses to be paid by us.
As of
September 30, 2005
Actual
As adjusted
(in thousands, except
share and per share data
Cash and cash
    equivalents
(1)
$
6,038
$
Total debt
$
11,212
$
Stockholders' equity (deficiency):
Common stock, $0.01 par value per share;
    40,000,000 shares authorized; 29,896,059 shares issued
    and outstanding,
    actual;            shares
    issued and outstanding, as adjusted
299
Additional paid in capital
86,782
Other components of stockholders' deficiency
(1,037
)
Accumulated deficit
(92,165
)
Total stockholders' equity (deficiency)
(6,121
)
Total capitalization
$
5,091
$
(1)
Each $1.00 increase (decrease) in the assumed initial public
    offering price of
    $               per
    share would result in an increase (decrease) in adjusted cash
    and cash equivalents, additional paid-in capital, total
    stockholders' equity (deficiency) and total capitalization
    by
    $                million,
    assuming that the number of shares offered by us, as set forth
    on the cover page of this prospectus, remains the same. The as
    adjusted information is illustrative only, and following the
    completion of this offering, will be adjusted based on the
    actual initial public offering price and other terms of this
    offering determined at pricing.
The table above should be read in conjunction with our
consolidated financial statements and related notes included in
this prospectus. This table is based on 29,916,892 shares
of our common stock outstanding as of December 31, 2005 and
excludes, as of that date:
•
2,026,796 shares of our
    common stock issuable upon exercise of outstanding options at
    exercise prices ranging from $1.00 to $7.76 per share, with a
    weighted average exercise price of $3.07 per share;
•
shares
    of our common stock issuable upon conversion of approximately
    $2 million principal amount of our new convertible
    promissory notes at a conversion price of
    $           per
    share (which would be determined based on the price of the
    shares sold to the public in this offering);
•
1,968,507 shares of our
    common stock available for future grant under our 2004 Equity
    Incentive Plan and 2005 Equity Incentive Plan for Israeli
    Employees; and
•
888,623 shares of our common
    stock issuable upon exercise of warrants outstanding as of
    December 31, 2005 at a weighted average exercise price of
    $5.03 per share.
30
Dilution
If you invest in our common stock, your interest will be diluted
immediately to the extent of the difference between the initial
public offering price per share you pay in this offering and the
as adjusted net tangible book value per share of our common
stock immediately after this offering.
Our historical net tangible book value (deficiency) as of
September 30, 2005 was approximately $(6.7) million,
or approximately $(0.22) per share of common stock. Net tangible
book value (deficiency) per share is equal to our total tangible
assets minus total liabilities, divided by the number of shares
of common stock outstanding as of September 30, 2005.
After giving effect to the sale of
the                                shares
of our common stock we are offering at an assumed initial public
offering price of
$               per
share, and after deducting underwriting discounts and
commissions and our estimated offering expenses, our as adjusted
net tangible book value (deficiency) would have been
approximately
$                million,
or approximately
$               per
share of common stock. This represents an immediate increase in
net tangible book value (deficiency) of approximately
$               per
share to existing stockholders and an immediate dilution of
approximately
$               per
share to new investors. The following table illustrates this
calculation on a per share basis:
Assumed initial public offering price per share
$
Historical net tangible book value (deficiency) per share as of
    September 30, 2005
$
(0.22
)
Increase per share attributable to the offering
As adjusted net tangible book value per share after this offering
Dilution per share to new investors
$
Each $1.00 increase (decrease) in the assumed initial public
offering price of
$               per
share would increase (decrease) our as adjusted net tangible
book value by
$                million,
$ per share and the dilution in net tangible book value per
share to investors in this offering by
$               per
share, assuming that the number of shares offered by us, as set
forth on the cover page of this prospectus, remains the same.
The as adjusted information is illustrative only, and following
the completion of this offering, will be adjusted based on the
actual initial public offering price and other terms of this
offering determined at pricing.
If the underwriters exercise their over-allotment option in
full, the as adjusted net tangible book value as of
September 30, 2005 will increase to approximately
$               per
share, representing an increase to existing stockholders of
approximately
$               per
share, and there will be an immediate dilution of approximately
$               per
share to new investors.
The following table summarizes, on an as adjusted basis as of
September 30, 2005, after giving effect to this offering,
the total number of shares of our common stock purchased from us
and the total consideration and average price per share paid by
existing stockholders and by new investors:
Shares purchased
Total consideration
Average price
Number
%
Amount
%
per share
Existing stockholders
29,896,059
$
54,649,200
$
1.83
New investors
Total
100
%
100
%
31
Dilution
Each $1.00 increase (decrease) in the assumed initial public
offering price of
$               per
share would increase (decrease) total consideration paid by new
investors, total consideration paid by all stockholders and the
price per share paid by new stockholders by
$                million,
$                million
and
$                               ,
respectively, assuming that the number of shares offered by us,
as set forth on the cover page of this prospectus, remains the
same. The as adjusted information is illustrative only, and
following the completion of this offering, will be adjusted
based on the actual initial public offering price and other
terms of this offering determined at pricing.
If the underwriters exercise their over-allotment option in
full, the following will occur:
•
the as adjusted percentage of
    shares of our common stock held by existing stockholders will
    decrease to
    approximately                %
    of the total number of as adjusted shares of our common stock
    outstanding after this offering; and
•
the number of shares of our common
    stock held by new public investors will increase
    to                               ,
    or
    approximately                %
    of the total number of shares of our common stock outstanding
    after this offering.
The tables and calculations above are based on
29,916,892 shares outstanding as of December 31, 2005
and exclude:
•
2,026,796 shares of our
    common stock issuable upon exercise of outstanding options at
    exercise prices ranging from $1.00 to $7.76 per share, with a
    weighted average exercise price of $3.07 per share;
•
shares
    of our common stock issuable upon conversion of approximately
    $2 million principal amount of our new convertible
    promissory notes at a conversion price of
    $           per
    share (which would be determined based on the price of the
    shares sold to the public in this offering);
•
1,968,507 shares of our
    common stock available for future grant under our 2004 Equity
    Incentive Plan and 2005 Equity Incentive Plan for Israeli
    Employees; and
•
888,623 shares of our common
    stock issuable upon exercise of warrants outstanding as of
    December 31, 2005, at a weighted average exercise price of
    $5.03 per share.
32
Selected consolidated financial data
The following selected consolidated statement of operations data
for the years ended December 31, 2002, 2003 and 2004 and
the balance sheet data as of December 31, 2003 and 2004 is
derived from our audited consolidated financial statements,
which are included elsewhere in this prospectus. The selected
consolidated statements of operations data for the years ended
December 31, 2000 and 2001 and the balance sheet data as of
December 31, 2000, 2001 and 2002 is derived from our
unaudited consolidated financial statements not included in this
prospectus. The following selected consolidated statement of
operations data for the nine months ended September 30,
2004 and 2005 and consolidated balance sheet data as of
September 30, 2005 is derived from our unaudited interim
condensed consolidated financial statements, which are included
elsewhere in this prospectus. Operating results for the nine
months ended September 30, 2005 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2005.
Nine months ended
Year ended December 31,
September 30,
Consolidated statement of operations
data:
2000
2001
2002
2003
2004
2004
2005
(unaudited)
(unaudited)
(in thousands, except per share data)
Revenues:
Product sales
$
15,569
$
14,186
$
11,822
$
14,232
$
17,567
$
12,451
$
16,019
Development services and grants
—
—
404
715
2,381
1,939
3,152
Total revenues
15,569
14,186
12,226
14,947
19,948
14,390
19,171
Cost of revenues:
Product sales
13,385
13,002
9,753
13,601
15,421
11,598
12,622
Development services and grants
—
—
—
715
2,121
1,751
2,641
Total cost of revenues
13,385
13,002
9,753
14,316
17,542
13,349
15,263
Gross profit
2,274
1,184
2,473
631
2,406
1,041
3,908
Operating expenses:
Research and development, clinical and regulatory expenses, net
8,017
6,484
3,441
2,751
2,980
2,671
2,014
Selling, marketing, general and administrative expenses
6,317
4,263
3,701
3,826
4,790
3,013
4,717
Total operating expenses
14,334
10,747
7,142
6,577
7,770
5,684
6,731
Operating loss
(12,060
)
(9,568
)
(4,669
)
(5,946
)
(5,364
)
(4,643
)
(2,823
)
Financial expenses,
    net
(1)
1,613
5,276
805
627
2,466
3,885
24,982
Other income (expenses), net
30
39
(39
)
7
1,226
1,226
—
Net loss
(13,703
)
(14,878
)
(5,513
)
(6,566
)
(6,604
)
(7,302
)
(27,805
)
Accrued dividend and induced conversion of preferred stock and
    warrants
(2)
—
—
—
—
(121
)
(61
)
6,491
Net loss for common stockholders
$
(13,703
)
$
(14,878
)
$
(5,513
)
$
(6,566
)
$
(6,725
)
$
(7,363
)
$
(21,314
)
Basic net loss per share of common stock
$
(1.43
)
$
(1.56
)
$
(0.58
)
$
(0.69
)
$
(0.70
)
$
(0.77
)
$
(0.74
)
Diluted net loss per share of common stock
$
(1.43
)
$
(1.56
)
$
(0.58
)
$
(0.69
)
$
(0.70
)
$
(0.77
)
$
(0.90
)
Weighted average number of shares of common stock
    outstanding-basic
9,549,687
9,558,767
9,556,501
9,540,988
9,540,988
9,540,988
28,765,222
Weighted average number of shares of common stock
    outstanding-diluted
9,549,687
9,558,767
9,556,501
9,540,988
9,540,988
9,540,988
28,822,917
(1)
For the nine months ended September 30, 2005, includes
    $20,932 in connection with our recapitalization which we
    describe in the section of this prospectus entitled
    "Management's discussion and analysis of financial
    conditions and results of operations—Results of
    operations—Nine months ended September 30, 2004 and
    2005—Financial expenses, net."
(2)
For the nine months ended September 30, 2005, represents
    the excess of the carrying amount of preferred stock and
    warrants over the value of the common stock received by the
    holders upon conversion under the recapitalization agreement.
33
Selected consolidated financial data
As of
As of December 31,
September 30,
Consolidated balance sheet data:
2000
2001
2002
2003
2004
2005
(unaudited)
(unaudited)
(in thousands)
Cash and cash equivalents
$
2,463
$
2,929
$
4,385
$
1,813
$
5,489
$
6,038
Working capital
4,608
5,090
5,484
(12,517
)
(8,564
)
2,375
Total assets
17,852
18,870
19,629
20,845
24,735
27,610
Total debt
18,945
27,732
32,613
36,671
38,442
11,212
Temporary equity
—
5,006
5,006
5,006
10,019
—
Accumulated deficit
(35,444
)
(50,322
)
(57,560
)
(64,126
)
(70,851
)
(92,165
)
Stockholders' equity (deficiency)
(8,388
)
(16,715
)
(27,809
)
(37,689
)
(46,146
)
(6,121
)
34
Management's discussion and analysis of financial condition
and results of operations
The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with "Selected consolidated financial
data" and our consolidated financial statements and the
related notes appearing elsewhere in this prospectus. This
discussion and analysis may contain forward-looking statements
based on assumptions about our future business. Our actual
results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors,
including but not limited to those set forth under "Risk
factors" and elsewhere in this prospectus.
OVERVIEW
We are a commercial-stage biopharmaceutical company that
develops and markets innovative biological products. We utilize
our proprietary protein purification technology and
manufacturing know-how to develop biosurgical and passive
immunotherapy products. Our biosurgical product line includes
products and product candidates that are used or are intended to
be used for hemostasis and other surgical applications. Our
passive immunotherapy product line includes antibody-rich
products and product candidates for the treatment of immune
deficiencies and infectious diseases, including potential
biodefense applications.
Our current biosurgical product is a fibrin sealant used for
hemostasis in surgical procedures, marketed as Crosseal in the
U.S. and as Quixil outside of the U.S. It is sold in the
U.S., the EU and several other European countries under a
distribution and supply agreement we have with Ethicon. We sell
Quixil in several other countries directly or through local
distributors.
Our passive immunotherapy products include: IVIG, marketed in
Israel for the treatment of patients with immune deficiency;
VIG, supplied under government contracts for the treatment of
smallpox vaccine-related complications; and HBIG, marketed in
Israel for the prevention of reinfection of transplanted livers
in liver transplant patients with HBV.
Our revenues are derived from two sources: (a) product sales,
comprised of unit sales and revenue recognition of upfront fees
and milestone payments, and (b) development services and grants.
We derive product sales revenues and development services and
grants revenues from both our biosurgical and passive
immunotherapy product lines. Our biosurgical product sales
revenues are comprised of unit sales and revenue recognition of
upfront fees and milestone payments under our collaboration
agreements. For the nine months ended September 30, 2004
and 2005, 90% and 85%, respectively, of our biosurgical product
sales were generated from unit sales. Our passive immunotherapy
product sales revenues are generated primarily from product
sales. Our biosurgical product line generates development
services revenues from our collaborators in connection with our
research and development services, while the passive
immunotherapy product line generates these revenues from
government grants. Revenues are recognized in our financial
statements as described in "Significant accounting
policies."
During 2004, our biosurgical product line and our passive
immunotherapy product line generated approximately 36% and 54%,
respectively, of our revenues. In 2004, approximately 10% of
revenues were generated by sales of other plasma-derived
products, such as Factor VII and albumin, that we produced prior
to 2005; revenues from these products are not included in either
our biosurgical or passive immunotherapy revenues. Beginning in
2004, we began to reduce production of these products due to
price erosion. Currently, we do not manufacture these products.
For the nine months ended September 30, 2004 and 2005, 8.3%
and 7% of our revenues, respectively, were generated by sales of
other products.
35
Management's discussion and analysis of financial
condition and results of operations
Our functional currencies are the U.S. dollar and the Euro,
which are the primary currencies of the economic environments in
which we operate. Our consolidated financial statements include
the financial statements of our Belgian subsidiary, Omrix
Biopharmaceuticals S.A., which are translated into dollars in
accordance with the principles set forth in Statement of
Financial Accounting Standards, or SFAS, No. 52,
"Foreign Currency Translation." Omrix
Biopharmaceuticals S.A. is primarily engaged in European
regulatory affairs, marketing and logistics support. Because our
reporting currency is the dollar, fluctuations in the
Euro-dollar exchange rates have an impact on our operating
results. In addition, we expect to be paid in British pounds
under the contract we were awarded by the United Kingdom to
provide VIG to the United Kingdom Department of Health.
Therefore, we expect to be exposed to fluctuations in the
British pound-dollar exchange rate through the third quarter of
2006.
FACTORS AFFECTING RESULTS OF OPERATIONS
Revenues
We derive our revenues from two sources: (a) product sales,
comprised of unit sales and revenue recognition of upfront fees
and milestone payments, and (b) development services and
grants. The majority of our revenues are generated by product
sales.
Product sales
Product sales revenues consist of product sales, comprised of
unit sales and revenue recognition of upfront fees and milestone
payments. We sell our products both directly to the market and
to our distributors, depending on the product and market. Our
sales are generally made on the basis of a per unit price
charged to the health care service provider.
In our biosurgical product line, beginning in October 2002 and
prior to our current distribution and supply agreement with
Ethicon, we had a distribution agreement with the American Red
Cross to market Crosseal in the U.S. and Canada. This agreement
was terminated in 2004, and our distribution and supply
agreement with Ethicon was subsequently amended to include the
U.S. and Canada as part of Ethicon's exclusive distribution
territory. Under our distribution and supply agreement with
Ethicon, we are entitled to payment for each unit Ethicon
purchases from us in each quarter. The transfer price paid to us
for the units purchased in a quarter is calculated based on the
average price at which units are sold by Ethicon in that quarter
multiplied by a percentage that is fixed for each specific
product in the relevant year. The transfer price is adjusted
depending on the dollar amount and our scheduled percentage of
Ethicon's net sales during the quarter, subject to
specified minimum and maximum transfer price amounts. The
minimum transfer price is also subject to periodic readjustments
designed to preserve our gross profit margin for the particular
product in the event of regulatory changes that cause an
increase in the unit costs of our cost variables or in our
manufacturing costs for that product. These prices are also
subject to readjustment upon extraordinary increases in our raw
materials or supply costs. In each event, the extent of any
price increase is to be agreed upon between the parties.
In addition, under our distribution and supply and development
agreements with Ethicon, we are entitled to receive
non-refundable upfront fees upon the grant of distribution
rights. We are also entitled to receive payments upon achieving
specified milestones. Both upfront fees and milestone payments
are recognized as revenues ratably over the remaining life of
the contract under which the payments are made, in accordance
with Staff Accounting Bulletin, or SAB, 104, "Revenue
Recognition in Financial Statements." Prior to their being
recognized, the payments are classified based on time to
recognition either as other long-term liabilities or current
liabilities (accruals).
In our passive immunotherapy product line, we recognize revenues
upon delivery of the products and, where applicable, acceptance.
We derive revenues from sales of our passive immunotherapy
products for biodefense applications from government contracts.
As government demand for these products and our success in
obtaining additional government contracts fluctuates, our
revenues from sales of these
36
Management's discussion and analysis of financial
condition and results of operations
products can fluctuate. For example, we expect the final payment
under the contract we were awarded by the United Kingdom to
provide VIG to be made in the third quarter of 2006.
Development services and grants
In both of our product lines, we recognize revenues in
connection with research and development services we render for
our collaborators, such as Ethicon, and reimbursement of
expenses by governmental agencies, such as the NIH, which we
incur in connection with the performance of research and
development under the terms of our grants.
Cost of revenues and gross margin
Our cost of revenues consists of cost of product sales and cost
of development services and grants.
Cost of product sales and gross margin
Cost of product sales for both of our product lines includes
direct costs, such as raw material costs, labor, fixed overhead,
and auxiliary material, such as the Crosseal/ Quixil application
device, and services, such as sterilization, provided by third
parties. Most of the raw materials we utilize are common to both
of our product lines and include plasma and auxiliary supplies,
such as filters and chemicals, used in our manufacturing
processes. Our indirect costs include lease payments,
maintenance and depreciation of manufacturing equipment and
utilities, and labor and overhead expenses.
Our gross margin is impacted by two main factors:
•
Sales price: the dollar amount we
    receive for sales of products in each of our product lines is
    determined by the per unit price charged to the health care
    provider. The transfer price paid to us by Ethicon is computed
    as a percentage of the sales price that Ethicon charges its
    customers, as we describe in the section of this prospectus
    entitled "—Factors affecting results of
    operations—Revenues" above. Our gross margin on our
    biosurgical product sales to Ethicon should be considered with
    the understanding that we do not bear selling and marketing
    expenses in connection with such sales.
•
Cost of production:
-
Production efficiency (measured as the cost of a saleable unit),
    which increases or decreases as a result of either (a) a
    change in batch size because the fixed costs associated with the
    manufacturing process (such as direct labor costs and quality
    control) are allocated over all of the saleable units in a batch
    or (b) a change in the number of batches we produce in a
    given period because plant overhead costs (such as rent and
    maintenance) are allocated over all of the batches produced in
    such period. We expect the annual number of batches we produce
    to increase to the extent that demand for our products grows.
-
Raw material costs, primarily plasma or plasma fractions, which
    we purchase at market prices. We endeavor to increase the cost
    efficiency of our raw materials and therefore we constantly make
    decisions regarding purchasing either plasma or plasma fractions
    based on manufacturing economics. These purchasing decisions are
    driven by the cost of the raw material unit (either plasma or
    plasma fractions), the processing costs and the total sales
    value that can be generated from the different products that we
    can manufacture from a single unit of raw material. Our ability
    to use specific raw materials depends, in part, on regulatory
    approvals obtained by suppliers.
37
Management's discussion and analysis of financial
condition and results of operations
Cost of development services and grants
Cost of development services and grants includes research,
development and clinical trial expenses that we incur in
connection with projects under contracts with collaborators,
such as Ethicon, or under grants from government organizations,
such as the NIH.
Research and development, clinical and regulatory expenses,
net
Our research and development, clinical and regulatory expenses
include costs of personnel, including third party consultants,
materials and expenses incurred in connection with the conduct
of research and development and clinical trials. These expenses
do not include research and development, clinical and regulatory
expenses that we incur under contracts with collaborators, such
as Ethicon, or under grants from governmental agencies, such as
the NIH. Such third party financed expenses are included in cost
of development services and grants. The net adjustment to this
line item is immaterial. We expect our research and development,
clinical and regulatory expenses to increase as we increase
development of non-partnered product candidates.
Selling, marketing, general and administrative expenses
For the marketing of our biosurgical products, we utilize the
sales and marketing capabilities of our collaborators, in
particular, Ethicon, and as a result we do not expect our sales
and marketing expenses for this product line to increase
significantly in the near future in the U.S. and the EU. Our
selling and marketing expenses relate to our sales and marketing
personnel in Israel and Europe. These expenses consist primarily
of internal sales personnel salaries and commissions, their
travel and related marketing costs, such as trade shows and
marketing materials, as well as subcontractors fees and related
overhead expenses. Our administrative and general expenses
consist of management and administrative salaries and consulting
fees, travel costs and legal and accounting fees. Selling and
marketing expenses have historically been lower than
administrative and general expenses. We expect that our
administrative and general expenses will increase significantly
due to the regulatory obligations associated with being a public
company and our intention to increase our business development
activities.
Financial expenses, net
Financial expenses consist of interest and fees payable on
outstanding loans from banks and other financial institutions.
Financial income includes interest income, which is interest
earned on deposits we maintain with banks. In addition,
financial expenses and income include expenses and income
related to the impact of fluctuations in the Euro-dollar
exchange rates, as to our Belgian subsidiary's operations
and intercompany balances, and the NIS-dollar exchange rate, as
to our Israeli subsidiary's operations. Expenses related to
the effect of fluctuations in exchange rates on intercompany
balances are charged or added directly to income and to
stockholders' equity with no effect on cash flow.
Other income (expenses), net
Other income includes non-operating income resulting from the
sale of fixed assets or certain non-operational transactions
such as the termination of our distribution agreement with the
American Red Cross in 2004 and represents the recognition of
previously deferred income and other compensation received on
termination, which is net of certain costs related to the
termination.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect both
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
38
Management's discussion and analysis of financial
condition and results of operations
financial statements and the reported amounts of revenues and
expenses during the reporting period. These estimates and
judgments are subject to an inherent degree of uncertainty. Our
significant accounting policies are more fully described in
Note 2 to our consolidated financial statements, included
in this prospectus. However, certain of our accounting policies
are particularly important to the portrayal of our financial
position and results of operations. In applying these critical
accounting policies, our management uses its judgment to
determine the appropriate assumptions to be used in making
certain estimates. Those estimates are based on our historical
experience, the terms of existing contracts, our observance of
trends in our industry, information provided by our customers
and information available from other outside sources, as
appropriate. Accounting policies that, in their application to
our business, involve the greatest amount of subjectivity by way
of management judgments and estimates are those relating to:
•
revenue recognition;
•
income taxes;
•
inventory reserves; and
•
accounting for stock-based
    compensation and fair value of our common stock.
Revenue recognition
We recognize revenues from product sales in accordance with
SAB 104. SAB 104 requires recognition of revenues from
product sales that require no continuing performance on our part
if four basic criteria have been met:
•
there is persuasive evidence of an
    arrangement;
•
delivery has occurred and title
    has passed to our customer;
•
the fee is fixed and determinable
    and no further obligation exists; and
•
collectibility is reasonably
    assured.
EITF No. 00-21, "Revenue Agreements with Multiple
Deliverables," or
EITF 00-21,
addresses whether for revenue recognition purposes there is one
or several elements in an arrangement. Our distribution,
licensing, supply and collaborative agreements generate
significant upfront fees and/or milestone payments earned upon
completion of certain milestones. We concluded that under
EITF 00-21
these
arrangements should be accounted for as one unit of accounting
because we could not establish fair value for each of the
undelivered elements in the transaction. The upfront fees and
milestone payments are recognized as product revenues on a
straight-line basis over the period of the last deliverable for
which there are continuing commitments to perform under the
relevant agreements. If it is determined that the application of
EITF 00-21
is not
required, our revenues would change substantially.
When the sale price of one of our products is subject to
adjustments based on our distributor's actual sales price
to its end users, we recognize revenues based on the estimated
sale price to the end user at the end of each quarter. The
estimates are based on historical sales data and information
available from our distributor at that time. Adjustments are
made in the following quarter reflecting the difference between
our estimates and actual reported sales prices. To date,
adjustments have not been significant. To the extent timely
information from our distributor is not available to us, we may
be unable to recognize revenues from that distributor until such
information is available to us. In that case, we would need to
account for the sale price of our products based on the
contractual minimum sale price and recognize the difference to
revenues upon the availability of actual sale price from our
distributor. We do not grant the right of return to our
distributors.
Income taxes
We are required to calculate and account for income taxes in
each jurisdiction in which we or our subsidiaries operate. This
involves estimating the current tax exposure in each
jurisdiction as well as
39
Management's discussion and analysis of financial
condition and results of operations
making judgments regarding the recoverability of deferred tax
assets. Our estimates regarding the valuation allowance for
deferred tax assets require that we make significant estimates
and judgments regarding our future operating results. Our
ability to realize deferred tax assets depends on our future
taxable income as well as limitations on their utilization. A
deferred tax asset is reduced by a valuation allowance if it is
more likely than not that some portion or all of the deferred
tax asset will not be realized. The projections of our operating
results on which the establishment of a valuation allowance are
based involve significant estimates regarding future demand for
our products, competitive conditions, product development
efforts, approvals of regulatory agencies and product costs. If
actual results differ from these projections, or if our
expectations of future results change, it may be necessary for
us to adjust the valuation allowance. We expect that during the
period in which our net operating loss carryforwards in Israel
are utilized, our income in Israel will be substantially tax
exempt. Although we believe that our estimates and judgments
about the tax contingencies and valuation allowance are
reasonable, actual results could differ, and we may be exposed
to income tax expenses that could be material.
Inventory reserves
We value our inventories at the lower of cost or estimated
market value. We estimate market value based on our current
pricing and market conditions. Inventory write-offs are taken
for products that will expire within six months, based upon
assumptions about future demand and market conditions and when
market prices are lower than cost. The estimates we use for
future demand are also used for near-term capacity planning and
inventory purchasing. If our estimates regarding demand are
inaccurate, we may be exposed to losses or gains in excess of
our established markdown reserve that could be material.
Accounting for stock-based compensation and fair value of our
common stock
We account for our stock-based employee compensation plans using
the intrinsic-value method of accounting set forth in Accounting
Principles Board Opinion, or APB, No. 25, "Accounting
for Stock Issued to Employees." In accordance with
APB 25 and related interpretations, compensation expense
for stock options is recognized based on the excess, if any, of
the fair value of the stock at the grant date of the award or
other measurement date over the amount an employee must pay to
acquire the shares. We disclose the pro forma effects on net
loss had the fair value of the options been expensed in
Note 2 to our financial statements, included in this
prospectus. Generally, the exercise price for stock options
granted to employees equals the fair market value of the shares
at the date of grant, thereby resulting, under APB 25, in
no recognition of compensation expense. For awards that generate
compensation expense as defined under APB 25, we calculate
the amount of compensation expense and recognize the expense
over the vesting period of the award.
On each grant date, we determine the fair market value of the
underlying common stock. In making that determination, we
consider several factors, including transactions in our
securities between unaffiliated third parties; the issuance to
third parties of our convertible promissory notes, convertible
notes and Series A and Series B Preferred Stock; the
liquidation preference and other superior rights of the
convertible notes and preferred stock; our operating and
financial performance and other company-specific milestones; and
market trends for public companies involved in similar
businesses.
Management assessed its prior fair value estimates for the
twelve months preceding this offering, based on the factors
discussed above, the valuation approaches set forth in the
AICPA's Practice Aid Valuation of Privately-Held-Company
Equity Securities Issued as Compensation, and an assessment of
market considerations, including the likelihood of completing an
initial public offering, the uncertainties inherent in a public
offering and discussions with the underwriters. As a result,
management determined retrospectively that the fair value of the
underlying common stock
40
Management's discussion and analysis of financial
condition and results of operations
immediately following our recapitalization was $2.25 per
share. The financial expense resulting from the recapitalization
of $20.9 million recorded in our financial statements for
the nine months ended September 30, 2005 was determined
with this share price.
RESULTS OF OPERATIONS
Nine months ended September 30, 2004 and 2005
Revenues
Our revenues increased by $4.8 million, or 33%, from
$14.4 million for the nine months ended September 30,
2004 to $19.2 million for the nine months ended
September 30, 2005. This increase is the result of a 29%
increase in product sales revenues and a 63% increase in
development services and grants revenues.
Our revenues for each of our product lines for the nine months
ended September 30, 2004 and 2005 are presented in the
table below, as well as revenues from other plasma-derived
products.
Nine months
ended
September 30,
2004
2005
(in millions)
Biosurgical products:
Product sales
$
3.4
$
5.0
Development services
1.2
2.8
Total
4.6
7.8
Passive immunotherapy products:
Product sales
7.9
9.7
Grants
0.7
0.4
Total
8.6
10.1
Other products
1.2
1.3
Total
$
14.4
$
19.2
Biosurgical
General.
Revenues from our biosurgical product line
increased by $3.2 million, or 70%, from $4.6 million
in the nine months ended September 30, 2004 to
$7.8 million in the nine months ended September 30,
2005.
Product sales.
Biosurgical product sales revenues
increased by $1.6 million, or 47%, from $3.4 million
in the nine months ended September 30, 2004 to
$5.0 million in the nine months ended September 30,
2005. This increase was primarily due to an increase in the
volume of unit sales of Crosseal in the U.S. after the
January 2005 re-launch by Ethicon, and to an increase in
milestone payments recognized in that period, from $314,000 in
the nine months ended September 30, 2004 to $728,000 in the
nine months ended September 30, 2005.
Development services.
Biosurgical development services
revenues increased by $1.6 million, or 133%, from
$1.2 million in the nine months ended September 30,
2004 to $2.8 million in the nine months ended
September 30, 2005. This increase was due to increased
development activity related to our biosurgical product
candidates partnered with Ethicon.
41
Management's discussion and analysis of financial
condition and results of operations
Passive immunotherapy
General.
Revenues from our passive immunotherapy product
line increased by $1.5 million, or 17%, from
$8.6 million in the nine months ended September 30,
2004 to $10.1 million in the nine months ended
September 30, 2005.
Product sales.
Passive immunotherapy product sales
revenues increased by $1.8 million, or 23%, from
$7.9 million in the nine months ended September 30,
2004 to $9.7 million in the nine months ended
September 30, 2005. This increase was due to an increase in
the total number of units sold.
Grants.
Passive immunotherapy grants revenues decreased
by $300,000, or 42%, from $712,000 in the nine months ended
September 30, 2004 to $412,000 in the nine months ended
September 30, 2005. These amounts were recognized in
connection with grants from the NIH for the development of our
HT-VIG project. This decrease reflects a reduction in NIH funded
activities for this project, but does not reflect the increase
in overall development activity in this project.
Cost of revenues
Our cost of revenues increased by $1.9 million, or 15%,
from $13.3 million in the nine months ended
September 30, 2004 to $15.3 million in the nine months
ended September 30, 2005.
Cost of product sales and gross margin
Our cost of product sales increased by $1.0 million, or 9%,
from $11.6 million in the nine months ended
September 30, 2004 to $12.6 million in the nine months
ended September 30, 2005. Gross sales margin improved from
7% to 21% as a result of an increase in both the total number of
batches manufactured and the Crosseal batch size, in the second
half of 2005.
Cost of development services and grants
Cost of development services and grants increased by $890,000,
or 51%, from $1.8 million in the nine months ended
September 30, 2004 to $2.6 million in the nine months
ended September 30, 2005. This increase reflects an
increase in the level of our activity in the Ethicon partnered
projects.
Research and development, clinical and regulatory expenses,
net
Research and development, clinical and regulatory expenses
decreased by $657,000, or 25%, from $2.7 in the nine months
ended September 30, 2004 to $2.0 million in the nine
months ended September 30, 2005. While our research and
development activities were relatively unchanged over these
periods, in 2005 a greater portion of these activities were in
connection with the development of our biosurgical product
candidates with Ethicon, funded through our development
agreements and grants. Expenses related to partnered activities
are included in cost of development services and grants rather
than research and development, clinical and regulatory expenses,
resulting in the period-over-period decrease.
Selling, marketing, general and administrative expenses
Our selling, marketing, general and administrative expenses
increased by $1.7 million, or 57%, from $3.0 million
in the nine months ended September 30, 2004 to
$4.7 million in the nine months ended September 30,
2005. This increase was due mainly to increased business
development activities in Japan and additional marketing and
management employment costs. Our selling and marketing expenses
were 21% and 17% of total selling, marketing, administrative and
general expenses for the nine months ended September 30,
2004 and 2005, respectively.
Financial expenses, net
Our financial expenses, net increased by $21.1 million, or
543%, from $3.9 million in the nine months ended
September 30, 2004 to $25.0 million in the nine months
ended September 30, 2005.
42
Management's discussion and analysis of financial
condition and results of operations
Included in financial expenses, net for the nine months ended
September 30, 2005 are expenses of $20.9 million
resulting from the recapitalization that closed on
January 13, 2005. In the recapitalization, certain
convertible promissory notes and convertible notes were
converted and we accounted for the difference between the fair
value of the common stock received by the participating
investors, and the fair value of the common stock that these
investors should have received under the original terms of the
converted securities, as financial expenses. The
$20.9 million financial expenses related to the
recapitalization were non-cash expenses credited to
stockholders' equity.
Interest expenses, net (including discount and issuance cost
amortizations) decreased by $2.0 million, or 62%, from
$3.2 million in the nine months ended September 30,
2004 to $1.2 million in the nine months ended
September 30, 2005. This decrease was largely due to the
elimination of debt as a result of the conversion of the
majority of our convertible promissory notes and all of our
convertible notes into shares of our common stock as part of the
recapitalization described above.
Currency exchange expenses increased by $2.1 million, from
$681,000 to $2.8 million for these periods, respectively.
Other income (expenses), net
Other income (expenses), net was $1.2 million in the nine
months ended September 30, 2004 and $0.0 in the nine months
ended September 30, 2005. The amount recorded in the 2004
period reflects the terms of the termination of our distribution
agreement with the American Red Cross and represents the
recognition of previously deferred income and other compensation
received on termination, which is net of certain costs related
to the termination.
Years ended December 31, 2002, 2003 and 2004
Revenues
Our revenues increased by $2.7 million, or 22%, from
$12.2 million in 2002 to $14.9 million in 2003 and by
$5.0 million, or 34%, to $19.9 million in 2004.
Year-over-year product sales increases were 20% in 2003 and 23%
in 2004, and year-over-year development services and grants
increases were 77% in 2003 and 233% in 2004.
Our revenues for each of our product lines as well as revenues
from other plasma-derived products for the years ended
December 31, 2002, 2003 and 2004 are presented in the table
below.
Year ended December 31,
2002
2003
2004
(in millions)
Biosurgical products:
Product sales
$
0.7
$
2.5
$
5.2
Development services
0.4
0.6
2.0
Total
1.1
3.1
7.2
Passive immunotherapy products:
Product sales
7.9
9.0
10.4
Grants
—
*
0.4
Total
7.9
9.0
10.8
Other products
3.2
2.8
1.9
Total
$
12.2
$
14.9
$
19.9
*
Represents amounts less than $100,000.
43
Management's discussion and analysis of financial
condition and results of operations
The year-over-year decrease of 13% in 2003 and 32% in 2004 in
revenues from other plasma-derived products reflects our
decision to exit this market due to price erosion.
Biosurgical
General.
Revenues from our biosurgical product line
increased by $2.0 million, or 182%, from $1.1 million
in 2002 to $3.1 million in 2003 and by $4.1 million,
or 132%, to $7.2 million in 2004.
Product sales.
Biosurgical product sales revenues
increased by $1.8 million, or 256%, from $693,000 in 2002
to $2.5 million in 2003 and by $2.7 million, or 111%,
to $5.2 million in 2004. Of these amounts, revenues
reflecting milestone payments were $0, $75,000 and $559,000 in
2002, 2003 and 2004, respectively. The increase from 2002 to
2003 was due to commencement of sales after obtaining regulatory
approval for Crosseal in the U.S. in 2003, and its
introduction in the EU and the U.S. under the distribution
agreements we entered into in 2003 with Ethicon, in Europe, and
in October 2002 with the American Red Cross, in the U.S. Prior
to entering into our distribution agreements with the American
Red Cross and Ethicon, we sold Quixil directly to the market and
through local distributors. Under these arrangements, we began
to share a larger percentage of per unit revenues with our
distributors than prior to 2003. Although the total amount of
product revenues increased, this resulted in a reduction in our
average revenues per unit of the product. The increase from 2003
to 2004 reflects a complete year of sales of our products under
our distribution agreements. This increase was offset in part by
the termination of our distribution agreement with the American
Red Cross in July 2004 and the lag between this termination
and the re-launch of Crosseal in the U.S. in January 2005
by Ethicon under our distribution and supply agreement with them.
Development services and grants.
Biosurgical development
services revenues increased by $255,000, or 63%, from $404,000
in 2002 to $659,000 million in 2003 and by
$1.4 million, or 196%, to $2.0 million in 2004. The
year-over-year increases during these periods were primarily due
to the additional services we performed in connection with the
development of our product candidates under our development
agreement with Ethicon.
Passive immunotherapy
General.
Revenues from our passive immunotherapy product
line increased by $1.0 million, or 14%, from
$7.9 million in 2002 to $9.0 million in 2003 and by
$1.8 million, or 20%, to $10.8 million in 2004.
Product sales.
Passive immunotherapy product sales
revenues increased by $1.1 million, or 13%, from
$7.9 million in 2002 to $9.0 million in 2003 and by
$1.5 million, or 16%, to $10.4 million in 2004. The
increase from 2002 to 2003 can be attributed to an increase in
the per unit price facilitated by increased market demand. The
increase from 2003 to 2004 was due to a 38% increase in IVIG
unit sales despite a 16% decrease in average per unit price as a
result of aggressive price reduction demanded by our primary
purchaser.
Grants.
We did not recognize passive immunotherapy grant
revenues in 2002. Passive immunotherapy grant revenues increased
by $375,000, or 670%, from $56,000 in 2003 to $431,000 in 2004.
We recognized $431,000 in 2004 in grants from the NIH in
connection with the development of our HT-VIG product candidate.
The grant of $3.0 million which we were awarded in
connection with the development of this product candidate has
been completely funded to date and $900,000 has been recognized
as revenue as of September 30, 2005.
Cost of revenues
Our cost of revenues increased by $4.5 million, or 46%,
from $9.8 million in 2002 to $14.3 million in 2003 and
by $3.2 million, or 22%, to $17.5 million in 2004.
44
Management's discussion and analysis of financial
condition and results of operations
Cost of product sales and gross margin
Our cost of product sales increased by $3.8 million, or
39%, from $9.8 million in 2002 to $13.6 million in
2003 and by $1.8 million, or 13%, to $15.4 million in
2004. Gross sales margin decreased from 18% in 2002 to 4% in
2003 and increased to 12% in 2004. The decrease in the gross
sales margin between 2002 and 2003 was due to a reduction in the
sale price of other plasma-derived products, in particular
Factor VIII, and the sharing of per unit revenues of Quixil and
Crosseal under our agreements with Ethicon and the American Red
Cross, respectively. The increase in our gross sales margin in
2004 was largely due to increased volume production of our IVIG
product, which offset reductions in the per unit revenues of
IVIG and Crosseal/ Quixil and the decline in sales of other
plasma-derived products.
Cost of development services and grants
We did not have any development services and grants expenses in
2002. Cost of development services and grants increased by
$1.4 million, or 194%, from $715,000 in 2003 to
$2.1 million in 2004. This increase primarily reflects the
increased development activity in connection with our
biosurgical product candidates under our agreement with Ethicon.
In addition, we increased development activities in connection
with our HT-VIG project for which we received a grant from the
NIH.
Research and development, clinical and regulatory expenses,
net
Research and development, clinical and regulatory expenses, net
decreased by $690,000, or 20%, from $3.4 million in 2002 to
$2.8 million in 2003 and increased by $229,000, or 8%, to
$3.0 million in 2004. The year-over-year changes resulted
from our allocation of resources to our funded research and
development projects. The total costs of research and
development, clinical and regulatory expenses, including those
incurred in connection with funded projects, were
$3.4 million, $3.4 million and $5.1 million in
2002, 2003 and 2004, respectively.
Selling, marketing, general and administrative expenses
Our selling, marketing, general and administrative expenses
increased by $125,000, or 3%, from $3.7 million in 2002 to
$3.8 million in 2003 and by $1.0 million, or 26%, to
$4.8 million in 2004. The increase in 2004 was primarily
due to an increase in our general and administrative expenses
resulting from additional management and legal fees incurred in
connection with the negotiation of our agreements with Ethicon
and the related termination of our agreement with the American
Red Cross. Our selling and marketing expenses were 20%, 26% and
18% of total selling, marketing, administrative and general
expenses for the years ended 2002, 2003 and 2004, respectively.
Financial expenses, net
Our financial expenses, net decreased by $178,000, or 22%, from
$805,000 in 2002 to $627,000 in 2003 and increased by
$1.8 million, or 293%, to $2.5 million in 2004.
Interest expenses, net (including discount and issuance cost
amortization) included in financial expenses were
$2.8 million, $4.4 million and $4.1 million in
2002, 2003 and 2004, respectively. Interest expenses were offset
in part by foreign exchange income, due in part to intercompany
balances between us and our Belgian subsidiary, and the
strengthening of the Euro relative to the dollar in those years
in the net amount of $2.0 million in 2002,
$3.8 million in 2003 and $1.5 million in 2004.
Other income (expenses), net
Other income (expenses), net were insignificant in 2002 and
2003. Other income (expenses), net was $1.2 million in
2004, reflecting the termination of the distribution agreement
with the American Red Cross and recognition of previously
deferred income and other compensation received on termination,
which is net of certain costs related to the termination.
45
Management's discussion and analysis of financial
condition and results of operations
LIQUIDITY AND CAPITAL RESOURCES
From our inception through September 30, 2005, we have
accumulated deficit of $92.2 million, of which
$20.9 million recorded in 2005 were non-cash expenses
related to our recapitalization which closed on January 13,
2005. As of September 30, 2005, we had cash and cash
equivalents of $6.0 million. We have financed our
operations with:
•
unsecured convertible notes and
    secured convertible promissory notes and other secured and
    unsecured third party debt consisting mainly of loans and credit
    lines;
•
private sales of our equity
    securities;
•
a combination of cash from product
    sales, upfront fees and milestone payments from our
    collaborators, revenues for performance of development services
    and government grants; and
•
interest earned on cash and
    investments.
We have raised approximately $58.1 million in gross
proceeds from the sale of our common stock, warrants, preferred
stock, convertible notes and convertible promissory notes in
financings in 1998, 1999, 2001, 2002 and 2004. We paid
$3.7 million, consisting of principal plus accrued
interest, to holders of convertible promissory notes in August
2004. As a result of our January 2005 recapitalization, all
existing preferred stock and convertible notes and certain
warrants were converted to common stock. Subsequent to the
recapitalization, an aggregate principal amount of approximately
$1.5 million, plus accrued and unpaid interest, of our
convertible promissory notes were renegotiated and new notes
were issued, which we refer to as the new convertible promissory
notes. There was outstanding as of September 30, 2005
approximately $2 million aggregate principal amount of new
convertible promissory notes. These notes bear 10% interest and
are due on December 31, 2007.
As a result of our January 2005 recapitalization and the related
conversion of our outstanding notes and shares of preferred
stock into shares of our common stock, pursuant to
SFAS No. 84, "Induced Conversions of Convertible
Debt," and APB Opinion 26, "Early Extinguishment
of Debt," in the first quarter of 2005, we recognized
$20.9 million in financial expenses. These expenses
represent the excess of the fair value of the common stock
issued upon the conversion of our convertible notes over the
fair value of the common stock issuable under their original
conversion terms, and the excess of the fair value of the common
stock issued to the holders of our convertible promissory notes
over the book value of these convertible promissory notes as of
the recapitalization date. We describe the accounting effects of
this recapitalization more fully in Note 13b to our
consolidated financial statements, included in this prospectus.
Cash flows
As of September 30, 2005, our cash and cash equivalents
were $6.0 million compared to $5.5 million as of
December 31, 2004.
Net cash used in operating activities was $4.9 million for
the nine months ended September 30, 2005.
Net cash provided by financing activities was $6.2 million
for the nine months ended September 30, 2005. Cash provided
by financing activities for the nine months ended
September 30, 2005 resulted mainly from a $7.1 million
increase in long term debt, including a loan of
$5.0 million aggregate principal amount from Hercules
Technology Growth Capital.
Net cash used for investing activities was $870,000 for the nine
months ended September 30, 2005. These activities consisted
primarily of investment in property, plant and equipment and
purchase of a perpetual royalty-free license for a component of
the Crosseal/ Quixil application device.
46
Management's discussion and analysis of financial
condition and results of operations
As of December 31, 2004, our cash and cash equivalents were
$5.5 million compared to $1.8 million as of
December 31, 2003.
Net cash provided by operating activities was $2.4 million
for the year ended December 31, 2004. The net cash provided
by operating activities in 2004 reflects cash received from
Ethicon as upfront fees and milestone payments in the amount of
approximately $6.8 million.
Net cash provided by financing activities was $4.0 million
for the year ended December 31, 2004. Net cash provided by
financing activities in 2004 consisted of $4.9 million in
net proceeds received from the sale of our Series B
Convertible Preferred Stock in July 2004, $1.4 million in
net short-term credit from banks as well as $0.5 million in
long-term loans received, which were offset by a partial
repayment in August 2004 of $2.5 million of principal on
our 10% secured convertible promissory notes issued in August
2002 and repayment of long-term loans in the amount of
$0.3 million.
Net cash used for investing activities was $2.7 million in
2004. These activities consisted primarily of investment in
fixed assets.
Our expected sources of liquidity include revenues from product
sales, milestone payments under our collaborations and
government grants, as well as revolving credit arrangements with
Israeli banks, our cash reserves and the proceeds from this
public offering.
As a result of the contract we were awarded in December 2005 by
the United Kingdom to provide VIG to the United Kingdom
Department of Health, we expect to receive an aggregate of
approximately $20 million, based on the prevailing exchange
rate, to be paid in British pounds through the third quarter of
2006.
Our agreements with Ethicon provide for certain upfront fees and
milestone payments received in connection with the completion of
certain milestones. We may receive additional milestone payments
if we obtain certain regulatory approvals for product candidates
we are developing under our collaboration and if we achieve
certain levels of sales of our products. In addition, under our
development agreement, Ethicon bears all costs of development
and clinical studies of the products to be developed under that
agreement, other than 50% of our labor costs, for which we are
responsible.
Under our license and development agreement with Symphony
Medical Inc., we may receive up to an aggregate amount of
approximately $4 million in milestone payments from
Symphony if we achieve specified development and regulatory
milestones. To date, we have received no milestone payments
under this agreement.
From our inception through September 30, 2005, we received
an aggregate of approximately $3 million in grants from the
NIH. We are not entitled to any further payments from the NIH
under our current grants.
We believe that the net proceeds from this offering, together
with our cash from operations, cash reserves and available
credit lines, will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures for the
foreseeable future. However, if, in the future, cash generated
from operations is insufficient to satisfy our liquidity
requirements, or if our estimates of revenues, expenses or
capital or liquidity requirements change or are inaccurate, we
may need to raise additional funds. We may also need to raise
additional funds, or may seek to take advantage of capital
raising opportunities, to finance expansion plans, develop or
acquire new products or technologies, enhance our existing
products or respond to competitive pressures. We cannot be
certain that we will be able to obtain additional financing on
commercially reasonable terms or at all, which could limit our
ability to grow and carry out our business plan.
47
Management's discussion and analysis of financial
condition and results of operations
Obligations and commitments
In addition to approximately $2 million aggregate principal
amount of debt outstanding in new convertible promissory notes,
we have borrowed amounts from banks and other financial
institutions under short-term credit lines and long-term loans.
As of September 30, 2005, we had available from banks,
short-term credit lines providing for borrowings of up to
$2.6 million, of which we had borrowed $1.9 million as
of that date. At September 30, 2005, we also had
outstanding long-term borrowings of $7.2 million and
current maturities of long-term borrowings of $2.7 million.
Of these borrowings, $5.0 million had been borrowed from
Hercules Technology Growth Capital Inc. under our senior loan
and security agreement. The borrowings from Hercules bear
interest at an annual rate of 11.45%. Under the agreement with
Hercules, we are required to make monthly installments of
accrued interest through October 1, 2005 followed by
30 monthly installments of principal plus accrued interest.
While we have the right to make early repayment upon advance
notice, we are required to pay an early repayment premium of
2.5%, 1.25% and 0.5% of the principal being repaid, until the
first, second and third anniversaries, respectively, of the loan
agreement date, which is March 31, 2005.
Under our agreement with Hercules, we granted Hercules certain
security interests in our assets, other than our intellectual
property, and the stock of all of our subsidiaries. We are
allowed to transfer any of the collateral in the ordinary course
of business and collateral with a value of up to
$100,000 per year outside of the ordinary course of
business. In addition, a sale of the intellectual property
related to our biosurgical product line is subject to
Hercules' consent or to repayment of any outstanding
amounts (this payment is not subject to the early repayment
premium). The agreement with Hercules also contains various
restrictions including restrictions on our ability to issue
secured notes to investors in an aggregate principal amount
exceeding $2.0 million maturing earlier than
December 31, 2007 and restrictions on our ability to enter
into any new loan agreements granting security interest ranking
senior to or on par with Hercules' security interest. In
connection with our entry into this agreement, we granted
Hercules a warrant to purchase 149,552 shares of our
common stock at an exercise price of $4.18 per share.
Israel Discount Bank credit facility.
Our Israeli
subsidiary currently has a NIS 20 million (approximately
$4.3 million, based on the
NIS-dollar
prevailing
exchange rate, which was NIS 4.603 to $1.00 on December 31,
2005) credit facility with Israel Discount Bank. Under this
credit facility, this subsidiary may borrow up to NIS
20 million on a revolving basis. Borrowings under the
arrangement may be long-term loans up to an aggregate principal
amount of NIS 10 million, with maturities of one to three
years at either fixed or floating interest rates, with the
balance being short-term borrowings with maturities of one year
or less. Interest rates will be determined when amounts are
borrowed.
Any outstanding amounts owed under this arrangement are secured
by a pledge on all current and future receivables of our
subsidiary and on all securities, negotiable and non-negotiable
instruments and cash held by the subsidiary. Certain receivables
and inventories are specifically excluded from this pledge. In
addition, we have agreed to maintain minimum net equity capital
and stockholders' loans of at least NIS 20 million for
the Israeli subsidiary.
As of December 31, 2005, our Israeli subsidiary had an
aggregate principal amount of NIS 9.3 million outstanding
under this arrangement, consisting of the following long-term
loans:
Ø
a four-year loan in an initial principal amount of NIS
    2 million maturing in January 2006 and bearing interest at
    a fixed 7.10% rate, of which a principal amount of NIS 50,000
    was outstanding;
48
Management's discussion and analysis of financial
condition and results of operations
Ø
a three-year loan in an initial principal amount of NIS
    5 million maturing in May 2008 and bearing interest at a
    fixed 7.32% rate with a quarterly repayment schedule, of which a
    principal amount of NIS 4.20 million was outstanding;
Ø
a three-year loan in an initial principal amount of NIS
    5 million maturing in May 2008 and bearing interest at a
    floating rate of the Israeli prime rate plus 1.20% with a
    quarterly repayment schedule, of which a principal amount of NIS
    4.2 million was outstanding; and
Ø
two two-year loans each in an initial principal amount of NIS
    1 million, each maturing in September 2006, each of which
    is linked to the Israeli Consumer Price Index and bears interest
    at a fixed 5.00% rate with monthly repayment schedules, and each
    of which had a principal amount of NIS 0.4 million
    outstanding.
As of December 31, 2005, our Israeli subsidiary had two
short-term loans outstanding each in an initial principal amount
of NIS 5.4 million and NIS 3.0 million, respectively,
each bearing interest at a floating rate of the Israeli prime
rate plus 1.2%, and an overdraft facility in a principal amount
of NIS 1.7 million.
This subsidiary also had a principal amount of NIS
2.5 million in restricted cash and deposits in connection
with supplier letters of credit.
Bank Leumi facility.
In addition, our Israeli subsidiary
has an overdraft facility in a principal amount of
NIS 2.0 million in respect of our account at Bank
Leumi of which NIS 900,000 is available. This subsidiary
has never incurred indebtedness under this facility; however, it
has used $250,000 (approximately NIS 1.1 million) of this
facility to support a guaranty issued by the bank.
Our long-term liabilities as of December 31, 2004 included
$7.4 million in deferred revenues. Deferred revenues
consists of upfront fees and milestone payments from
collaborations. Recognition of these payments as revenues is
deferred and the revenues are recognized ratably over the
remaining life of the contract under which the payments are made
in accordance with SAB 104. The amounts received, which are
non-refundable but not yet recognized, are classified as
deferred revenues on our balance sheet.
The outstanding balances, including accrued interest, of
convertible promissory notes and convertible notes were in the
aggregate principal amount of $13.6 million,
$35.7 million as of December 31, 2003 and 2004,
respectively. In 2003, this amount included $2.5 million of
principal that was paid to holders of convertible promissory
notes in August 2004. As a result of our January 2005
recapitalization, all of our convertible notes existing prior to
the recapitalization and the majority of our convertible
promissory notes were retired. An aggregate principal amount of
approximately $1.5 million, plus accrued and unpaid
interest, of the convertible promissory notes were renegotiated
subsequent to the recapitalization and new notes were issued,
which we refer to as the new convertible promissory notes, in
the amount of $2.0 million. These new convertible
promissory notes remain outstanding and bear interest at 10%. As
of September 30, 2005, $2.1 million aggregate
principal amount plus accrued interest was outstanding under the
new convertible promissory notes.
49
Management's discussion and analysis of financial
condition and results of operations
The following table summarizes our contractual obligations as of
December 31, 2004, and the expected amounts of these
obligations in future periods.
Minimum payments due by period
Less than
More than
Contractual obligations
Total
1 year
1-3 years
3-5 years
5 years
(in millions)
Long-term
    liabilities
(1)
$
27.1
$
0.4
$
2.9
$
23.7
$
0.1
Operating
    leases
(2)
7.6
1.5
2.7
2.3
1.1
Purchase
    obligations
(3)
2.0
2.0
—
—
—
Total
$
36.7
$
3.9
$
5.6
$
26.0
$
1.2
(1)
Consists of long-term principal repayment of loans and the
    convertible promissory notes.
(2)
Consists of operating leases for our facilities and motor
    vehicles and assumes no exercise of any option to extend these
    leases.
(3)
The amounts included in open purchase order commitments are
    subject to performance under the purchase order by the supplier
    of the goods or services and do not become our obligation until
    such performance is rendered. The amount shown is principally
    for the purchase of certain raw materials under long-term
    agreements only.
Off-balance sheet arrangements
As of December 31, 2005, we did not have any off-balance
sheet financing arrangements.
Capital requirements
Our capital requirements are dependent on many factors,
including the projected level of our manufacturing activities,
market acceptance of our products and allocation of resources to
our research and development and business development efforts.
Currently, our primary capital requirements are for the
financing of our ongoing operations, for research and
development and for investments in capital equipment used both
in our manufacturing and research and development activities. In
the future, we intend to increase our capital expenditures
consistent with our anticipated growth. In particular, we intend
to invest substantial amounts in constructing a new
manufacturing facility in Israel that is scheduled to be
operational by 2009. As of December 31, 2005, we have paid
$1.0 million in connection with the design of this
facility. Other than financing this construction, we anticipate
that our cash resources will be used primarily to fund our
operating activities.
CORPORATE TAXATION
Due to the existence and operations of our Israeli and Belgian
subsidiaries, our consolidated corporate tax rate reflects the
combined impact of our U.S., Israeli and Belgian tax status. We
have incurred net operating losses since our inception and have
consequently not paid any federal, state or foreign income
taxes. However, some of our intercompany payments may be subject
to withholding tax at varying rates, depending on the
jurisdiction involved and the nature of the payment.
As of December 31, 2004, our net operating loss
carryforwards for U.S. federal income tax purposes were
$18.5 million. These net operating loss carryforwards may
be generally available to offset our future U.S. taxable
income, subject to applicable expiration dates and as discussed
below. If not utilized or otherwise limited as discussed below,
these net operating loss carryforwards will begin to expire in
2019 and continue through 2024. The Internal Revenue Code places
certain limitations on the sources of income against which net
operating loss carryforwards may be offset and therefore we
50
Management's discussion and analysis of financial
condition and results of operations
may not be able to utilize our net operating loss carryforwards
in relation to some or all of our income.
We are currently undertaking an analysis to determine whether
the use of our net operating loss carryforwards and other tax
attributes are limited as a result of having undergone an
"ownership change" within the meaning of
Section 382 of the Internal Revenue Code. In addition, we
are further determining whether we will undergo an ownership
change as a result of this offering or any other transaction
involving the sale or other transfer of our stock. If we undergo
an "ownership change," our ability to use our net
operating loss carryforwards and other tax attributes to offset
future U.S. taxable income, and thereby reduce our tax
liability, would be severely limited. In general, an
"ownership change" occurs for these purposes if the
percentage of stock ownership of any group of "5-percent
stockholders" (determined under Federal income tax
regulations) increases by more than fifty percentage points over
a three-year period. For this purpose, the term "5-percent
stockholder" includes the group of public stockholders who
individually own less than 5 percent of our stock. If, as a
result of our analysis, we conclude that we have not undergone
an "ownership change" in the past or as a result of
this offering, it is likely that this offering, in tandem with
other transactions involving the sale or transfer of our stock,
will nevertheless significantly increase the likelihood that we
will undergo an "ownership change" in the future and
that our net operating loss carryforwards and other tax
attributes will be lost or subject to severe limitation at that
time. It is impossible for us to ensure that such loss or
limitation will not occur.
Currently, Israeli companies are generally subject to income tax
at the corporate rate of 31%. The income tax rate will be
gradually reduced to 29% by 2007. However, we have been granted
"approved enterprise" status under the tax benefit
track, as provided by the Israeli Law for the Encouragement of
Capital Investments, 1959. The tax benefit track provides us
with a tax exemption on undistributed earnings derived from
assets included in the approved enterprise investment program
for the first four years of the ten-year benefit period and a
tax rate of 10% to 20% for the remaining three to six years of
the benefit period or through 2009, whichever is earlier,
depending on the level of non-Israeli investment in our Israeli
subsidiary. The ten year benefit period starts with the first
year in which we generate taxable income from the approved
enterprise. In any event, the period is limited to the earlier
of 12 years from the first year defined as the
"operational year" under Israeli tax law or
14 years from the respective year our program received
"approved enterprise" status, which is 2009. The
availability of the Israeli tax benefits is subject to certain
requirements, including making specified investments in property
and equipment and financing a percentage of investments with
share capital. If we do not meet these requirements in the
future, the tax benefits may be cancelled and we could be
required to refund any tax benefits that we have already
received, plus interest and penalties thereon. To date, we have
not received any tax benefits under the approved enterprise
status.
As of December 31, 2004, we had $17.4 million of net
operating loss carryforwards for Israeli tax purposes, which we
expect to use upon generating taxable income. These net
operating loss carryforwards have no expiration date.
Belgian companies are currently generally subject to income tax
at the corporate rate of 33.99%. As of December 31, 2004,
we had $18.5 million of net operating loss carryforwards
for Belgian tax purposes that we expect to use upon generating
taxable income. These net operating loss carryforwards have no
expiration date.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not use derivative financial instruments in our investment
portfolio and have no foreign exchange contracts. However, under
the terms of the contract we were awarded by the United
51
Management's discussion and analysis of financial
condition and results of operations
Kingdom to provide VIG to the United Kingdom Department of
Health, we expect to be paid on specified dates in British
pounds.
Our financial instruments consist of cash, cash equivalents,
short-term investments, accounts payable and long-term
obligations. We consider investments that, when purchased, have
a remaining maturity of 90 days or less, to be cash
equivalents. We invest in marketable securities in accordance
with our investment policy. The primary objectives of our
investment policy are to preserve principal, maintain proper
liquidity to meet operating needs and maximize yields. Our
investment policy specifies credit quality standards for our
investments.
As of December 31, 2004, a substantial majority of our cash
was in money market accounts. We did not have any cash invested
in short-term investment instruments.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On September 29, 2005, the audit committee of the board of
directors and the entire board of directors of Omrix
Biopharmaceuticals, Inc., (the "Company"), approved
the engagement of Kost, Forer, Gabbay & Kasierer, a
member of Ernst & Young Global, or Kost Forer, to audit
the Company's consolidated financial statements for the
fiscal years ended December 31, 2004 and 2005. In addition,
on January 12, 2006, the audit committee of the board of
directors of the Company ratified the engagement of Ziv Haft, a
BDO member firm, or Ziv Haft, to audit the Company's
consolidated financial statements for the fiscal years ended
December 31, 2002 and 2003.
For the years ended December 31, 2003 and 2004, Kesselman
& Kesselman, a member firm of PricewaterhouseCoopers
International Limited, or Kesselman & Kesselman,
reported on the consolidated financial statements of the Company
pursuant to generally accepted auditing standards in Israel and
was not engaged to audit the Company's consolidated
financial statements in accordance with standards of the Public
Company Accounting Oversight Board in the United States of
America or under generally accepted auditing standards in the
U.S. As a result of the Company's decision to seek an
initial public offering in the U.S., Kesselman & Kesselman
resigned due to exceptions under the U.S. Securities and
Exchange Commission independence rules.
Kesselman & Kesselman reports on the Company's
consolidated financial statements for the years ended
December 31, 2003 and 2004 did not contain an adverse
opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles.
During the years ended December 31, 2003 and 2004 and
through September 29, 2005, there were no disagreements
with Kesselman & Kesselman on any matter of accounting
principle or practice, financial statement disclosure or
auditing scope or procedure, which disagreements, if not
resolved to Kesselman & Kesselman's satisfaction,
would have caused Kesselman & Kesselman to make
reference thereto in its report on the Company's
consolidated financial statements for such years.
During the years ended December 31, 2003 and 2004 and
through September 29, 2005, there were no reportable events
pursuant to Item 304(a)(1)(v) of
Regulation S-K.
During the years ended December 31, 2003 and 2004 and for
the period January 1, 2005 to September 29, 2005, and
the years ended December 31, 2004 and 2005 and for the
period January 1, 2006 to January 12, 2006, the
Company has not consulted with either Kost Forer or Ziv Haft,
respectively, regarding either (i) the application of
accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might
be rendered on our consolidated
52
Management's discussion and analysis of financial
condition and results of operations
financial statements, or (ii) any matter that was either
the subject of a disagreement, as that term is defined in
Item 304(a)(1)(iv) of
Regulation S-K
and
the related instructions to Item 304 of
Regulation S-K,
or
a reportable event, as that term is defined in Item 304
(a)(1)(v) of
Regulation S-K.
RECENT ACCOUNTING PRONOUNCEMENTS
On December 16, 2004, the Financial Accounting Standards
Board, or FASB, issued Statement No. 123 (revised 2004),
"Share-Based Payment," or Statement 123(R), which
is a revision of FASB Statement No. 123, "Accounting
for Stock-Based Compensation. Statement 123(R) requires all
share-based payments to employees to be recognized based on
their fair market value. Statement 123(R) also revises,
clarifies and expands upon guidance in several areas, including
determining fair value, classifying an award as equity or as a
liability and attributing compensation cost to reporting
periods. The new standard will be effective for us for the year
beginning after January 1, 2006. The adoption of
Statement 123(R) is not expected to have a material effect
on our results of operations.
In March 2005, the SEC released SAB 107, "Share-Based
Payment," or SAB 107. SAB 107 provides the SEC
staff's position regarding the application of
Statement 123(R), "Accounting for Stock Based
Compensation," including interpretive guidance related to
the interaction between Statement 123(R) and certain SEC
rules and regulations, and to the valuation of share-based
payment arrangements for public companies. SAB 107
highlights the importance of disclosures made relating to the
accounting for share-based payment transactions. We are
currently reviewing the effect of SAB 107; however, we do
not believe that SAB 107 will have a material effect on our
financial position, results of operations or cash flows.
In November 2004, the FASB issued Statement of Financial
Accounting Standard No. 151, "Inventory Costs, an
Amendment of ARB No. 43, Chapter 4," or
SFAS 151. SFAS 151 amends Accounting Research
Bulletin, or ARB No. 43, Chapter 4, to clarify that
abnormal amounts of idle facility expense, freight handling
costs and wasted materials (spoilage) should be recognized
as current-period charges. In addition, SFAS 151 requires
that the allocation of fixed production overheads to the costs
of conversion be based on the normal capacity of the production
facilities. SFAS 151 is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005.
We do not expect that the adoption of SFAS 151 will have a
material effect on our financial position or results of
operations.
In May 2005, the FASB issued Statement of Financial Accounting
Standard No. 154, or SFAS 154, "Accounting
Changes and Error Corrections," a replacement of APB
No. 20, "Accounting Changes," or APB No. 20 and
SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements." SFAS 154 provides
guidance on the accounting for and reporting of accounting
changes and error corrections. APB No. 20 previously
required that most voluntary changes in accounting principles be
recognized by including in net income for the period of the
change the cumulative effect of changing to the new accounting
principle. SFAS 154 requires retroactive application to
voluntary changes in accounting principles in prior
periods' financial statements unless it is impracticable to
do so. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 15, 2005.
53
Business
OVERVIEW
We are a commercial-stage biopharmaceutical company that
develops and markets innovative biological products. We utilize
our proprietary protein purification technology and
manufacturing know-how to develop biosurgical and passive
immunotherapy products derived from human plasma. Our
biosurgical product line includes products and product
candidates that are used or are intended to be used for
hemostasis and other surgical applications. Our passive
immunotherapy product line includes antibody-rich products and
product candidates for the treatment of immune deficiencies and
infectious diseases, including potential biodefense
applications. In each of our product lines, we are developing
novel and
easy-to
-use
products that address unmet market needs.
Our core competency is applying our proprietary protein
purification technology and our manufacturing know-how to
develop and commercialize protein-based products. We employ our
technology on a commercial scale to either isolate proteins of
interest or remove unwanted proteins from raw materials such as
human plasma or plasma fractions. Our biosurgical and passive
immunotherapy products and product candidates are plasma
fractions either enriched for, or depleted of, selected proteins.
Biosurgical products and product candidates
Our current biosurgical product is a fibrin sealant used for
hemostasis in surgical procedures, marketed as Crosseal in the
U.S. and as Quixil outside of the U.S. It is sold in the
U.S., the EU and several other European countries under a
distribution and supply agreement we have with Ethicon. We sell
Quixil in several other countries directly or through local
distributors.
We believe that Crosseal/ Quixil has several competitive
advantages over other liquid fibrin sealants on the market.
Crosseal/ Quixil:
Ø
is readily available for spraying and dripping because it can be
    prepared from thawed product in approximately one minute in the
    operating room;
Ø
results in a clot that we believe has better adherence to tissue
    and greater elasticity;
Ø
avoids the possibility of an adverse reaction associated with
    bovine proteins because it does not contain animal-derived
    components; and
Ø
can be refrigerated in a liquid form, thereby avoiding waste of
    unused product, for up to 30 days after thawing.
For the nine months ended September 30, 2005, we recognized
$5.0 million in revenues from our direct commercial sales
and sales to Ethicon and our other distributors of Crosseal/
Quixil, including revenues recognized from upfront fees and
milestone payments.
We are also developing the following biosurgical product
candidates:
Ø
Crosseal II/ Quixil II, a second generation fibrin
    sealant, for expanded indications in hemostasis;
Ø
thrombin stand-alone and flowable thrombin, for specific
    surgical applications; and
Ø
a hemostatic bio-device, comprised of our BAC II and
    thrombin embedded in a biodegradable device, designed for the
    management and rapid control of bleeding, including severe or
    brisk bleeding, and for use on active bleeding sites in trauma
    and surgical patients.
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In addition, we have entered into agreements with third parties
to collaborate in the development of product candidates with
potential applications in site-specific treatment of tissue and
tissue regeneration.
Passive immunotherapy products and product candidates
We market and supply passive immunotherapy products in selected
geographic markets. These products provide passive immunity to
patients who lack the ability to generate an effective level of
antibodies on their own. Our passive immunotherapy products and
product candidates include:
Ø
IVIG, marketed in Israel primarily for the treatment of patients
    with immune deficiencies;
Ø
VIG, supplied under government contracts for the treatment of
    smallpox vaccine-related complications;
Ø
HBIG, marketed in Israel for the prevention of reinfection of
    transplanted livers in patients with HBV;
Ø
HT-VIG, a more concentrated form of VIG, which we are developing
    for the treatment of smallpox vaccine-related complications and
    treatment of smallpox; and
Ø
WNIG, which we are developing for the treatment of severe
    infection with West Nile virus.
For the nine months ended September 30, 2005, we recognized
$10.1 million in revenues from commercial sales of passive
immunotherapy products.
INDUSTRY OVERVIEW
Biosurgical products market
Biosurgical products are used for a wide variety of
applications, including wound closure. The wound closure market
consists of products used in various surgical procedures to
achieve hemostasis and wound healing. In its January 2005
report, MedMarket Diligence's industry analysts estimated
the worldwide wound closure market at approximately
$5.6 billion. This market has two components, the first is
conventional hemostats, including sutures, staples, tapes and
other products that work through mechanical action. We estimate
the conventional hemostats market at approximately
$4.6 billion. The other component of the wound closure
market is surgical sealants, including biosurgical hemostats and
synthetic glues. In its January 2005 report, MedMarket
Diligence's industry analysts estimated the worldwide
surgical sealants market at $1 billion, with three million
procedures using surgical sealants annually. Surgical sealants
are used in a broad range of surgical settings to promote
hemostasis, close incisions and seal and secure skin flaps. End
users include surgeons in specialties such as orthopedic,
cardiothoracic, vascular, transplant, spinal and neurosurgery,
ear-nose-and-throat, cosmetic, and general surgery.
We compete in the advanced biosurgical hemostats market, which
we believe is the fastest growing segment of the surgical
sealant market, a part of the wound closure market.
Traditionally, biosurgical hemostats have included collagen,
cellulose, gelatin and other inert materials, which are derived
from natural sources and act by binding to tissue. Over time,
more technologically advanced biosurgical hemostats have been
developed that work by amplifying the body's natural
hemostatic processes. Advanced biosurgical hemostats are often
used in combination with conventional hemostats and traditional
biosurgical hemostats, depending on the type of surgery, the
amount of bleeding and the specific needs and preferences of
physicians. We believe that the advanced biosurgical hemostats
market in the U.S. currently represents approximately
$275 million of the worldwide $1 billion surgical
sealant market and, based on market trends, we expect these
markets to grow substantially.
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Fibrin sealants are the most commonly used advanced biosurgical
hemostats. The major components of fibrin sealants are two
proteins, fibrinogen and thrombin, that are naturally found in
plasma. As part of the natural clotting process, thrombin
cleaves the fibrinogen molecule, transforming fibrinogen into
fibrin. Individual fibrin proteins then cross-link to each other
to form a mesh that traps red blood cells, forming a clot which
results in hemostasis. Fibrin sealants are commonly used, by
dripping or spraying, in a wide variety of surgical procedures
where significant blood loss is common, including
cardiovascular, lung and liver surgeries. However, there are no
surgical sealants currently indicated for the control of brisk
bleeding.
We believe that market penetration rates for fibrin sealants are
quite low compared to their potential for use in surgical
settings. According to 2004 Frost & Sullivan reports,
penetration rates of tissue sealants, which include, fibrin
sealants and synthetic sealants, were only approximately at 13%
and 36% of potential surgical use in the U.S. in 2003 and
the EU in 2004, respectively.
We believe that market penetration of existing fibrin sealants
has been limited by the following factors:
Ø
Ease-of-Use.
Many fibrin sealants take approximately 20
    minutes to prepare, thus limiting the availability of the
    product to a surgeon on an immediate basis. They can also be
    opaque, making it difficult for the surgeon to see the
    underlying surface after the sealant has been applied.
Ø
Efficacy.
Most fibrin sealants contain only purified
    fibrinogen and thrombin, and lack certain naturally occurring
    clotting-related proteins that aid in the natural clotting and
    healing process. We believe the lack of such proteins results in
    slower hemostasis and a clot that has less elasticity and
    adherence to tissue.
In addition, certain safety concerns related to the use of
animal-derived components, due to the risk of severe immune
reaction upon re-exposure to animal-derived components, and the
possible transmission of disease, have been associated with the
use of fibrin sealants. We believe these limitations create
market opportunities for new products that provide solutions in
these areas.
Passive immunotherapy industry
Passive immunization occurs when a patient is supplied with
antibodies derived from the plasma of donors. Passive
immunotherapy can provide ongoing protection and treatment to
patients with immune deficiencies by providing them with the
spectrum of antibodies normally present in healthy adult human
plasma. When an infection is already present, hyperimmune
products, which contain high levels of antibodies specific to
the pathogen causing that infection, can be used. The passive
immunotherapy market includes products directed to meeting the
ongoing needs of the medical community and products provided to
governments for stockpiling to meet potential bioterrorism and
existing and emerging infectious disease threats. We provide and
develop passive immunotherapy products that address these needs
and concerns. Our current immunotherapy products address a
variety of diseases and conditions.
Smallpox
Smallpox is a serious disease with high mortality rates that was
declared globally eradicated in 1980. Recently, however, there
has been concern that the smallpox virus may be used as a
bioweapon. In response to this concern, governments have begun
to stockpile smallpox vaccine and VIG. The smallpox vaccine is
made using a live vaccinia virus, which is closely related to,
but not nearly as virulent as, the smallpox virus. Because the
smallpox vaccine is made from live viruses, a small percentage
of vaccinated individuals develop complications. VIG is used to
treat these complications. An industry analysis prepared for us
by the Frankel Group in June 2005 estimated that the combined
U.S. and EU government expenditure for VIG and HT-VIG will be
approximately $435 million in 2007.
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Hepatitis B virus
HBV, which attacks the liver, is a major global health concern
for which there is no known cure. HBV can cause lifelong
infection, scarring of the liver, liver cancer, liver failure
and death. Many patients with chronic HBV infection require a
liver transplant. After liver transplant surgery, there is a
high risk that the transplanted liver will be reinfected with
HBV, which can destroy the organ. To prevent reinfection, these
patients require lifelong treatment for HBV. HBIG is one of the
treatments used to prevent reinfection of the transplanted liver
in HBV-positive liver transplant patients.
West Nile fever
West Nile fever is endemic in Africa and was first detected in
the U.S. in New York City in 1999. Since then, cases have
been reported in many states including California and Florida.
In the majority of infections with West Nile virus, a
patient's symptoms are limited to headache, fever, fatigue
and rash. However, in some cases it can infect the brain and the
central nervous system and become potentially fatal. There is
currently no treatment for West Nile fever other than
investigational anti-viral drugs.
Immune deficiency
IVIG has been in use since the 1980s to treat patients suffering
from primary immune deficiencies. IVIG contains the spectrum of
antibodies normally found in healthy adult human plasma. It is
used as replacement antibody therapy, both prophylactically and
in response to a specific infection for immuno-compromised
patients. These patients are characterized by the inability to
mount a normal antibody response against the viruses, bacteria
and other pathogens that routinely challenge an
individual's health.
OUR COMPETITIVE STRENGTHS
We believe that our key competitive strengths include:
Ø
Commercial Application of our Protein Purification Technology
    and Know-How.
Our core competency is applying our
    proprietary protein purification technology and our
    manufacturing know-how to develop and commercialize
    protein-based, plasma-derived products. Using this technology,
    we purify proteins from plasma while maintaining their natural
    structure to preserve their full range of biological activities.
    We have years of experience in employing our technology on a
    commercial scale and utilizing our manufacturing know-how in
    sourcing and selecting our raw materials. This allows us to
    select raw materials containing the highest level of proteins
    and antibodies and to efficiently produce our products and
    product candidates. In addition, we utilize the same technology
    across our biosurgical and passive immunotherapy product lines,
    thereby generating economies of scale by allowing us to
    manufacture different products in the same plant.
Ø
Easy-to-Use, Effective and Safe Products.
We apply our
    protein purification technology and manufacturing know-how to
    provide
easy-to
-use,
    safe and effective products to hospitals and clinics. We believe
    Crosseal/ Quixil has several competitive advantages over other
    liquid fibrin sealants on the market. It is readily available
    for spraying and dripping because it can be prepared from thawed
    product in approximately one minute in the operating room; it
    results in a clot that we believe has better adherence to tissue
    and greater elasticity; it avoids the possibility of an adverse
    reaction associated with bovine proteins because it contains no
    animal-derived components; and it can be refrigerated in a
    liquid form, thereby avoiding waste of unused product, for up to
    30 days after thawing. Likewise, our HT-VIG product
    candidate is designed to be delivered in a single, small-volume
    vial or pre-filled syringe for faster administration by
    non-specialized medical personnel.
Ø
Flexible and Scaleable Manufacturing Capability.
We
    capitalize on the versatility of our protein purification
    technology and the depth of our manufacturing know-how to
    deliver products to
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markets where we have identified unmet needs that match our
    field of expertise. In addition, the design of our manufacturing
    facility allows us to accommodate different volume production
    batches, thus enabling us to efficiently produce the various
    quantities required by our customers. For example, our
    small-volume batch production capabilities enable us to rapidly
    address emerging market needs and capitalize on these
    opportunities.
Ø
Broad Collaboration with Ethicon.
Our broad collaboration
    with Ethicon provides several benefits. Through this
    relationship we have gained access to their extensive sales,
    distribution and marketing infrastructure for our biosurgical
    products and product candidates, which would be costly for us to
    build independently. We also benefit from their technological
    and financial support in research and clinical development of
    our biosurgical product candidates. Together with Ethicon, we
    are developing four new product candidates, including our
    hemostatic bio-device.
OUR PROTEIN PURIFICATION TECHNOLOGY
Our proprietary protein purification technology includes both
chemical and physical processes designed to purify proteins from
human plasma or plasma fractions while maintaining their natural
structure to preserve their full range of biological activities.
This technology is used to manufacture our biosurgical and
passive immunotherapy products and product candidates. We can
employ this technology on a commercial scale to either isolate
proteins of interest or remove unwanted proteins from raw
materials such as human plasma or plasma fractions. Both the
remaining plasma fractions and the proteins we selectively
remove can be used in our products and product candidates. We
utilize a multi-step biochemical separation process, which
includes binding a synthetic chemical to the protein that is to
be separated from the plasma, separating the complex from the
plasma and then disbanding the protein from that chemical. This
process uses novel reagents, including a resin that we use for
protein removal, and takes place under highly controlled
temperature, pH and manufacturing flow levels, which vary for
each of the proteins that we select.
We use our purification technology to produce our fibrin
sealants, including Crosseal/ Quixil, which is comprised of
thrombin and BAC. BAC contains naturally occurring
clotting-related proteins, including fibrinogen, Factor XIII,
Factor VIII, fibronectin and van Willebrand factor antigen,
which we believe lead to a faster and more efficient clotting
and healing process. This suite of proteins is not present in
other fibrin sealant products because they use purified
fibrinogen. Moreover, our manufacturing process allows this
suite of proteins to interact in the vial, rather than at the
later stage of application to the wound. We believe that this
interaction in the BAC leads to the clot forming more
effectively when thrombin is added to BAC than when thrombin is
added to purified fibrinogen. Further, we believe that the
resulting clot has greater elasticity and adherence to tissue.
We seek to adapt our purification process to expand the market
opportunities for our products. For example, all currently
marketed liquid fibrin sealants, including Crosseal/ Quixil,
contain a stabilizing agent to prevent proteases present in
plasma from dissolving the clot. The presence of a stabilizing
agent has prevented our fibrin sealant from being used in
neurosurgery. Therefore, we have designed a process to remove
these proteases from our second generation BAC, so that BAC II
does not require a stabilizing agent. As a result, we believe
that we can expand the indication for our second generation
fibrin sealant, Crosseal II/ Quixil II, to include
hemostasis in neurosurgery, subject to regulatory approval.
In addition, the manufacturing process for our biosurgical and
passive immunotherapy products uses multiple steps designed to
remove and inactivate pathogenic viruses that may be found in
human plasma. We purchase plasma and plasma fractions from
licensed collection centers, which collect plasma from screened
donors. It is, however, possible that viruses or bacteria could
be present in the plasma we use to produce our products. To
address this safety issue, the components of our products
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and product candidates undergo a rigorous viral inactivation
process known as solvent detergent, or SD, inactivation. SD
inactivation destroys major blood-borne viruses such as HIV, HBV
and hepatitis C. This step is followed by either
pasteurization, in the case of BAC, or a proprietary
nanofiltration process, in the case of thrombin, to disable or
remove viruses. We believe this multi-step process provides a
high margin of safety for our products and product candidates.
OUR PRODUCTS
We utilize our proprietary protein purification technology and
manufacturing know-how to develop biosurgical and passive
immunotherapy products derived from human plasma. Our
biosurgical product line includes products and product
candidates used or intended to be used for hemostasis and other
surgical applications. Our passive immunotherapy product line
includes antibody-rich products and product candidates for the
treatment of immune deficiencies and infectious diseases,
including potential biodefense applications. In each of our
product lines, we are developing novel and
easy-to
-use products
that address unmet market needs.
Biosurgical products and product candidates
Our currently marketed biosurgical product is Crosseal/ Quixil,
which is used for hemostasis in surgical procedures. It is sold
in the U.S., the EU and several other European countries under a
distribution and supply agreement we have with Ethicon, and in
several other countries directly by us or through local
distributors. We are developing, in collaboration with Ethicon,
several other biosurgical product candidates.
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The following table summarizes certain information regarding our
biosurgical products and product candidates:
Product
Status
Indication
Collaborator
Crosseal/ Quixil
Commercially available in the U.S., the EU, several other
    European countries, Mexico and Israel
Adjunct to hemostasis in liver surgery in the U.S.
Adjunct to hemostasis for general surgical use in Germany, UK,
    France, Italy, Brazil and Mexico
Currently marketed through Ethicon in the U.S. and the EU
Adjunct to hemostasis in liver and orthopedic surgeries in
    certain EU
countries and Israel
Crosseal II/Quixil II
Phase III clinical trial for hemostasis in peripheral
    vascular surgery, as part of approval as an adjunct to
    hemostasis for general surgical use, in the U.S. and the EU
Adjunct to hemostasis for general surgical use in the U.S. and
    the EU
Under development with Ethicon
Hemostatic bio-device
Pre-clinical tests
For the management and rapid control of bleeding, including
    severe or brisk bleeding, and for use on active bleeding sites,
    in the U.S. and the EU
Under development with Ethicon
Thrombin stand-alone and flowable thrombin
Thrombin stand-alone: Phase III clinical trial in the U.S.
Adjunct to hemostasis for general surgical use, primarily for
    use in neurosurgery, in the U.S.
Under development with Ethicon
Flowable thrombin: expect to file 510(k) application after
    thrombin stand-alone is approved in the U.S.
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Crosseal/ Quixil
Crosseal/ Quixil is our marketed fibrin sealant product used for
hemostasis in surgical procedures. Ethicon has been marketing
Quixil as an adjunct to hemostasis in liver and orthopedic
surgeries in the EU and several other European countries since
2003 and Crosseal as an adjunct to hemostasis in liver surgery
in the U.S. since 2004. In addition, we have been marketing
Quixil directly in Israel since 1998 for similar indications and
through local distributors in Mexico since 2000 as an adjunct to
hemostasis for general surgical use. We recently received
approval for Quixil as an adjunct to hemostasis for general
surgical use, and regulatory licenses have been issued for this
indication by Germany, the United Kingdom, France, Italy and
Brazil. Crosseal/ Quixil is contraindicated for neurosurgery.
Our Crosseal/ Quixil contains BAC, which includes a suite of
proteins that we believe leads to a faster and more efficient
clotting and healing process. This suite of naturally occurring
proteins is not present in other fibrin sealant products because
they use purified fibrinogen. Our manufacturing process allows
these proteins in BAC to interact in the vial, rather than at
the later stage of application to the wound. We believe that
this interaction in the BAC leads to the clot forming more
effectively when thrombin is added to BAC than when thrombin is
added to purified fibrinogen. Further, we believe that the
resulting clot has greater elasticity and adherence to tissue.
We believe that Crosseal/ Quixil has several competitive
advantages over other liquid fibrin sealants on the market:
Ø
Ease-of-use.
Fibrin sealants are used in time-critical
    situations and therefore must be easy to use and readily
    available for spraying and dripping. Our Crosseal/ Quixil is
    sold as a frozen liquid and requires approximately one minute
    preparation time in the operating room after thawing. Many other
    fibrin sealants require approximately 20 minutes to prepare and
    cannot be prepared in advance because the fibrinogen breaks down
    after four hours at room temperature. In addition, unlike most
    other fibrin sealants, Crosseal/ Quixil is transparent, making
    it easy for the surgeon to see the underlying surface after the
    sealant has been applied to determine whether hemostasis has
    been achieved.
Ø
Efficacy.
We believe that the naturally occurring suite
    of proteins in the BAC in Crosseal/ Quixil results in a clot
    that has better adherence to tissue and greater elasticity.
Ø
Safety.
Crosseal/ Quixil is the first, and currently the
    only, commercially available liquid fibrin sealant product that
    does not contain animal-derived components, thereby avoiding the
    possibility of an adverse reaction associated with exposure to
    bovine proteins contained in other commercially available fibrin
    sealants.
Ø
Economy.
Crosseal/ Quixil can be refrigerated in a liquid
    form for up to 30 days after thawing. It comes in one, two or
    five milliliter vials. In addition, the product in unopened
    vials is stable at room temperature for up to 24 hours.
    Crosseal/ Quixil can also be kept frozen for up to two years.
    This design and packaging allow for tailored application without
    waste of unused product.
In 2004, Frost & Sullivan awarded the Product
Differentiation Leadership Award to Ethicon as a result of
Ethicon's inclusion of Quixil in its product portfolio. The
award is presented each year to a company that best demonstrates
the ability to develop or advance products with more innovative
capabilities than competing companies and products. According to
Frost & Sullivan, such innovation is expected to
significantly contribute to the industry in terms of product
performance and rate of technical change.
In 2000, we completed a multi-center Phase III clinical
trial with Crosseal/ Quixil in 121 patients in the U.S. and
United Kingdom. This study showed that Crosseal/ Quixil
significantly reduced the time required to achieve hemostasis in
liver surgery compared to other fibrin sealants and that patients
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treated with Crosseal/ Quixil experienced significantly fewer
postoperative complications compared to patients treated with
other fibrin sealants.
For the nine months ended September 30, 2004 and 2005, we
recognized $3.4 million and $5.0 million in revenues,
respectively, from our direct commercial sales and sales to
Ethicon and our other distributors of Crosseal/ Quixil,
including revenues recognized from upfront fees and milestone
payments. For the years ended December 31, 2003 and 2004,
we recognized $2.5 million and $5.2 million in
revenues, respectively, from our direct commercial sales and
sales to Ethicon and our other distributors of Crosseal/ Quixil,
including revenues recognized from upfront fees and milestone
payments.
Crosseal II/ Quixil II
We are developing our second generation fibrin sealant,
Crosseal II/ Quixil II, in collaboration with Ethicon.
It differs from our current fibrin sealant in that it
incorporates BAC II, and as a result, does not require a
stabilizing agent. The presence of this stabilizing agent
resulted in Crosseal/ Quixil being contraindicated for
neurosurgery. We expect that this contraindication will be
removed upon approval of Crosseal II/ Quixil II. We
are seeking to obtain approval for Crosseal II/
Quixil II as an adjunct to hemostasis for general surgical
use in the U.S. and the EU. To obtain this approval for
Crosseal II/ Quixil II in the U.S., we must
demonstrate effective hemostasis in two types of surgical
procedures.
In July 2005, we began a multi-center Phase III clinical
trial with Crosseal II/ Quixil II for hemostasis in
peripheral vascular surgery in 150 patients in the U.S. and
the EU, of which we have enrolled approximately 80 as of
November 2005. We expect to add a multi-center Phase III
trial with Crosseal II/ Quixil II for hemostasis in
kidney surgery in the U.S.
Hemostatic bio-device
We are developing in collaboration with Ethicon, a novel
hemostatic bio-device that builds on our Crosseal II/
Quixil II technology. This hemostatic bio-device product
candidate is designed for the management and rapid control of
bleeding, including severe or brisk bleeding, and for use on
active bleeding sites. This next generation biosurgical product
combines medical device components with biological components.
Brisk bleeding is a serious concern in surgical patients. This
type of bleeding is difficult to control and is characterized by
fast flow and high pressure. There is no surgical sealant
currently marketed to induce the rapid formation of a clot at a
brisk bleeding site because the volume and pressure of the
bleeding in these situations displaces the clot formed with
traditional fibrin sealants. Our hemostatic bio-device product
candidate is designed to address this unmet market need.
Our hemostatic bio-device product candidate is comprised of our
BAC II and thrombin embedded in a biodegradable device. The
hemostatic bio-device product candidate is designed to combine
the functions of mechanical sealing and hemostasis by providing
a biodegradable device on which a clot can form and be
maintained to stop the bleeding without any other action.
We are conducting pre-clinical tests with this product candidate
in laboratory animals. Upon completing these tests, we expect to
conduct a Phase I/ II clinical pilot study in Israel, which
will be followed by clinical trials in the U.S.
Thrombin stand-alone and flowable thrombin
We are developing our thrombin stand-alone product with Ethicon
for general surgical use, primarily for use in neurosurgery.
Consistent with our strategy of developing product extension
candidates to address market demand, our thrombin stand-alone
product candidate is a product extension of our fibrin sealant.
It is intended for cases, such as certain types of neurosurgery,
where the physician
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desires a more gradual onset of clotting than that provided by
standard fibrin sealants. Our thrombin stand-alone product
candidate is a liquid that is poured directly on the site or
onto an applicator device. Currently available thrombin
stand-alone products use bovine thrombin. Our thrombin
stand-alone product candidate, which is derived from human
plasma, is designed to provide effective hemostasis without the
risk of adverse reactions associated with bovine thrombin. We
are conducting a multi-center Phase III clinical trial with
thrombin stand-alone as an adjunct to hemostasis for general
surgical use in approximately 300 patients in the U.S.
We are also developing a flowable thrombin product, which is a
product extension that combines our thrombin stand-alone product
candidate with a medical device provided by Ethicon. This
product candidate is designed to be delivered as part of a
complete and
easy-to
-use application
kit. It is being developed primarily for cases in which more
control in application is desired. We plan to file a 510(k)
Premarket Notification with the FDA for our flowable thrombin
after obtaining approval of our thrombin stand-alone product
candidate in the U.S.
Site-specific treatment of tissue and tissue regeneration
We seek to expand the commercial application of our protein
purification technology and our manufacturing know-how for
fibrin sealants by offering our expertise to select companies
that are developing products in the areas of site-specific
treatment of tissue and tissue regeneration. The focus of these
collaborations is the development of products that combine our
fibrin sealant with other components and are designed to be
introduced through minimally invasive procedures.
In June 2005, we entered into a manufacturing and supply
agreement with Aeris Therapeutics, Inc., or Aeris. Under this
agreement, we supply Aeris with our fibrin sealant for
pre-clinical, clinical and commercial use worldwide. As part of
the agreement, Aeris is developing a product that uses our
fibrin sealant for the treatment of severe emphysema, a disease
which results in progressive over inflation of parts of the
lungs, causing shortness of breath and poor respiratory
function. Aeris's product candidate combines our fibrin
sealant with other therapeutic components, and is administered
in a minimally invasive procedure to the most damaged
over-inflated regions of lung to improve breathing function by
gradually shrinking these treated areas. Aeris plans to conduct
Phase II clinical trial in 2006.
In April 2005, we entered into a joint development and license
agreement and a supply and distribution agreement with Symphony.
Under the development and license agreement, we are jointly
developing a product kit comprised of our fibrin sealant and an
application device and other components supplied by Symphony.
This product combination is designed to reduce fibrillation
abnormalities after coronary artery bypass graft surgery by
injecting our fibrin sealant into the fat pads surrounding the
heart. Symphony is conducting a Phase I clinical trial with
this product candidate in Germany.
Passive immunotherapy products and product candidates
We produce and sell three passive immunotherapy products. We
supply VIG under government contracts for the treatment of
smallpox vaccine-related complications. We market IVIG in Israel
primarily for the treatment of patients with immune deficiency.
We also market HBIG in Israel for the prevention of reinfection
of transplanted livers with HBV. In addition, we are developing
several other passive immunotherapy product candidates.
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The following table summarizes certain information regarding our
passive immunotherapy products and product candidates:
Product
Status
Indication
Target market
VIG
Sales in Israel and two European countries
Smallpox vaccine-related complications
Governments
HT-VIG*
In development
Smallpox vaccine-related complications and treatment of smallpox
Governments
IVIG
Commercial sales in Israel
Immune deficiency
Medical community
HBIG
Commercial sales in Israel
Prevention of HBV reinfection of transplanted liver
Medical community
WNIG*
Phase I/II clinical trial in the U.S.
West Nile fever
Medical community
*
We have received NIH grants for the development of these
    product candidates.
VIG
VIG is a product that contains antibodies specific to vaccinia.
It is designed to treat smallpox vaccine-related complications.
These complications range from localized adverse reactions to
inflammation of the brain.
Recent concern that smallpox virus may be used as a bioweapon
has driven governments to stockpile smallpox vaccines and VIG.
We supply VIG to government organizations. To date, we have sold
VIG to three governments, including to the United Kingdom
Department of Health under a contract we were awarded by the
United Kingdom in December 2005. Under this agreement, we expect
to receive approximately $20 million through the third
quarter of 2006.
HT-VIG
HT-VIG is a more concentrated form of VIG and can be used in
smaller volumes for the same indication and we believe can also
be used for the treatment of smallpox. VIG must be dispensed
intravenously due to the large volume of VIG that is required
for effective treatment. As a result, it must be administered in
a clinic only by specialized personnel and can take up to an
hour. In addition to intravenous administration, the smaller
volume of HT-VIG that we believe will be needed for effective
treatment can be administered in a single injection
intramuscularly, allowing non-specialized medical personnel to
treat more patients in urgent situations.
We produce HT-VIG using our proprietary HT technology. We expect
to begin testing HT-VIG in animals in the first quarter of 2006
to confirm the comparability of HT-VIG to our VIG, which will
allow us to provide the information required by the potential
purchasers of this product. Government purchasers may require
additional testing to meet the requirements of a specific bid
request. In 2003, the NIH awarded us a $3.0 million grant
for the development of this product candidate, all of which has
been funded.
IVIG
IVIG is a product that contains the spectrum of antibodies
normally present in healthy adult human plasma. It is primarily
used to provide ongoing treatment for primary immune
deficiencies by providing a broad selection of antibodies that
mimic a healthy immune system.
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We market IVIG in Israel for immune deficiency indications. For
the nine months ended September 30, 2004 and 2005, we
recognized $6.3 million and $7.8 million in revenues,
respectively, from sales of IVIG in Israel. For the years ended
December 31, 2002, 2003 and 2004 we recognized
$6.5 million, $7.5 million and $8.7 million in
revenues, respectively, from sales of IVIG in Israel.
HBIG
HBIG is a product that contains antibodies specific to HBV. HBV
can cause lifelong infection, scarring of the liver, liver
cancer, liver failure and death. Many patients with chronic HBV
infection require a liver transplant. Because HBV can reside in
tissue other than the liver, there is a high risk that the liver
of these transplant patients will be reinfected with HBV, which
can destroy the transplanted liver. To prevent reinfection,
these patients require lifelong treatment for HBV. HBIG is one
of the treatments used to prevent reinfection of the
transplanted liver.
We market HBIG in Israel for the prevention of reinfection of
transplanted livers with HBV. For the nine months ended
September 30, 2004 and 2005, we recognized
$1.5 million and $1.9 million in revenues,
respectively, from sales of HBIG in Israel.
WNIG
WNIG is a product that contains antibodies specific to the West
Nile fever virus. We are developing WNIG to treat severe
infection with the West Nile virus and we have received orphan
drug designation for WNIG from the FDA for this indication. The
NIH is currently conducting a multi-center Phase I/ II
clinical trial in the U.S. for the treatment of severe West
Nile virus infection with our WNIG product candidate in
approximately 100 patients, of which they have enrolled 35
to date. In September 2005, we received a grant of
$1.0 million from the NIH, of which $0.5 million has
been funded to date for the development of this product
candidate.
OUR BUSINESS STRATEGY
Our strategy is to utilize our core competencies to develop and
market innovative products that address important unmet medical
needs. We aim to make our biosurgical products the treatment of
choice in surgical hemostasis, and our passive immunotherapy
products the treatment of choice for immune deficiencies and for
existing and emerging infectious disease, including potential
bioterrorism threats. To achieve these goals, our strategy
includes the following key elements:
Ø
Focus on Additional Indications for Existing Products and
    Product Extensions.
In our biosurgical product line, we
    intend to focus on developing and commercializing our products
    for new indications and creating product extensions to address
    the unmet needs of the medical community. For example, we
    identified the need for a hemostatic product to control severe
    or brisk bleeding and are developing our hemostatic bio-device
    product candidate with Ethicon to meet that need. In addition,
    we plan to enhance our biosurgical product offering to meet
    surgeons' needs and preferences by developing two product
    extension candidates, our thrombin stand-alone and flowable
    thrombin. In our passive immunotherapy product line, we intend
    to further refine our hyperimmune capabilities and exploit our
    manufacturing know-how to rapidly commercialize products that
    address existing and emerging infectious disease, including
    potential bioterrorism threats. For example, we identified the
    need for a treatment for West Nile virus infection and are
    developing a product candidate that entered clinical trials in
    2003, just three years after the disease was first detected in
    the U.S.
Ø
Develop and Launch Products that Integrate Biological
    Components and Medical Devices for the Biosurgical Market.
We intend to apply our protein purification technology and our
    understanding of device-biological combinations to develop and
    launch novel combination products. We intend to design
    combination products that are more effective in wound closure
    and healing, easier to apply
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and target new indications, such as brisk bleeding. Our
    hemostatic bio-device, comprised of our BAC II and thrombin
    embedded in a biodegradable device, is our first product
    candidate in this area.
Ø
Expand Our Core Technology.
We intend to expand our core
    technology outside the area of protein purification through
    research, internal development and collaborations that will
    allow us access to new markets and indications. We expect our
    technology expansion to include both biologics and synthetics
    targeting healing, site-specific drug delivery and tissue
    regeneration. We intend to continue our efforts to identify
    opportunities to access new and complementary technologies
    through potential acquisitions, licensing, joint ventures and
    collaborations with universities and business organizations. We
    believe that this approach will allow us to efficiently develop
    a broad technology base from which we can deliver a greater
    variety of novel and complementary products.
Ø
Utilize Strategic Collaborations to Develop New Products and
    Enter New Geographic Markets.
We intend to strengthen our
    product pipeline and marketing efforts by capitalizing on the
    technology and worldwide and local marketing and sales
    infrastructure of third party collaborators. In 2005, we entered
    into collaboration agreements with Aeris and Symphony for the
    use of our fibrin sealant for development of product candidates
    for site-specific treatment of tissue and tissue regeneration.
    Also, we intend to increase our global presence through
    collaborations by expanding our sales and marketing efforts to
    various countries, including Japan, which we believe is
    currently the world's largest market for fibrin sealants.
    Our objective in our collaborations is to diversify our
    development risk, develop multiple products with limited
    financial risk, efficiently market our products and quickly
    establish significant market share in new territories.
RESEARCH AND DEVELOPMENT
We conduct research and development in our biosurgical product
line, focusing on developing products with characteristics that
satisfy surgeons' unmet needs. In our passive immunotherapy
product line, we are directing our efforts to developing
products that address immune deficiencies and existing and
emerging infectious diseases, including potential bioterrorism
threats. We have 24 employees directly involved in research and
development in Israel. Our location in Israel allows us access
to research groups in Israel, such as Technion-Israel Institute
of Technology, the Weitzman Institute of Science and Tel Aviv
University. In addition, we collaborate with the NIH in the U.S.
and Paul-Ehrlich-Institut in Germany.
Our research and development activities and the clinical trials
for our product candidates are funded by operations as well as
financial support from our collaborators, which include
commercial and government entities. Our research and
development, clinical and regulatory expenses together with the
cost incurred in connection with funded research and development
were $3.4 million, $3.4 million and $5.1 million
for the years ended December 31, 2002, 2003 and 2004,
respectively.
As of September 30, 2005, we had received grants from the
NIH in connection with the development of our HT-VIG and WNIG
product candidates. Generally we have the right to patent any
technologies developed from government grants, subject to the
U.S. government's right to receive a royalty-free
license for federal government use and to require licensing to
others in certain circumstances.
SALES AND MARKETING
Crosseal/ Quixil is currently marketed and distributed in the
EU, certain other European countries and the U.S. through
Ethicon, our exclusive distributor in those territories. In
addition, Quixil is currently marketed in Mexico through a local
distributor. Other products being developed under the
development agreement with Ethicon, such as Crosseal II/
Quixil II, the thrombin products and the hemostatic
bio-device, will also be exclusively distributed by Ethicon in
those territories for their respective indications.
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In addition, we intend to expand our sales and marketing efforts
into Japan. Further, we plan to collaborate with Ethicon to
promote the usage and acceptance of our fibrin sealants.
We directly market our Quixil, IVIG and HBIG in Israel. In
December 2005, we were awarded a contract by the United Kingdom
government to provide VIG.
MANUFACTURING AND PRODUCTION
We currently manufacture our biosurgical and passive
immunotherapy products in our facility near Tel Aviv,
Israel. Our manufacturing facility layout and design, batch size
spectrum and the application of our technology across products
in both of our product lines gives us the flexibility to
manufacture a variety of products, using our manufacturing lines
for the manufacture of more than one product. In addition, our
variable production batch size allows us to more easily
scale-up
our laboratory
process to a commercial manufacturing level. This reduces the
variation between our research and manufacturing batch sizes,
which increases product equivalency between these two batch
sizes. The ability to produce largely equivalent laboratory and
commercial batch sizes reduces the probability of the FDA
requiring additional clinical testing to demonstrate
equivalence. This versatility allows us to increase the total
output of our manufacturing facility, compared to the use of a
"product dedicated line," reduce the transition time
from laboratory to commercial manufacturing and achieve
manufacturing efficiency by matching unit output for the
Crosseal/ Quixil components, BAC and thrombin.
We believe that our current production capacity is sufficient to
meet our present output requirements. However, we intend to
expand our production operations by building a new production
facility in Jerusalem, Israel which we expect to complete in
2009. We currently expect that the additional production
capacity provided by this new facility will allow us to meet our
supply requirements thereafter.
The various regulatory requirements to which we are subject,
such as the regulations of the FDA, the EMEA and the Israeli
Ministry of Health, require us to adhere to cGMP. This standard
requires manufacturers to follow elaborate design, testing,
control, documentation and other quality assurance procedures
throughout the entire manufacturing process. Our facility was
inspected and approved in 2003 by the FDA. Prior to such
approval our plant was approved by the Medicines Control Agency,
now known as Medicines and Healthcare Products Regulatory
Agency, and the Israeli Ministry of Health as part of the
pre-market approval process for our products. We are also
subject to periodic reinspection of our facility.
Our production process consists primarily of protein extraction
and purification, and includes various safety-enhancing
procedures, including SD virus inactivation, pasteurization and
proprietary nanofiltration.
The raw materials we use in our production processes consist
primarily of human plasma or plasma fractions, synthetic
materials and chemicals and other disposable materials. We
obtain plasma and plasma fractions from FDA-approved collection
centers in the U.S. and from Magen David Adom in Israel. We use
plasma for the manufacture of thrombin, IVIG and hyperimmunes
and, subject to manufacturing economics, we may prefer to use
plasma fractions for the manufacture of these and other
products. The decision to purchase plasma fractions as opposed
to plasma is driven both by the fact that we need only specific
components of plasma for the manufacture of our products, and
the fact that the costs for undertaking the initial purification
processes for plasma are currently higher for us than for other
companies such as plasma fractionators that focus on those
production steps.
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We purchase each of the following raw materials and disposables
for our marketed products from single suppliers:
Ø
nanofiltration filters, which we use for virus removal and
    purchase from Asahi Kasei Pharma Corporation;
Ø
a resin, which we use to remove plasminogen and produce
    BAC II and purchase from Amersham Biosciences AB;
Ø
the specialized application device, which we sell as part of our
    Crosseal/ Quixil product package and purchase from
    PlastMed; and
Ø
tranexamic acid, which we use as a stabilizing agent in the
    current version of Crosseal/ Quixil and purchase from Daiichi
    Pharmaceuticals Co., Ltd.
In the event that any one of these supply arrangements or
agreements are terminated or the ability of any one of these
suppliers to perform under our agreements were to be materially
adversely affected, we anticipate that even if we are able to
locate, qualify and enter into an agreement with a new supplier,
it would take approximately six to twelve months to obtain
regulatory clearance before a new supplier could begin supplying
the relevant product to us. We have long-term agreements with
all of our sole suppliers, except for Daiichi Pharmaceuticals
Co., Ltd.
MATERIAL AGREEMENTS
Ethicon, Inc.
In September 2003, we entered into a development agreement and a
distribution and supply agreement with Ethicon, Inc., a Johnson
and Johnson company. In July 2004, we amended these agreements
to redefine some of the regulatory milestones that had not been
completed to date and to expand the territory in which Ethicon
is permitted to exclusively sell certain of our products (as
further discussed below) to include the U.S. and Canada.
Development agreement
The development agreement requires us and Ethicon to use
commercially reasonable efforts to develop Crosseal II/
Quixil II, thrombin, the hemostatic bio-device and flowable
thrombin in accordance with a development plan approved by us
and Ethicon.
Ethicon is responsible for all of our reasonable development
costs, including costs related to clinical trials and regulatory
filing fees, as well as half of our personnel compensation
costs, incurred by us in connection with the development of the
products under the agreement. Ethicon is also responsible for
the purchase of capital equipment reasonably necessary to
conduct development under the agreement. If we decide to use any
equipment subsequent to the completion of such development, we
may purchase such equipment at fair market value.
Ethicon is obligated to make milestone payments to us upon the
earlier of the first commercial sale of a product developed
under the agreement or 45 days after obtaining U.S. or
EU marketing clearance of each such product.
We have agreed not to commercialize, without allowing Ethicon
the opportunity to participate in, any improvement to either
Crosseal/ Quixil or Crosseal II/ Quixil II in the
U.S. or Canada.
We and Ethicon granted each other royalty-free, non-exclusive
cross licenses to use the other party's intellectual
property rights necessary for the development work contemplated
under the agreement. Intellectual property arising from the
performance of each of our and Ethicon's obligations under
the agreement is owned by the party that developed the
intellectual property, and intellectual property
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developed related to our products belongs to us and any
intellectual property related to Ethicon's products remains
theirs. Intellectual property that is developed jointly is owned
jointly. However, intellectual property related to the process
of integration of our products with the substrate to be included
in the hemostatic bio-device or the flowable thrombin; the
hemostatic bio-device or flowable thrombin or any improvement to
the hemostatic bio-device or flowable thrombin is owned jointly.
There is no obligation under the agreement to account for or to
obtain consent from us or Ethicon in order to exploit the
jointly owned intellectual property.
Under this agreement, Ethicon is responsible for filing and
prosecuting patents for jointly developed intellectual property
related to the hemostatic bio-device and the flowable thrombin,
and we are responsible for filing and prosecuting patents for
jointly developed intellectual property related to
Crosseal II/ Quixil II, BAC II, thrombin and the
process for making the hemostatic bio-device and the flowable
thrombin. Additionally, all regulatory filings for products
developed under the agreement are owned by us, except that the
regulatory filings for the flowable thrombin are owned by
Ethicon.
The initial term of the agreement is until September 2013, but
is subject to earlier termination upon the termination of the
distribution and supply agreement, or the later of achievement
of and payment for all milestones and completion of any
agreed-upon improvements to products being developed under the
agreement. Additionally, the agreement may be terminated by
either party for material breach by, or upon the occurrence of a
bankruptcy event in relation to, the other party.
Distribution and supply agreement
Under the distribution and supply agreement, we granted to
Ethicon the exclusive right, in certain territories, to market,
sell and distribute Crosseal/ Quixil and other fibrin sealant
and hemostasis products that are being developed under the
development agreement in professional medical settings for
hemostasis and sealing indications (excluding dentistry
applications). Ethicon has agreed that we will be its exclusive
supplier of human plasma-derived hemostats and sealants for
these indications. The territories covered by this agreement are
the U.S. and Canada and all their territories and possessions,
the EU, Norway, Iceland, Liechtenstein and Switzerland,
excluding, in the case of Quixil, Portugal. Ethicon has a right
of first refusal with respect to any new territories into which
we may expand, and may expand into new territories upon written
notice to us of its intention to do so, in each case subject to
its obligation to pay for the necessary costs of obtaining
marketing approval in such territories. In consideration of this
exclusive arrangement, Ethicon paid us exclusivity fees, and
upon reaching certain milestones, we may receive further
payments.
Ethicon is obligated to pay us consideration based on the
quantity of Crosseal/ Quixil, Crosseal II/ Quixil II,
thrombin stand-alone and flowable thrombin that it purchases
from us in each quarter. The transfer price paid to us for the
products purchased in a quarter is calculated based on the
average price at which products are sold by Ethicon in that
quarter multiplied by a percentage that is fixed for each
specific product in the relevant year. The transfer price is
adjusted depending on the dollar amount and our scheduled
percentage of Ethicon's net sales during the quarter,
subject to specified minimum and maximum transfer price amounts.
The minimum transfer price is also subject to periodic
readjustments designed to preserve our gross profit margin for
the particular product in the event of regulatory changes that
cause an increase in the unit costs of our cost variables or in
our manufacturing costs for that product. These prices are also
subject to readjustment upon extraordinary increases in our raw
materials or supply costs. In each event, the extent of any
price increase is to be agreed upon between the parties.
The agreement provides for Ethicon to purchase minimum
quantities of our Crosseal/ Quixil, Crosseal II/
Quixil II and thrombin stand-alone. The minimum purchase
amounts are generally based on a percentage of the previous
year's sales of the relevant product by Ethicon. In the
event that Ethicon's sales of these products fall by a
specified percentage over two consecutive years, then we will
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have the right to terminate the agreement with respect to such
products. If we fail to supply a specified minimum percentage of
the binding orders placed by Ethicon for our products within a
specific time period, we will be obligated to pay to Ethicon a
liquidated damages penalty.
We are also obligated to supply Ethicon with certain specified
additional devices and product components on a non-exclusive
basis. Our obligation to supply these devices and components
relates to the same territory as in which any primary product
with which the device or component will be used or sold. The
agreement also requires Ethicon to provide certain materials for
use in connection with our fibrin sealant in some of the
products we are developing under the agreement.
We are required to use commercially reasonable efforts to obtain
and maintain the necessary regulatory approval to market and
sell each product in accordance with the agreement, subject to
Ethicon's obligations to pay development and certain labor
costs and expenses. However, Ethicon is obligated to use
commercially reasonable efforts to conduct, at its expense, the
peripheral vascular surgery study for Quixil in the United
Kingdom and additional studies for an indication in addition to
the current liver surgery indication for Crosseal at up to three
sites in the U.S.
Ethicon is obligated to make certain milestone payments to us:
upon our receipt of FDA approval, prior to the end of fiscal
year 2007, for the commercial distribution of Crosseal in the
U.S. for an indication in addition to liver surgery, and
achievement of specified volume sales of Quixil by Ethicon in
2006 or 2007; and upon achievement of specified volume sales of
Crosseal/ Quixil and Crosseal II/ Quixil II by Ethicon in
2008, 2009 or 2010.
The initial term of the agreement is until September 2013.
Ethicon, at its option, may renew the agreement for an unlimited
number of additional three year periods, exercisable upon at
least 90 days' written notice prior to the date of
termination of the then current term. Ethicon may terminate the
agreement at will at any time after March 23, 2006 by
providing us with at least six months prior written notice,
paying all development costs and one-half of our labor costs
incurred during the six month notice period and making an early
termination payment. Ethicon may also terminate the agreement if
we fail to supply specified minimum percentages of the binding
orders placed by Ethicon for our products. We may terminate the
agreement if Ethicon breaches our exclusive supply arrangement
or fails to make certain minimum purchases. The agreement may
also terminate upon material breach or non-compliance with
applicable law if the breach is not cured, or upon bankruptcy or
similar event.
Medimop Medical Projects Ltd.
Under the agreement between us and Medimop Medical Projects
Ltd., dated June 26, 2005, we have a perpetual, exclusive,
worldwide, royalty-free, fully-paid license to use, manufacture,
exploit, modify, create derivative works of, market, distribute,
sell and exploit all intellectual property rights related to the
mix-ject device, which is part of our application device for
Crosseal/ Quixil and Crosseal II/ Quixil II.
PlastMed Ltd.
On March 25, 2004, we entered into a manufacturing and
supply agreement with PlastMed, appointing PlastMed as our
exclusive manufacturer and supplier of the Crosseal/ Quixil
application device. This agreement was amended on June 30,
2004 in connection with the financing of certain material
required for manufacturing the device.
Our agreement with PlastMed expires in March 2009. Under the
agreement, PlastMed agreed to manufacture the application device
exclusively for us during the term of the agreement and for a
period of 36 months thereafter. In return, we agreed to
order at least 80% of all of our requirements
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for the application device from PlastMed during the term of the
agreement. In addition, we agreed not order the supply or
manufacture of the application device, or any other product or
device, from any of PlastMed's subcontractors or suppliers
for a period of four years after the termination of the
agreement.
Under the terms of the agreement, with PlastMed's
assistance, we are required to obtain regulatory approval in the
U.S. and the EU for the manufacture of the application device.
We also agreed to indemnify PlastMed if the application device
is supplied in and causes harm or damage in a territory where no
applicable laws, statutes or orders exist as to its proper
design, construction and quality.
Upon termination of the agreement, subject to certain
conditions, PlastMed has a right of first refusal in the event
that we seek to order additional quantities of the application
device from another supplier. Upon exercise of this right, the
agreement will be automatically renewed for an additional period
of one year.
United Kingdom Department of Health
In December 2005, we were awarded a contract by the United
Kingdom to provide VIG to the United Kingdom Department of
Health. Under our agreement with them, we expect to receive
approximately £11.5 million (approximately
$20 million) through the end of the third quarter of 2006.
The term of the agreement expires in December 2006. The
Department of Health has the right to extend the term for one
additional year, upon written notice to us given no later than
three months before the agreement would otherwise expire. The
Department of Health has the right to terminate the agreement if
we fail to deliver VIG within the time stated or agreed upon. In
addition, the Department of Health may at any time terminate the
agreement by giving three months written notice to us.
Magen David Adom in Israel
On September 5, 1995, we entered into an assignment
agreement with Octapharma A.G. and Magen David Adom, or MDA, an
Israeli not-for-profit organization. Under this agreement,
Octapharma A.G. assigned all its rights and obligations to us
under its know-how, license and manufacturing contract, dated
September 2, 1990 with MDA. On April 17, 1997, we
entered into a lease and operation agreement with MDA, which
terminated and replaced in its entirety our outstanding
know-how, license and manufacturing contract with MDA. On
July 20, 2000, this lease and operation agreement was
terminated in its entirety and replaced by a new lease and
operation agreement, which was subsequently amended on
December 16, 2004.
Under our lease and operation agreement with MDA, as amended, we
lease our manufacturing facility and some machinery and
equipment from MDA and purchase plasma from MDA under certain
terms. In addition, we have agreed, upon the termination of our
agreement, to grant MDA a license to manufacture certain
licensed products, which include Factor VIII, albumin and IVIG,
as well as other new products, then registered in Israel, and
market and sell these products only in Israel, as described
below.
Our agreement with MDA terminates on December 31, 2010.
After December 31, 2007, we have the right to terminate
this agreement by giving 12 months advance written notice
to MDA. If we exercise this early termination right, we will be
required to pay MDA an amount equal to $500,000 per year,
or such pro rata amount for a part of a year, from the date of
termination until December 31, 2010. In addition, subject
to certain conditions, we have a right to terminate this
agreement if MDA refuses to finance or bear the costs associated
with certain compulsory investments, as described below.
Under the terms of this agreement, we are required to maintain
an unconditional bank guarantee in the amount of $250,000 in
order to secure various payments due to MDA. Such guarantee is
to be
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maintained for a period of six months after we vacate the
manufacturing facility. In addition, we have provided MDA with a
security interest on our inventory of uncompleted products and
raw materials.
Lease and manufacturing
Under the terms of the agreement, we lease our manufacturing
facility and some machinery and equipment from MDA in return for
a rent and lease fee in the amount of $700,000 plus 1% of the
sales of all products that were sold to third parties in each
fiscal year, minus certain deductions, which fee shall not be
less than $1.1 million and not more than $2.0 million
per year.
Under the terms of the agreement, to the extent we purchase
plasma from MDA that is collected from donors in Israel, we are
required to give priority to the manufacture of licensed
products from such plasma that is required for local use in
Israel and ordered from us.
Upon termination of this agreement, we are obligated to leave
the manufacturing facility in good working condition and capable
of manufacturing all the licensed products. Upon termination of
this agreement at any time after January 1, 2007, if the
manufacturing facility is not capable of manufacturing all of
the licensed products and MDA wishes to do so, then we are
responsible for the cost of replacing any missing manufacturing
equipment, up to a maximum of 50% of the grant, which grant is
equal to the unused portion of $4.5 million that MDA does
not spend on certain compulsory investments.
Investments in the manufacturing facility
Compulsory Investments.
As a result of new laws,
regulations, directives, requirements or instructions by
authorities, certain compulsory investments in the manufacturing
facility might be necessary to preserve appropriate licenses
required to market products. The costs associated with these
compulsory investments will be borne by us, MDA or both of us,
depending on whether the prices of our products can be increased
as a result of the compulsory investments. If we are able to
increase the prices of our products, then the full cost for the
compulsory investments shall be borne by us, and we will sell
any such equipment or investment to MDA upon the termination of
this agreement. If we are not able to increase the prices of our
products, then the cost for the compulsory investments shall be
borne by MDA and us, in equal parts or at any other ratio as
determined by a steering committee comprised of MDA's and
our personnel. Notwithstanding the foregoing, MDA shall bear
100% of the costs related to any compulsory investments required
by Israeli regulatory authorities as a result of the location of
the manufacturing facility.
Under the agreement, we have agreed to finance all of the
required compulsory investments until December 31, 2006,
including MDA's share, which we are entitled to offset
against the rent and lease fee, provided that the rent and lease
fee received by MDA in any given year during such period shall
not be less than $1.0 million.
In the event that the required compulsory investments are of a
substantial magnitude or are required after January 1,
2006, we are entitled to refuse to finance or bear the cost of
such investments. Subsequent to our refusal, MDA will be
entitled to finance or refuse to finance such compulsory
investments. If MDA refuses to finance or bear the cost of such
compulsory investments, we will have the option to terminate our
agreement or carry out the compulsory investments. Additionally,
MDA shall be entitled to refuse to participate in such
compulsory investments, even if we are prepared to finance them,
if the requirement for such compulsory investment was not issued
by a competent Israeli authority and MDA's part in such
investment exceeds a specified amount in a given time frame.
Discretionary Investments.
If we install new items of
equipment in the manufacturing facility or make any other
investments not essential to preserving appropriate licenses and
to maintaining our ability to market products, we will bear the
costs associated with such discretionary investments. Upon the
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termination of our agreement, we may, at our option, remove from
the manufacturing facility any such equipment that is easily
removable, or sell it to MDA. Any new equipment that becomes an
inseparable part of the manufacturing facility shall be
purchased by MDA at a price negotiated in good faith by MDA and
us. In the event that MDA does not operate the manufacturing
facility during the five years after we vacate the premises, MDA
will be released from its obligation to purchase this equipment
from us and we will be entitled to remove it.
Plasma
Under the terms of the agreement, we are required to notify MDA
at the beginning of each quarter which products we intend to
manufacture from its plasma. Every two quarters, an accounting
is made whereby we pay MDA for the amount of plasma actually
used in the manufacture of our products. However, if MDA finds a
buyer for its plasma that is willing to pay higher prices than
those specified in our agreement, then we will have the right of
first refusal to purchase such plasma for the same price as the
third party is willing to pay. We have elected not to exercise
this right of first refusal for the fiscal year 2006.
Intellectual property
Upon the termination of this agreement on December 31,
2010, we will grant MDA a royalty free, perpetual and
non-transferable license to manufacture all of the licensed
products based on our know-how, as well as any new products that
are either registered as a new patent or as a new pharmaceutical
product with the Registrar of Medical Preparations in the
Israeli Ministry of Health, and to market and sell these
products in Israel.
Upon the expiration or termination of this agreement at any time
after December 31, 2006, we are obligated to favorably
consider a request by MDA to obtain from us a license granting
MDA the right to manufacture and sell in Israel, products that
we manufactured at the manufacturing facility.
In addition, for a period to be agreed upon during the last year
of our operation of the manufacturing facility, we agreed to
train, at MDA's cost, a few of MDA's key personnel in
the operation of the manufacturing facility so that MDA may
continue operating the manufacturing facility after the
termination of our agreement.
INTELLECTUAL PROPERTY
Our success will depend in large part on our ability to maintain
a proprietary position in our products and product candidates
through a combination of patents and trade secrets. We rely upon
patents, trade secrets, know-how and continuing technological
innovation to develop and maintain our competitive position. We
plan to aggressively protect and defend our proprietary
position. As of September 30, 2005, we owned 11
U.S. patents and four patent applications related to our
protein purification technology and the design of our products.
We also own 72 patents and 30 patent applications in
foreign countries related to this technology.
We believe that our patents and our existing products and
product candidates do not infringe upon intellectual property
rights of others, however it is possible that our existing
patent rights may be challenged and found invalid or found to
violate proprietary rights of others. In the event any of our
products are challenged as infringing, we would be required to
modify the design of the product, obtain a license or litigate
the issue. We may not be able to finance costly patent
litigation, obtain licenses or modify our products in a timely
manner or at all. Failure to defend a patent infringement action
or to obtain a license or implementation of modifications would
have a material adverse effect on our continued operations.
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Business
In addition to our patents, other intellectual property and
know-how, including the parts of our protein purification
technology that we have produced and own, we seek to establish
trade secret protections and contractual safeguards such as
confidentiality and proprietary information agreements. The
development of our technology and many of our processes are
dependent upon the knowledge, experience and skills of key
scientific and technical personnel. In an effort to protect our
rights to this proprietary information and technology, which are
not patented, we require all employees, consultants and advisors
to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside our
company. Further, as a matter of company policy, all scientific
and technical employees have executed agreements that generally
require disclosure and assignment to us of ideas, developments,
discoveries and inventions made by them. However, these
agreements may not effectively prevent disclosure of our
confidential information or provide meaningful protection for
our confidential information if there is unauthorized use or
disclosure.
COMPETITION
The biotechnology and biopharmaceutical industries are
characterized by rapidly evolving technology and intense
competition. Our competitors include pharmaceutical,
biopharmaceutical, chemical and biotechnology companies, many of
which have financial, technical and marketing resources
significantly greater than ours. In addition, many specialized
companies have formed collaborations with large, established
companies to support research, development and commercialization
of products that may be competitive with our products.
Accordingly, our competitors may succeed in obtaining patent
protection, receiving marketing approval from the FDA, EMEA or
other regulatory authorities and commercializing products more
rapidly than us. Academic institutions, government agencies and
other public and private research organizations are also
conducting research activities and seeking patent protection,
and may commercialize products on their own or through joint
venture arrangements.
Biosurgical competition
We compete in the advanced biosurgical hemostats market, which
includes surgical sealants and synthetic glues. A number of
companies, such as Baxter International Inc. and CryoLife, Inc.
market fibrin sealants, glues and collagen for hemostatic
applications. In addition, Baxter,
ZLB-Behring
LLC and
Nycomed A/S all market fibrin sealants. Of these, we believe
that Baxter, which markets Tisseel VH in the U.S., is our main
competitor in this territory, being the manufacturer of the only
other FDA-approved fibrin sealant. In Europe, our main
competitors include Baxter, which markets Tissucol, and Nycomed,
which markets Beriplast (manufactured by
ZLB-Behring),
TachoComb H and TachoSil.
ZLB-Behring
markets
Beriplast and Tachocomb in Japan. TachoComb H and TachoSil,
unlike other fibrin sealants, embed the fibrin sealant in a
solid substrate. The substrate of TachoComb contains bovine and
equine proteins, while the substrate of TachoSil contains equine
proteins. Beriplast also contains bovine proteins. Currently,
Crosseal/ Quixil is the only commercially available liquid
fibrin sealant that, among other features, is completely free of
bovine proteins.
In the market for thrombin products, our human thrombin
stand-alone product candidate would compete mainly in the
U.S. with bovine-derived thrombin products marketed by King
Pharmaceuticals, Inc., for the same indications. In addition,
Baxter markets FloSeal, a bovine-based gelatin combined with
human thrombin, which would compete with our flowable thrombin
product candidate. ZymoGenetics, Inc. is developing a
recombinant thrombin product which does not contain bovine or
equine proteins and has entered Phase III clinical trials.
Further, Haemacure Corporation has announced plans to develop a
human thrombin product which could compete with our thrombin
stand-alone product.
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Business
In addition to these products, our products also compete with
fibrin sealants and other biosurgical products that are prepared
on site by medical staff from the plasma of the patient prior to
undergoing surgery. ThermoGenesis Corp.'s CryoSeal FS
System, a thrombin and fibrin system, is an example of such a
product candidate. ThermoGenesis has completed Phase III
clinical trials for CryoSeal FS System.
Passive immunotherapy competition
In the passive immunotherapy market, our VIG product competes
with immunoglobulin products marketed by DynPort Vaccine Company
LLC and Cangene Corporation for the same indication. Our
HT-VIG
product
candidate is the only high titer passive immunotherapy that we
are aware of. Existing VIG products would compete with
HT-VIG.
Our WNIG
product candidate is the only passive immunotherapy for West
Nile fever that we are aware of. The other treatment for the
West Nile fever is the administration of general anti-viral
drugs. In addition, there are many general IVIG manufacturers,
any of which can enter the Israeli general IVIG market at any
time.
GOVERNMENT REGULATION
Government authorities in the U.S. and other countries
extensively regulate the research, development, testing,
manufacture, labeling, promotion, advertising, distribution and
marketing, among other things, of drugs, biologics and medical
devices under the Federal Food, Drug, and Cosmetic Act and
implementing regulations. Failure to comply with applicable
U.S. requirements, both before and after approval, may
subject us to administrative and judicial sanctions, such as a
delay in approval or refusal by the FDA to approve pending
applications, warning letters, product recalls, product
seizures, total or partial suspension of production or
distribution, injunctions, and/or criminal prosecution.
The steps required before a new drug or biological product may
be marketed in the U.S. include: pre-clinical laboratory
and animal tests and formulation studies; submission to the FDA
of an investigational new drug exemption, or IND, for human
clinical testing, which must become effective before human
clinical trials may begin; adequate and well-controlled clinical
trials to establish the safety and effectiveness of the product
candidate for each indication; submission to the FDA of a new
drug application, or NDA, for a drug product or a Biologics
License Application, or BLA, for a biological product;
satisfactory completion of an FDA inspection of the
manufacturing facility or facilities at which the drug is
produced to assess compliance with regulatorily-prescribed cGMP;
and FDA review and approval of the NDA or BLA.
Pre-clinical tests include laboratory evaluations of product
chemistry, toxicity and formulation, as well as animal studies.
The results of the pre-clinical tests, together with
manufacturing information and analytical data, are submitted to
the FDA as part of an IND, which must become effective before
human clinical trials may begin. An IND will automatically
become effective 30 days after receipt by the FDA, unless
before that time the FDA raises concerns or questions about
issues such as the conduct of the trials as outlined in the IND.
In such a case, the IND sponsor and the FDA must resolve any
outstanding FDA concerns or questions before clinical trials can
proceed.
Clinical trials involve the administration of the
investigational drug to human subjects under the supervision of
qualified physician-investigators and healthcare personnel.
Clinical trials are conducted under protocols detailing, for
example, the parameters to be used in monitoring patient safety
and the safety and effectiveness criteria, or endpoints, to be
evaluated. Each protocol must be submitted to the FDA as part of
the IND.
Clinical trials are typically conducted in three defined phases,
but the phases may overlap or be combined with each other. Each
trial must be reviewed and approved by an independent
Institutional Review Board before it can begin. Phase I
usually involves the initial introduction of the investigational
product candidate into people to evaluate its safety, dosage
tolerance, pharmacodynamics and, if
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Business
possible, to gain an early indication of its effectiveness.
Phase II usually involves trials in a limited patient
population to evaluate dosage tolerance and appropriate dosage;
identify possible adverse side-effects and safety risks; and
preliminarily evaluate the effectiveness of the product
candidate for specific indications. Phase III trials
usually further evaluate clinical effectiveness and test further
for safety by using the product candidate in its final form in
an expanded patient population.
We cannot guarantee that Phase I, Phase II or
Phase III clinical trials will be completed successfully
within any specified period of time, if at all. Furthermore, we,
the FDA or another party may suspend or terminate clinical
trials at any time on various grounds, including a finding that
the patients are being exposed to an unacceptable health risk.
Assuming successful completion of the required clinical testing,
the results of the preclinical studies and the clinical studies,
together with other detailed information, including information
on the manufacture and composition of the product candidate, are
submitted to the FDA in the form of an NDA or BLA requesting
approval to market the product candidate for one or more
indications. Before approving an application, the FDA usually
will inspect the facility or the facilities at which the product
candidate is manufactured, and will not approve the product
candidate unless cGMP compliance is satisfactory. If the FDA
determines the application and the manufacturing facilities are
acceptable, the FDA will issue an approval letter. If the FDA
determines the application of manufacturing facilities are not
acceptable, the FDA may outline the deficiencies in the NDA or
BLA and often will request additional testing or information.
Notwithstanding the submission of any requested additional
testing or information, the FDA ultimately may decide that the
application does not satisfy the regulatory criteria for
approval. After approval, certain changes to the approved
product candidate, such as adding new indications, manufacturing
changes, or additional labeling claims are subject to further
FDA review and approval. The testing and approval process
requires substantial time, effort and financial resources, and
we cannot be sure that any approval will be granted on a timely
basis, if at all.
We may seek fast track designation for some of our products.
Fast track products are those that are intended for the
treatment of a serious or life-threatening condition and that
demonstrate the potential to address unmet medical needs for
such a condition. Fast track products are eligible for two means
of potentially expediting product development and FDA review of
NDAs. First, a fast track product may be approved on the basis
of either a clinical endpoint or a surrogate endpoint that is
reasonably likely to predict clinical benefit. Approvals of this
kind may be subject to requirements for appropriate
post-approval studies to validate the surrogate endpoint or
otherwise confirm the effect on the clinical endpoint, and to
certain other conditions. Second, if the FDA determines after
review of preliminary clinical data submitted by the sponsor
that a fast track product may be effective, it may begin review
of portions of an NDA or BLA before the sponsor submits the
complete NDA or BLA, thereby accelerating the date on which
review of a portion of the NDA or BLA can begin. There can be no
assurance that any of our other product candidates will receive
designation as fast track products. And even if they are
designated as fast track products, we cannot assure you that our
product candidates will be reviewed or approved more
expeditiously for their fast track indications than would
otherwise have been the case or will be approved promptly, or at
all. Furthermore, the FDA can revoke fast track status at any
time.
Pursuant to the Orphan Drug Act, FDA may designate a drug
intended to treat a "rare disease or condition" as an
"orphan drug." A "rare disease or
condition," is generally one that affects fewer than
200,000 people in the U.S. Orphan drug designation must be
requested before submitting a NDA or BLA. Orphan drug
designation does not convey any advantage in, or shorten the
duration of, the regulatory review and approval process. If a
product which has an orphan drug designation subsequently
receives the first FDA approval for the indication for use for
which it has such designation, the product is entitled to
exclusive marketing rights in the U.S. for seven years,
meaning that FDA may not approve any other applications to
market the same drug for the same indication
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Business
during that period, except in limited circumstances. Orphan
drugs may also be eligible for federal income tax credits for
certain clinical trial expenses. FDA has accepted WNIG into the
orphan drug program. However, the Orphan Drug Act could be
repealed, amended or reinterpreted in ways that may adversely
effect the development of WNIG. Further, even if designated as
orphan drug, our products may not be approved before other
applications and granted orphan drug exclusivity if approved.
Therefore, we cannot assure you as to the precise scope of
protection that may be afforded by an orphan drug designation in
the future.
In addition, holders of an approved NDA or BLA are required, for
example, to report certain adverse reactions and production
problems, if any, to the FDA, and to comply with certain
requirements concerning advertising and promotional labeling for
their products. Also, quality control and manufacturing
procedures must continue to conform to cGMP after approval, and
the FDA periodically inspects manufacturing facilities to assess
compliance with cGMP. Accordingly, manufacturers must continue
to expend time, money and effort in the area of production and
quality control to comply with cGMP and other aspects of
regulatory compliance.
Some of our products which have a lower potential safety risk to
the intended user or patient, and which have similar,
competitive products previously cleared by the FDA for the same
intended indication, may utilize a simpler and shorter
regulatory path called a Premarket Notification or a 510(k)
application to gain commercial access to the marketplace. This
regulatory process requires that we demonstrate substantial
equivalence to a product which was on the market prior to
May 29, 1976, or which has been found substantially
equivalent after that date.
Our research and development operations involve the use of
hazardous materials, including chemicals like acetones and
hexanes, radioactive materials like
carbon-14
and tritium,
and biological materials such as human plasma. Federal, state
and local laws and regulations govern the use, manufacture,
storage, handling and disposal of these materials. Our capital
expenditures and costs to comply with these laws and regulations
have not been a material part of our operating expenses to date.
For at least the next two to three years, we do not anticipate
that we will be required to make material capital expenditures
for environmental control facilities in order to comply with
these regulations.
In addition, our product candidates under development will be
subject to a wide variety of foreign regulations governing the
development, manufacture and marketing of our product
candidates. Whether or not FDA approval has been obtained,
approval of a product candidate by the comparable regulatory
authorities of foreign countries must still be obtained prior to
manufacturing or marketing the product candidate in those
countries. The approval process varies from jurisdiction to
jurisdiction and the time needed to secure approval may be
longer or shorter than that required for FDA approval. We cannot
assure you that clinical trials conducted in one country will be
accepted by other countries or that approval in one country will
result in approval in any other country.
EMPLOYEES
As of December 31, 2005, we had approximately 150 employees
at the following locations: our manufacturing facility in Kiryat
Ono, near Tel Aviv, Israel, research and development facility in
Rechovot, Israel, regulatory affairs, marketing and logistics
support offices in Brussels, Belgium and our headquarters in New
York, New York. Of these employees, 15 hold Ph.D. degrees. With
the exception of one employee, all of our employees are
full-time; 24 of these are directly involved in research and
development, and approximately 100 are involved in manufacturing
operations, including quality assurance and regulatory affairs.
We are subject to local labor laws and regulations with respect
to our employees in those jurisdictions. These laws principally
concern matters such as paid annual vacation, paid sick days,
length of the
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Business
workday and work week, minimum wages, pay for overtime,
insurance for work-related accidents, severance pay, and other
conditions of employment.
In particular, by order of the Israeli Ministry of Labor and
Welfare, we and our Israeli employees are subject to provision
of the collective bargaining agreements between the Histadrut,
the General Federation of Labor in Israel, and the Coordination
Bureau of Economic Organizations, including the Industrialists
Associations. These provisions principally concern cost of
living increases, recreation pay, and other conditions of
employment. We believe that the benefits and working conditions
that we provide to our employees are above the required minimum.
Our employees are not represented by a labor union. We have
written employment contracts with virtually all of our employees
and we believe that our relations with our employees are
satisfactory.
FACILITIES
We currently lease approximately 54,000 square feet of
office, manufacturing, laboratory and warehousing space in
Kiryat Ono, near Tel Aviv, Israel. Our current space is adequate
to support our current operations, although we anticipate that
we will need additional space in order to increase our
manufacturing capacity. The lease expires December 2010.
We also lease approximately 15,000 square feet of office
and laboratory research space in Rechovot, Israel, which we use
to conduct our research and development activities. This lease
expires June 2008.
Our European regulatory affairs, marketing and logistics support
offices are located in a leased office space in Brussels,
Belgium. This lease expires in 2008.
In addition, our headquarters are located in a leased office
space at 708 Third Avenue New York, New York 10017. This
lease expires on April 31, 2006. Upon expiration, the lease
will be automatically new for successive three months intervals
unless earlier terminated by either party upon advance written
notice prior to the expiration date of the then current term.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
We may, from time to time, become involved in litigation or
other adversarial proceedings based on commercial, product
liability or other claims.
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Management
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is the name, age, position and a brief account
of the business experience of each of our executive officers and
directors as of January 1, 2006:
Name
Age
Position(s)
Robert Taub
58
President, Chief Executive Officer and Director
Nissim Mashiach
45
Senior Vice President, Operations
Michael Burshtine
41
Senior Vice President and Chief Financial Officer
Philippe Romagnoli
58
Vice President and Secretary
Fredric D. Price
60
Chairman of the Board
Jos B. Peeters
58
Director
Steven St. Peter, M.D.
39
Director
Douglas A. Cotter, Ph.D.
62
Director
Robert Taub
has served as our President, Chief Executive
Officer and a member of our board of directors since the
founding of Omrix in 1998. Prior to establishing Omrix,
Mr. Taub was the co-founder of Octapharma A.G., a Swiss
plasma fractionation and pharmaceutical company, which
successfully introduced innovative plasma derivative products to
the market. During his time at Octapharma, from 1983 to 1995,
the company underwent a successful transformation from a
start-up
operation to
an integrated manufacturing enterprise. He also founded a
research and development group in Israel and initiated and
directed the management of a biological fibrin sealant
development project. Prior to Octapharma, Mr. Taub held
various general management and sales and marketing positions
with Armour Pharmaceutical, Revlon Health Care Group, Baxter
Travenol Laboratories, Inc., now Baxter International Inc., and
Monsanto Company. He has a B.A. in languages from the University
of Antwerp and an M.B.A. from INSEAD (the European Institute of
Business Administration) in Fontainebleau, France.
Nissim Mashiach
has served as our Senior Vice President,
Operations since 2000 and was our plant manager from 1998 to
2000. From 1991 to 1998, he served in various production and
operations management positions with Perio Products Ltd., a
privately held medical devices manufacturer located in
Jerusalem, Israel. Mr. Mashiach holds a B.Sc. in chemical
engineering from the Technion in Haifa, Israel, an Mpharm.Sc.
from the Hebrew University in Jerusalem, Israel and an M.B.A.
from the University of Manchester.
Michael Burshtine
has served as our Senior Vice President
and Chief Financial Officer since April 2004. From October 2001
to April 2004, he was the senior partner at Kesselman Corporate
Finance PricewaterhouseCoopers in Tel Aviv, Israel. From January
1999 to October 2001, he was an audit and transaction support
partner at Kesselman & Kesselman PricewaterhouseCoopers
in Tel Aviv, Israel. From 1992 to 1999, he was a certified
public accountant at Shachak Peer Reznick & Co. in Tel
Aviv, Israel, including the last two years as a partner.
Mr. Burshtine is a certified public accountant in Israel
and has a B.A. in economics and accounting and an M.B.A. from
Tel-Aviv
University.
Philippe Romagnoli
has served as our Vice President and
Secretary since April 2004. From September 2002 to April 2004,
he was our interim Chief Financial Officer and a member of our
board of directors. Prior to joining Omrix, from 1998 to 2002,
he was the chairman of the board of Artesia Bank and from 1992
until 1998, the chief executive officer of Banque Paribas
Belgium. Mr. Romagnoli holds an engineering degree with a
specialty in physics from the University of Liège Belgium.
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Management
Fredric D. Price
has served as the chairman of our board
of directors since January 2005. Since August 2004, he has been
the chairman of the Empirical Physician & Patient
Information Census, or EPPIC and a member of the general
partnership of BioDevelopment Ventures. From October 2000 to
August 2004, he was chairman of the board of directors and chief
executive officer of BioMarin Pharmaceutical Inc. During his
time at BioMarin, the company underwent a successful
transformation from an early stage R&D organization to a
fully integrated biotech company. From 1994 to 2000, he was
president, chief executive officer and director of Applied
Microbiology, a biotechnology and nutrition company. His prior
experiences include having been vice president of finance and
administration and chief financial officer of
Regeneron Pharmaceuticals, Inc., a founder of the strategy
consulting firm RxFDP, and a vice president of Pfizer
Pharmaceuticals with both line and staff responsibilities.
Mr. Price received a B.A. from Dartmouth College and an
M.B.A. from the Wharton School of the University of Pennsylvania.
Jos B. Peeters, Ph.D.
has served as a member of our
board of directors since 1999. Since January 1993 he has
been the managing partner of Capricorn Venture Partners NV.
From September 1985 to October 1992, he worked as managing
director at BeneVent Management NV. He has a Ph.D. in solid
state physics from the University of Leuven, Belgium. He is a
managing director of Easdaq NV, the successor company of
Nasdaq Europe NV, which operates a pan-European Stock
Market for growth companies. He is chairman of Quest for
Growth NV and a board member of Innogenetics NV.
Steven St. Peter, M.D.
has served as a member
of our board of directors since February 2004. He joined
MPM Capital L.P. as a principal in 2004 and became a
general partner in 2005. Prior to joining MPM, from 2001 to
2003, he was a principal at Apax Partners and from 1999 to 2001,
he was a senior associate at The Carlyle Group. His investment
scope has included both venture and buyout transactions across
the medical technology and biopharmaceutical industries.
Dr. St. Peter is board certified in internal medicine and
was previously an assistant clinical professor of Medicine at
Columbia University. He completed his Doctor of Medicine at
Washington University. Prior to his medical training, he was an
investment banker at Merrill Lynch. He also holds an M.B.A. from
the Wharton School of the University of Pennsylvania and a B.A.
in Chemistry from the University of Kansas. He is a director of
Helicos BioSciences Corporation, PharmAthene, Inc. and Xanodyne
Pharmaceuticals Inc.
Douglas A. Cotter, Ph.D.
has served as a member of
our board of directors since November 2005. From 1985 to 1996,
1998 to 2000 and since 2003, Dr. Cotter has been the
president of Healthcare Decisions, Inc., a private health care
and biotechnology consulting firm specializing in corporate
development and acquisitions. From 2000 to 2002, he was a senior
vice president of Leerink Swann and Company, an investment
banking firm focusing on life science and medical corporations.
Between 1996 and 1998, Dr. Cotter was vice president of
Decision Resources, a consulting firm specializing in the health
care industry, primarily pharmaceuticals. Dr. Cotter is
also a director of Respironics Inc.
BOARD COMPOSITION
Upon completion of this offering, we will have an authorized
board of directors comprised of five members, which we believe
will be compliant with the independence criteria for boards of
directors under applicable law. We will continue to evaluate our
compliance with these criteria over time. To the extent we deem
necessary, we will seek to appoint additional independent
directors.
Our certificate of incorporation provides that the authorized
number of directors may be changed only by resolution adopted by
a majority of our board of directors.
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Management
BOARD COMMITTEES
Audit committee
Our audit committee is comprised of Fredric D. Price (chairman),
Jos B. Peeters and Douglas A. Cotter. Fredric
D. Price is independent as defined under Nasdaq rules. The
board of directors has determined that Fredric D. Price is
an "audit committee financial expert" as defined under
SEC rules and regulations by virtue of his business background
and experience described under "Executive officers and
directors" above.
Our audit committee is responsible for, among other things:
Ø
overseeing the accounting and financial reporting processes and
    audits of our financial statements;
Ø
appointing an independent registered public accounting firm to
    audit our financial statements;
Ø
overseeing and monitoring:
-
the integrity of our financial statements;
-
our compliance with legal and regulatory requirements as they
    relate to financial statements or accounting matters;
-
our independent auditor's independence and
    performance; and
-
our internal accounting and financial controls;
Ø
preparing the report that SEC rules require be included in our
    annual proxy statement or annual report on
    Form
10-K;
and
Ø
providing management with the results of its monitoring and
    recommendations.
Compensation committee
Our compensation committee is comprised of Douglas A. Cotter
(chairman), Fredric D. Price and Jos B. Peeters. Our
compensation committee is responsible for, among other things:
Ø
reviewing and approving executive compensation plans for our
    chief executive officer and other executive officers;
Ø
reviewing and making recommendations to the board of directors
    regarding the compensation policy for such other officers as
    directed by the board;
Ø
reviewing and making recommendations to the board of directors
    regarding general compensation goals and guidelines for
    employees;
Ø
reviewing and making recommendations to the board of directors
    regarding general guidelines for the issuance of options and
    other forms of equity based compensation to all employees and
    consultants;
Ø
preparing a report to be included in our annual proxy statement
    or annual report on
    Form
10-K;
and
Ø
acting as administrator of our current benefit plans, including
    making recommendations for amendments to the plans.
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Management
Nominating and corporate governance committee
Our nominating and corporate governance committee is comprised
of Fredric D. Price (chairman), Steven St. Peter and Robert
Taub. Our corporate governance and nominating committee is
responsible for, among other things:
Ø
reviewing board composition, procedures and committees, and
    making recommendations on these matters to the board of
    directors;
Ø
reviewing, soliciting and making recommendations to the board of
    directors and stockholders with respect to candidates for
    election to the board; and
Ø
overseeing compliance by the board of directors and management
    with our corporate governance principles and ethics standards
    and code of conduct.
DIRECTOR COMPENSATION
We provide cash compensation and stock options to non-employee
members of our board of directors for serving on our board of
directors. After the closing of this offering, we will pay each
of our non-employee directors $30,000 per year for serving
on our board of directors. We provide an additional payment of
$90,000 per year to Fredric D. Price for service as
chairman of the board of directors. In addition to compensation
for board services, we will pay the members of our committees,
other than the chairman, $7,500 per year to each member of
our audit committee and $5,000 per year to each member of
our compensation committee and governance and nominating
committee. We will pay the chair of the audit committee $15,000
and the chairs of each of the compensation committee and
governance and nominating committee $10,000. The aggregate
compensation paid to Fredric D. Price will not exceed $120,000,
notwithstanding service on any of our committees. Members of our
board of directors are reimbursed for some expenses in
connection with attendance of board and committee meetings.
In January 2005, we granted stock options to Fredric D. Price to
purchase up to 300,000 shares of our common stock pursuant
to our 2004 Equity Incentive Plan. In addition, in December
2005, we granted stock options to Douglas A. Cotter to purchase
up to 30,000 shares of our common stock pursuant to our
2004 Equity Incentive Plan. Following the completion of this
offering, each newly appointed non-employee director will be
eligible to participate in our equity incentive plan and will be
granted stock options to purchase 30,000 shares of
common stock for his or her service on our board of directors
upon joining the board of directors, as described in the section
of this prospectus entitled "Employee benefit plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
Our compensation committee is comprised of Douglas A.
Cotter (chairman), Fredric D. Price and Jos B.
Peeters. None of the members of our compensation committee was
at any time during 2004 one of our officers or employees. No
member of our compensation committee and none of our executive
officers serve as a member of the board of directors or
compensation committee of any entity that has one or more
executive officers serving as a member of our board of directors
or compensation committee.
EXECUTIVE COMPENSATION
Summary compensation table
The following table presents compensation information for 2005
paid to or accrued for our chief executive officer and the next
four most highly compensated executive officers whose annual
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Management
compensation exceeded $100,000 for the fiscal year ended
December 31, 2005, whom we refer to in this prospectus as
the "named executive officers."
2005 Annual compensation
Long-term compensation
Other
Restricted
Securities
annual
stock
underlying
All other
Name and principal positions
Salary
Bonus
(1)
compensation
awards
options
compensation
Robert Taub
Chief Executive Officer
$
350,000
$
100,000
$
51,059
(2)
$
—
—
$
12,910
(3)
Nissim Mashiach
Senior Vice President, Operations
187,541
74,766
27,968
(4)
—
50,000
69,958
(5)
Michael Burshtine
Senior Vice President and
Chief Financial Officer
170,000
55,000
28,229
(6)
104,165
(7)
350,000
34,350
(8)
Philippe Romagnoli
Vice President and Secretary
166,008
—
—
—
—
—
Martin
    Knopf
(9)
Vice President, Business Development
120,120
10,200
(10)
7,592
—
296,296
$
96,250
(11)
(1)
Includes bonuses paid in the first quarter of 2006 for
    services rendered during 2005.
(2)
This amount includes $15,297 for a leased car and $27,273 for
    payment of health insurance premiums.
(3)
This amount represents $12,910 for life insurance
    premiums.
(4)
This amount includes $14,956 for a leased car and $9,755 for
    a tax related reimbursement.
(5)
This amount includes $26,547 for vacation redemption, $14,063
    for deposits in a short term savings plan and $29,348 for life
    insurance and certain other retirement benefits typically
    provided in Israel.
(6)
This amount includes $22,037 for a leased car.
(7)
This amount represents the value of a grant of
    20,833 shares of restricted common stock calculated based
    upon the fair market value of our common stock on
    December 31, 2005, which was $5.00 per share.
(8)
This amount includes $11,268 for deposits in a short term
    savings plan and $23,081 for life insurance and certain other
    retirement benefits typically provided in Israel.
(9)
Martin Knopf, who served as our Vice President, Business
    Development, ceased working with us in July 2005.
(10)
Subject to final adjustment upon the completion of the audit
    of the financial statements for the year ended December 31,
    2005.
(11)
This amount represents a termination payment.
Stock option grants in last fiscal year
The following table presents information regarding grants in
2005 of stock options to the named executive officers. Options
and restricted stock granted to our named executive officers
were granted under our 2004 Equity Incentive Plan. Generally,
25% of the shares subject to the options and the restricted
stock granted to employees vest one year from the date of grant
and thereafter vest in equal installments of 25% on the next
three anniversaries of the date of grant. Unvested shares
subject to the
83
Management
options and the restricted stock held by our named executive
officers will vest automatically upon completion of this
offering.
Number of
Percentage of
securities
total options
underlying
granted to
Exercise or
Grant date
options
employees
base price
Expiration
present
Name
granted
in 2005
($/share)
date
value ($)
(2)
Robert Taub
—
—
$
—
—
$
—
Nissim Mashiach
50,000
5
%
5
12/30/2014
44,000
(A)
Michael Burshtine
300,000
29
%
2.25
04/18/2014
96,000
(B)
50,000
5
%
5
12/30/2014
44,000
(A)
Philippe Romagnoli
—
—
—
—
—
Martin
    Knopf
(1)
296,296
29
%
2.25
04/02/2006
5,926
(C)
(1)
Martin Knopf, who served as our Vice President, Business
    Development, ceased working with us in July 2005.
(2)
The present value of stock option grants was estimated in
    accordance with the Black-Scholes option pricing model as
    permitted by the rules of the Securities and Exchange
    Commission. Key assumptions used under the Black-Scholes model
    include: (A) (a) an expected option term of
    4.5 years, (b) risk-free rate of 4.31%, (c) stock
    price volatility of 0% and (d) no expected dividends.
    (B) (a) an expected option term of 3.75 years,
    (b) risk-free rate of 4.04%, (c) stock price
    volatility of 0% and (d) no expected dividends. (C)
    (a) an expected option term of 0.5 years,
    (b) risk-free rate of 3.55%, (c) stock price
    volatility of 0% and (d) no expected dividends.
The percentage of total options granted to employees in 2005 is
based on options to purchase a total of 1,026,296 shares of
common stock granted during the year ended December 31,
2005.
Aggregate options exercised in last fiscal year and fiscal
year-end option values
The following table presents the number of shares of common
stock acquired and the value realized upon exercise of stock
options during 2005 and the number of shares of common stock
subject to "exercisable" and "unexercisable"
stock options held as of December 31, 2005 by each of the
named executive officers. Also presented are values of
"in-the
-money"
options, which represent the positive difference between the
exercise price of each outstanding stock option and the assumed
initial public offering price of
$          per
share. There were no stock options exercised by named executive
officers in 2005.
Value of unexercised
Number of securities
in-the-money
underlying unexercised
options held at
options held at
December 31, 2005
Shares
Value
December 31, 2005
($)
acquired on
realized
Name
exercise
($)
Vested
Unvested
Vested
Unvested
Robert Taub
—
—
60,000
—
—
—
Nissim Mashiach
—
—
225,000
100,000
622,500
251,500
Michael Burshtine
—
—
125,000
225,000
377,500
572,500
Philippe Romagnoli
—
—
75,000
25,000
311,250
103,750
Martin
    Knopf
(1)
—
—
141,974
154,322
390,429
424,385
(1)
Martin Knopf, who served as our Vice President, Business
    Development, ceased working with us in July 2005.
84
Management
Employment agreements
On September 21, 1997, we entered into an agreement with
Nissim Mashiach in connection with his services as operations
manager of our manufacturing facilities. Under the agreement,
Mr. Mashiach receives monthly compensation, which was set
initially at NIS 24,000 in 1997 (approximately $6,690) and is
adjusted based on the Israeli consumer price index each month.
This agreement will terminate if either we or Mr. Mashiach
gives the other 90 days written notice, if
Mr. Mashiach is incapable of performing his duties for a
period exceeding 180 days or if Mr. Mashiach is
discharged for certain breaches of the employment agreement. We
will also make a monthly contribution of 13.33% of
Mr. Mashiach's monthly base salary to severance and
pension funds to be maintained on his behalf, known as a
manager's insurance policy, as well as a monthly
contribution of 2.5% of his monthly base salary to a disability
pension to be maintained on his behalf. Upon termination of this
agreement, Mr. Mashiach is entitled to receive all amounts
accrued in the manager's insurance policy. If the amount
accrued in the manager's insurance policy is less than the
severance pay required by law (one month salary per year of
employment), we will pay him an additional amount to ensure that
he receives his entire severance pay.
In February 2004, we entered into an employment agreement with
Mr. Burshtine, which we amended and restated as of
January 1, 2006. The agreement provides for
Mr. Burshtine to receive a base salary of $150,000 per
year. Mr. Burshtine will also be eligible to receive an
annual bonus consisting of a non-discretionary portion in the
aggregate amount of $30,000 and a discretionary amount of up to
36% of his base salary, of which half shall be based on an
evaluation of Mr. Burshtine's performance and half
shall be based on our performance. We will also make a monthly
contribution of 13.83% of Mr. Burshtine's monthly base
salary to severance and pension funds to be maintained on his
behalf, known as a manager's insurance policy, as well as a
monthly contribution of 2.5% of his monthly base salary to a
disability pension to be maintained on his behalf. In addition,
we will contribute 7.5% of Mr. Burshtine's monthly
base salary to a tax advantaged savings plan under Israeli law.
The employment agreement with Mr. Burshtine provides for an
initial term extending to April 18, 2007, with automatic
renewal for additional one-year periods, unless he or we give
six months' notice to the other party that the employment
agreement will not be extended.
The agreement also requires us to pay him, upon termination
without cause, the balance of the base salary to which he would
be entitled under his employment agreement as if he were to
continue to be employed from the date of termination until
April 18, 2007 or the following April 18 and
thereafter, and a pro rata portion of the unconditional and
discretionary annual bonuses to which he would be entitled for
that period as well as any other accrued and unpaid compensation
and benefits.
In March 2005, we granted stock options to Michael Burshtine to
purchase up to 300,000 shares of our common stock under our
2004 Equity Incentive Plan.
On October 1, 2002, we entered into an agreement with
Bemsol S.A., of which Philippe Romagnoli is the sole
stockholder, in connection with Mr. Romagnoli's
services as a Vice President and Secretary. Under the agreement,
Mr. Romagnoli receives quarterly compensation of
€
24,750
(approximately $30,000) and an additional
€
770 per day
(approximately $925) for services rendered in excess of 60% of a
standard full time schedule. This agreement terminates on
September 30, 2006. Upon termination, this agreement can be
renewed by mutual agreement for an additional year. This
agreement may be terminated with the consent of both parties. In
addition, we may terminate the agreement if Mr. Romagnoli
breaches or threatens to breach any of the provisions relating
to inventions and proprietary information. In the case of early
termination by us, we are obligated to pay Mr. Romagnoli
the amount due for the remaining term of the agreement, not to
exceed one year.
85
Management
On January 13, 2005, we entered into an agreement with
Fredric D. Price in connection with his services as the chairman
and member of our board of directors. Under the agreement,
Mr. Price received an annual compensation of $120,000 and a
grant of non-qualified stock options exercisable for
300,000 shares under our 2004 Equity Incentive Plan. These
shares vest over a four year period. This agreement expired
according to its terms on its first anniversary. On
January 13, 2006, we entered into an agreement with Fredric
D. Price in connection with his services as the chairman and
member of our board of directors, under which he continues to
receive an annual compensation of $120,000. This agreement
expires at our annual meeting of stockholders held in 2008. If
Mr. Price resigns without good reason, he will retain those
options which have vested as of the termination date. If
Mr. Price is terminated without cause or resigns for good
reason, he will retain those options which will vest within two
years of the termination date, with such vesting accelerating to
the termination date. In addition, if Mr. Price is
terminated without cause or resigns for good reason, he will
receive $10,000 monthly for one year.
Employee benefit plans
2004 Equity Incentive Plan and 2005 Equity Incentive Plan for
Israeli Employees
In general
In January 2005, our board of directors adopted and our
stockholders approved our 2004 Equity Incentive Plan, or the
2004 Plan. The 2004 Plan authorizes the award of options,
restricted stock grants, stock bonuses and other rights based on
the value of our common stock, such as stock appreciation
rights, phantom stock, dividend equivalents or performance
units. In August 2005, our board of directors adopted and our
stockholders approved our 2005 Equity Incentive Plan for Israeli
Employees, or the 2005 Israeli Plan. The 2005 Israeli Plan
functions as part of the 2004 Plan applicable to Israeli
employees. The 2005 Israeli Plan authorizes the award of
options, stock appreciation rights, restricted stock grants and
stock bonuses.
Both plans are administered by our board of directors, but the
board may delegate authority to administer either plan to the
compensation committee or to a committee consisting of two or
more members of the board. Our board, or, to the extent
applicable, the committee to which the board delegates its
powers under the plan, has the authority to interpret the plans,
grant awards and make all other determinations for the
administration of the plans.
The 2004 Equity Incentive Plan
Directors, consultants and employees of our company, including
our executive officers, are eligible to participate in the 2004
Plan. Participants are selected by our board of directors in its
discretion to receive awards under the 2004 Plan. To date, only
stock options have been awarded under the 2004 Plan. The 2004
Plan provides for the grant of "incentive stock
options" (options that qualify for special tax treatment
under Section 422 of the Internal Revenue Code) and
nonqualified stock options. Incentive stock options may be
granted only to our employees or employees of any of our
corporate subsidiaries. Nonqualified stock options and all
awards other than stock options may be granted to our employees,
officers, directors or consultants and those of any of our
subsidiaries. The exercise price of incentive stock options must
be at least equal to the fair market value of shares of our
common stock on the date of grant. The exercise price of
incentive stock options granted to 10% stockholders must be at
least equal to 110% of the fair market value of our common stock
on the date of grant.
Awards vest and become exercisable according to a schedule
determined for each award by the administrator of the 2004 Plan.
The administrator also determines the maximum term for awards
granted under our plan, provided that the term of any incentive
stock option may not exceed ten years from the date of its grant
and the term of any incentive stock option granted to 10%
stockholders
86
Management
may not exceed five years from the date of its grant. The awards
granted under the 2004 Plan generally may not be transferred in
any manner other than by will or by the laws of descent and
distribution and may be exercised during the lifetime of the
recipient only by the recipient or the recipient's guardian
or legal representative. The administrator may allow exceptions
to this restriction for awards that are not incentive stock
options.
The plan administrator determines the effect on granted options
of the disability or retirement of an employee optionee or the
termination of the optionee's service to us or to a parent
or subsidiary of ours. Under the form of stock option agreement
previously approved by our board of directors, participants
generally may exercise any vested options for a period of three
months following termination of employment or service
(12 months in the case of termination due to death or
disability) and any options held by the participant which have
not vested as of the date of the participant's termination
of employment or service with our company will be forfeited.
In the event of any stock dividend,
split-up
or combination
of shares effected proportionately with respect to all
outstanding shares or any recapitalization, extraordinary cash
dividend, reorganization, merger, consolidation, spin-off,
exchange of shares or other similar capital change, the
administrator may, in its discretion, make equitable adjustments
to the number and kind of securities that may be issued under
the 2004 Plan, the number and kind of securities or other
property subject to outstanding awards and the exercise or
repurchase price with respect to awards that may be issued, or
which are outstanding, under the 2004 Plan. In the event of any
reorganization, merger, consolidation, spin-off or exchange of
shares transaction, the administrator, in its discretion, may
cause any award issued under the 2004 Plan to be assumed, or new
rights substituted therefore, by another entity party to the
transaction.
The 2004 Plan may be amended or terminated by action of our
board of directors, subject to the approval of our stockholders
as required by listing regulations or applicable law.
We have reserved 3,275,636 shares of our common stock for
issuance under the 2004 Equity Incentive Plan. As of
December 31, 2005, options to purchase a total of 2,026,796
shares of common stock were outstanding under the plan and
1,968,507 shares remain available for issuance. In the
event than an outstanding award expires, is terminated
unexercised, is forfeited for any reason, or is settled without
the issuance of shares of our common stock, such shares will
again become available for issuance under the 2004 Plan.
Similarly, if a participant surrenders shares in connection with
the exercise of an award, an equal number of shares will again
become available for grant under the 2004 Plan.
The 2005 Equity Incentive Plan for Israeli Employees
Our 2005 Israeli Plan, which is part of our 2004 Plan, provides
for the grant of "102 Stock Options" (options that
qualify for special tax treatment under Section 102 of the
Israeli Tax Ordinance (New Version) 1961, or the Ordinance). 102
Stock Options may be granted only to Israeli employees,
executive officers and directors excluding any "Controlling
Holders" (as such term is defined in the Ordinance). In
addition, to claim certain Israeli tax benefits, stock options
intended to benefit our employees in Israel must be granted to a
trustee who holds the stock options and underlying shares in
trust for a statutory holding period of at least two years
following the end of the calendar year in which the options are
granted but no longer than 30 months, and, in respect of options
granted after January 1, 2006, for at least two years from
the date of grant. Awards made under the 2005 Israeli Plan will
utilize the shares of our common stock available for issuance
under the 2004 Plan, discussed above.
87
Management
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
We have adopted provisions in our certificate of incorporation
that limit or eliminate the personal liability of our directors
to the maximum extent permitted by the DGCL. The DGCL expressly
permits a corporation to provide that its directors will not be
liable for monetary damages for a breach of their fiduciary
duties as directors, except for liability:
Ø
for any breach of the director's duty of loyalty to us or
    our stockholders;
Ø
for any act or omission not in good faith or that involves
    intentional misconduct or a knowing violation of law;
Ø
for any unlawful payments of dividends or unlawful stock
    purchases or redemptions; or
Ø
for any transaction from which the director derived an improper
    personal benefit.
These limitations of liability do not generally affect the
availability of equitable remedies such as injunctive relief or
rescission. Our certificate of incorporation and by-laws also
authorize us to indemnify our officers, directors, employees and
other agents to the fullest extent permitted under the DGCL and
we may advance expenses to our directors, officers, employees
and other agents in connection with a legal proceeding, subject
to limited exceptions.
As permitted by the DGCL, our certificate of incorporation and
by-laws provide that:
Ø
we must indemnify our board members and officers to the fullest
    extent permitted by the DGCL and advance expenses to our board
    members and officers in connection with a legal proceeding,
    subject to limited exceptions; and
Ø
we may purchase and maintain insurance on behalf of our current
    or former board members, officers, employees or agents against
    any liability asserted against them and incurred by them in any
    such capacity, or arising out of their status as such.
In January 2005, we entered into separate indemnification
agreements with each of our directors. Prior to the completion
of this offering, we will enter into separate indemnification
agreements with each of our board members and officers that will
require us to indemnify them to the fullest extent permitted by
the DGCL. These indemnification agreements will also require us
to advance any expenses incurred by the board members and
officers as a result of any proceeding against them as to which
they could be indemnified.
The limited liability and indemnification provisions in our
certificate of incorporation and by-laws and in any
indemnification agreements we enter into may discourage
stockholders from bringing a lawsuit against our board members
for breach of their fiduciary duties and may reduce the
likelihood of derivative litigation against our board members
and officers, even though a derivative action, if successful,
might otherwise benefit us and our stockholders. A
stockholder's investment in us may be adversely affected to
the extent we pay the costs of settlement or damage awards
against our directors and officers under these indemnification
provisions.
At present, there is no pending litigation or proceeding
involving any of our directors, officers, employees or agents in
which indemnification by us is sought, nor are we aware of any
threatened litigation or proceeding that may result in a claim
for indemnification.
88
Certain relationships and related party transactions
RECAPITALIZATION
In January 2005, we effected a recapitalization of our capital
stock through the exchange of convertible promissory notes,
convertible notes and warrants into shares of common stock and
the reclassification of our Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock into shares
of our common stock.
Exchange of convertible promissory notes, convertible notes
and warrants into common stock
In connection with the recapitalization, we exchanged:
Ø
an aggregate of $23,500,000 principal face amount of 1998/1999
    convertible notes and 667,455 1998/1999 warrants for an
    aggregate of 12,059,597 shares of common stock;
Ø
an aggregate of $2,600,000 principal amount of 2001 convertible
    promissory notes for an aggregate 2,109,799 shares of
    common stock; and
Ø
an aggregate of $4,049,200 principal amount of 2002 convertible
    promissory notes for an aggregate 3,363,550 shares of
    common stock.
Our directors, officers, beneficial owners of more than five
percent of our voting securities and their affiliates
participated in this exchange as follows:
Number of
shares of
common
stock
Principal
issuable
Principal
Principal
amount of
upon
Exercise
amount of
amount of
Shares of
1998/1999
exercise of
price of
2001
2002
common stock
notes
1998/1999
1998/1999
notes
notes
issued in
Name
exchanged
warrants
warrant
exchanged
exchanged
recapitalization
Robert Taub
$
—
—
$
—
$
1,000,000
$
837,500
(1)
1,507,148
Jos B.
    Peeters
(2)
$
2,616,527
116,804
$
5.55
$
200,000
$
211,700
2,455,617
MPM BioVentures I
    LLC
(3)
$
8,222,613
367,067
$
5.55
$
—
$
2,000,000
8,299,554
Alpinvest Partners NV
$
2,243,484
100,152
$
5.55
$
600,000
$
—
2,278,310
Total
$
14,951,568
667,455
N/A
$
1,800,000
$
3,049,200
14,540,628
(1)
These notes were held by BioInvest BV and the shares were
    issued in the name of Robert Taub, our President, Chief
    Executive Officer and director.
(2)
Quest for Growth N.V., Capricorn Venture Fund N.V. and
    Baring Capricorn Ventures Ltd., each an affiliate of Jos B.
    Peeters, a member of our board of directors, participated in our
    recapitalization as explained in the table above.
(3)
BB Bioventures L.P., MPM Asset Management Investors 1998 LLC
    and MPM BioVentures Parallel Fund, L.P. are affiliates of
    MPM BioVentures I LLC, a beneficial owner of more than five
    percent of our common stock. Steven St. Peter, a member of our
    board of directors, is a general partner of MPM
    Capital, L.P.
89
Certain relationships and related party transactions
Reclassification of Series A Convertible Preferred Stock
and Series B Convertible Preferred Stock into common
stock
In connection with this recapitalization, we reclassified each
share of Series A Convertible Preferred Stock into
1.91524 shares of our common stock. In connection with this
recapitalization, we reclassified each share of Series B
Convertible Preferred Stock into 2.94212 shares of our
common stock.
Stockholders' agreement
In connection with our recapitalization we entered into a
stockholders' agreement with certain holders of our common
stock. Under the terms of this agreement, which terminates upon
the closing of this offering, the holders of our common stock
are entitled to preemptive rights and, among other things, to
elect five board members, one of which is to be designated by
MPM BioVentures I LLC and its affiliates. In addition,
Mr. Taub is entitled to appoint one director.
Investor rights agreement
In connection with our recapitalization we entered into an
investor rights agreement with post-recapitalization holders of
our common stock. This agreement provides these holders with
rights to receive financial information and inspection rights,
all of which rights will terminate upon the closing of this
offering. This agreement also provides these holders with
certain customary registration rights, which survive the closing
of this offering, which are described in the section entitled,
"Description of Capital Stock."
Common stock, warrants and options outstanding prior to the
recapitalization
Prior to the recapitalization, there were 9,540,988 shares
of common stock outstanding. These shares of common stock were
not affected by the recapitalization. Prior to the
recapitalization, there were 709,197 warrants outstanding with
exercise prices ranging from $4.40 to $12.29. Some of these
warrants were amended through a waiver and amendment between us
and the warrantholders, dated January 13, 2005. Prior to
the recapitalization, there were 695,458 options to purchase
shares of common stock outstanding, with exercise prices ranging
from $1.00 to $7.76.
THE NEW CONVERTIBLE PROMISSORY NOTES
In January 2005, we renegotiated the terms of certain 2001
convertible promissory notes and 2002 convertible promissory
notes with noteholders who did not exchange their notes in the
recapitalization. This resulted in the issuance of an aggregate
principal amount of approximately $2 million in new
convertible promissory notes, which currently remain outstanding
and bear interest at 10% per annum. Included in the holders
of the new convertible promissory notes is Philippe Romagnoli,
our Vice President and Secretary. He holds an aggregate
principal amount of $906,703 of these notes.
ADDITIONAL CONVERSION TO COMMON STOCK FOLLOWING OUR
RECAPITALIZATION
In January 2005, following the recapitalization, we exchanged
$500,000 principal amount of the convertible promissory notes,
held by Philippe Romagnoli, our Vice President and Secretary,
for 415,335 shares of common stock.
90
Certain relationships and related party transactions
OTHER RELATIONSHIPS
We compensate certain of our executive officers through entities
under their control. We compensate Robert Taub, our President,
Chief Executive Officer and director, through Romata Holding AG,
of which Robert Taub is the principal stockholder. We also
compensate Philippe Romagnoli, our Vice President and Secretary,
through Bemsol S.A., of which Philippe Romagnoli is the
principal stockholder.
91
Principal stockholders
The following table shows information known to us with respect
to the beneficial ownership of our common stock as of
December 31, 2005, as adjusted, to reflect the sale of the
shares of common stock offered, by:
Ø
each of our directors;
Ø
each of our named executive officers;
Ø
all of our directors and executive officers as a group; and
Ø
each person or group of affiliated persons whom we know to
    beneficially own more than 5% of our common stock.
Beneficial ownership and percentage ownership are determined in
accordance with the rules of the SEC. This information does not
necessarily indicate beneficial ownership for any other purpose.
In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of common
stock underlying options or warrants held by that person that
are currently exercisable or will become exercisable within
60 days of December 31, 2005 are deemed outstanding
and are included in the number of shares beneficially owned and
are also shown separately in the column below entitled
"Options exercisable within 60 days of
December 31, 2005," while the shares are not deemed
outstanding for purposes of computing percentage ownership of
any other person. To our knowledge, except as indicated in the
footnotes to this table and subject to community property laws
where applicable, the persons named in the table have sole
voting and investment power with respect to all shares of our
common stock shown as beneficially owned by them.
Percentage of beneficial ownership before this offering is based
on 29,916,892 shares of our common stock outstanding as of
December 31, 2005
and                      shares
outstanding immediately after this offering.
The address for those individuals for which an address is not
otherwise indicated is: c/o Omrix Biopharmaceuticals, Inc.,
708 Third Avenue, New York, New York 10017.
Options
exercisable
Percent
Percent
Number of
within
beneficially
beneficially
shares
60 days of
owned
owned
beneficially
December 31,
before this
after this
Name and address of beneficial owner
owned
2005
offering
offering
Directors and executive officers:
Robert
    Taub
(1)
9,610,770
60,000
32.1
%
%
Nissim Mashiach
325,000
325,000
1.1
Michael Burshtine
370,888
350,000
1.2
Philippe Romagnoli
515,335
100,000
1.7
Fredric D. Price
300,000
300,000
1.0
Jos B.
    Peeters
(2)
2,658,235
40,000
8.9
Steven St. Peter
—
—
—
Douglas A. Cotter
30,000
30,000
*
All directors and executive officers as a group
13,810,228
1,205,000
44.4
Five percent stockholders:
MPM BioVentures I
    LLC
(3)
8,846,247
134,740
29.5
%
%
AlpInvest Partners
    N.V.
(4)
2,390,708
—
8.00
(Footnotes on following page)
92
Principal stockholders
*
Represents beneficial ownership of less than 1%.
(1)
Includes 5,486,962 shares of common stock held by TINV SA and
    MINV SA. Mr. Taub is the majority stockholder of these
    companies. Mr. Taub is the beneficial owner of these
    5,486,962 shares of common stock and has sole voting power
    and sole dispositive power over these shares of common stock.
(2)
Represents: (1) 620,996 shares of common stock held
    by Capricorn Venture Fund NV, an affiliate of Capricorn Venture
    Partners N.V.; (2) 31,531 shares of common stock and 40,000
    shares of common stock issuable upon conversion of the warrants
    held by Capricorn Venture Partners N.V.; (3) 680,817 shares
    of common stock held by Baring Capricorn Ventures LTD; and
    (4) 1,284,891 shares of common stock held by Quest For
    Growth N.V.
Capricorn Venture Partners N.V. represented by
    Mr. Peeters and Mr. Marc Lambrechts, and Euro Invest
    Management NV, represented by Mr. Philippe Haspeslagh,
    Ms. Nadia Van Hove and Mr. Hans Bosmans, are the
    beneficial owners of 620,996 shares of common stock held by
    Capricorn Venture Fund N.V. and exercise shared voting power and
    shared dispositive power over these shares of common stock. Each
    of Mr. Peeters, Mr. Marc Lambrechts, Mr. Philippe
    Haspeslagh, Ms. Nadia Van Hove and Mr. Hans Bosmans
    disclaims beneficial ownership over the 620,996 shares of common
    stock held by Capricorn Venture Fund N.V., except to the extent
    of their respective pecuniary interests therein.
Mr. Peeters, Euro Invest Management NV, represented by
    Mr. Philippe Haspeslagh, and Gerard Van Acker BVBA,
    represented by Mr. Gerard Van Acker, are the beneficial
    owners of 31,531 shares of common stock and 40,000 shares of
    common stock issuable upon conversion of the warrants held by
    Capricorn Venture Partners N.V. and exercise shared voting power
    and shared dispositive power over these shares of common stock.
    Each of Mr. Peeters, Mr. Haspeslagh and Mr. Van
    Acker disclaims beneficial ownership over the 31,531 shares of
    common stock and 40,000 shares of common stock issuable upon
    conversion of the warrants held by Capricorn Venture Partners
    N.V., except to the extent of their respective pecuniary
    interest therein.
IPES Trustees LTD is the beneficial owner of 680,817 shares
    of common stock held by Baring Capricorn Ventures LTD and
    exercises sole voting power and sole dispositive power over the
    these shares of common stock. Mr. Peeters disclaims
    beneficial ownership over the 680,817 shares of common stock
    held by Baring Capricorn Ventures LTD, except to the extent of
    his pecuniary interests therein.
Mr. Peeters, Auxilium Keerbergen BVBA, represented by
    Mr. Frans Theeuwes, Bergendal & Co SPRL, represented by
    Duke Diego du Monceau de Bergendal, Gengest BVBA, represented by
    Mr. Rudi Marien, Euro Investment Management BVBA,
    represented by Mr. Philippe Haspeslagh, Pamica NV,
    represented by Mr. Michel Akkermans, Tacan BVBA,
    represented by Mr Johan Tack, Quest Management NV, represented
    by Mr. René Avonts, Mr. Koenraad Debackere,
    Mr. Dirk Vanderschrick and De Meiboom NV, represented by
    Mr. Leo Claeys, are the beneficial owners of 1,284,891
    shares of common stock held by Quest For Growth N.V. and
    exercise shared voting power and shared dispositive power over
    these shares. Each of Mr. Peeters, Mr. Frans Theeuwes,
    Duke Diego du Monceau de Bergendal, Mr. Rudi Marien,
    Mr. Philippe Haspeslagh, Mr. Michel Akkermans,
    Mr. Johan Tack, Mr. René Avonts,
    Mr. Koenraad Debackere, Mr. Dirk Vanderschrick and
    Mr. Leo Claeys disclaims beneficial ownership over the
    1,284,891 shares of common stock held by Quest For Growth N.V.,
    except to the extent of their respective pecuniary interests
    therein.
(3)
Represents: (1) 8,711,507 shares of common stock
    held by BB Bioventures LP, MPM Asset Management Investors 1998
    LLC and MPM BioVentures Parallel Fund LP, each an affiliate
    of MPM BioVentures I LLC and (2) 134,740 shares of
    common stock issuable upon conversion of the warrants held by
    MPM Capital, L.P, the general partner of MPM BioVentures I
    LLC.
93
Principal stockholders
Dr. Ansbert Gadicke, Dr. Luke Evnin and
    Dr. Michael Steinmetz are managing members of MPM
    BioVentures I LLC and MPM Asset Management Investors 1998
    LLC. Dr. Gadicke, Dr. Evnin and Dr. Steinmetz may
    be deemed the beneficial owners of 8,711,507 shares of
    common stock held by affiliates of MPM BioVentures I LLC
    and exercise shared voting power and shared dispositive power
    over the 8,711,507 shares of common stock held by
    affiliates of MPM BioVentures I LLC. Each of
    Dr. Gadicke, Dr. Evnin and Dr. Steinmetz
    disclaims beneficial ownership over the 8,711,507 shares
    held by affiliates of MPM BioVentures I LLC, except to the
    extent of their respective pecuniary interests therein.
    Dr. Gadicke and Dr. Evnin may be deemed the beneficial
    owners of 134,740 shares of common stock issuable upon
    conversion of the warrants held by MPM Capital, L.P, and
    exercise shared voting power and shared dispositive power over
    these shares of common stock held by MPM Capital, L.P. Each of
    Dr. Gadicke and Dr. Evnin disclaims beneficial
    ownership over the 134,740 shares of common stock issuable
    upon conversion of the warrants held by MPM Capital, L.P.,
    except to the extent of their respective pecuniary interests
    therein. The address for MPM Capital, L.P., and MPM
    BioVentures I LLC and its affiliates is The John Hancock
    Tower, 200 Clarendon Street, 54th Floor, Boston,
    MA 02116.
(4)
Represents shares of common stock held by Investment
    Fund I—Direct en. Co. C.V., an affiliate of AlpInvest
    Partners N.V. AlpInvest Partners N.V. is the beneficial owner of
    these shares of common stock and has sole voting power and sole
    dispositive power over these shares of common stock. The address
    for AlpInvest Partners N.V. is Jachthavenweg 118, 1081 KJ
    Amsterdam, The Netherlands.
94
Description of capital stock
GENERAL
In connection with this offering, we will amend and restate our
certificate of incorporation and by-laws. The following summary
of our capital stock does not relate to our current amended and
restated certificate of incorporation or amended and restated
by-laws,
but rather is
a description of our capital stock under the certificate of
incorporation and
by-laws,
which will be
in effect upon completion of this offering.
Upon completion of this offering, the total amount of our
authorized capital stock will consist of 120,000,000 shares
of common stock, par value $0.01 per share, and
20,000,000 shares of preferred stock, par value
$0.01 per share. As of December 31, 2005, there were
29,916,892 shares of common stock outstanding and no shares
of preferred stock outstanding. As of December 31, 2005, we
had approximately 46 record holders of our common stock. In
addition, as of December 31, 2005, 3,275,636 shares of
our common stock were reserved for grants under our 2004 Equity
Incentive Plan and options to purchase a total of
2,026,796 shares of our common stock were outstanding.
Immediately after this offering, there will
be                      shares
of our common stock and no shares of our preferred stock
outstanding.
The following description of our capital stock does not purport
to be complete and is subject to, and is qualified by, our
certificate of incorporation and by-laws, which are filed as
exhibits to the registration statement of which this prospectus
is a part, and by the applicable provisions of Delaware law.
COMMON STOCK
Voting
The holders of our common stock are entitled to one vote for
each share held of record on each matter submitted to a vote of
stockholders, including the election of directors, and do not
have any right to cumulative votes in the election of directors.
Dividends
Subject to the rights and preferences of the holders of any
series of preferred stock which may at the time be outstanding,
holders of our common stock are entitled to such dividends as
our board of directors may declare from time to time out of
legally available funds. Dividends on the common stock are not
cumulative.
Liquidation rights
In the event of any liquidation, dissolution or
winding-up
of our
affairs, after payment of all of our debts and liabilities, and
subject to the rights and preferences of the holders of any
outstanding shares of any series of our preferred stock, the
holders of our common stock will be entitled to receive their
pro rata distribution of any of our remaining assets.
Other matters
Holders of our common stock have no conversion, preemptive or
other subscription rights and there are no redemption rights or
sinking fund provisions with respect to the common stock. The
shares of our common stock to be sold in this offering when
issued and paid for will be validly issued, fully paid and
non-assessable.
95
Description of capital stock
Preferred stock
We are authorized to issue up to 20,000,000 shares of
preferred stock. Our certificate of incorporation authorizes our
board, from time to time, without any further stockholder action
or approval: to issue these shares in one or more classes or
series; to establish from time to time the number of shares to
be included in each class or series; and to fix the rights,
preferences and privileges of the shares of each wholly unissued
class or series and any of its qualifications, limitations or
restrictions. In some circumstances, the issuance of shares of
preferred stock may render more difficult or tend to discourage
a merger, tender offer or proxy contest, the assumption of
control by a holder of a large block of our securities or the
removal of incumbent management. Our board may authorize the
issuance of preferred stock with voting or conversion rights
that could adversely affect the voting power or other rights of
the holders of our common stock. We currently have no plans to
issue any shares of preferred stock.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION,
BY-LAWS AND DELAWARE LAW
Provisions of our certificate of incorporation, by-laws and
Delaware law, which are summarized below, may be deemed to have
an
anti-takeover
effect
and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider in such
stockholder's best interest, including those attempts that
might result in a premium over the market price for our common
stock. These provisions include the elimination of stockholder
action by written consents, elimination of the ability of
stockholders to call special meetings, advance notice procedures
for stockholder proposals and director nominations,
supermajority vote requirements for amendments to our
certificate of incorporation and by-laws, and certain Delaware
law provisions.
Number of directors; removal for cause; filling vacancies
Our certificate of incorporation provides that our board of
directors will consist of not less than one nor more than eight
members, the exact number of which will be fixed from time to
time by our board. Upon completion of this offering, our board
of directors will consist of five directors.
Our certificate of incorporation and by-laws provide that
directors may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of at
least 80% of the voting power of the issued and outstanding
shares of our capital stock entitled to vote generally at an
election of directors. Our certificate of incorporation and
by-laws
also provide
that any newly created directorships on our board may only be
filled by a majority of the board then in office, provided that
a quorum is present, and any other vacancy occurring on the
board may only be filled by a majority of the board then in
office, even if less than a quorum, or by a sole remaining
director. Any director elected in accordance with the preceding
sentence will hold office for the remainder of the full term
until such director's successor shall have been elected and
qualified. No decrease in the number of directors constituting
the board of directors shall have the effect of shortening the
term of any incumbent director.
The director removal and vacancy provisions will make it more
difficult for a stockholder to remove incumbent directors and
simultaneously gain control of the board by filling vacancies
created by such removal with its own nominees.
Special meetings of stockholders
Our certificate of incorporation and by-laws deny stockholders
the right to call a special meeting of stockholders. Our by-laws
provide that a special meeting of stockholders may be called
only by the chairman of our board, the president, any vice
president, the secretary or any assistant secretary.
96
Description of capital stock
Stockholder action by written consent
Our certificate of incorporation and by-laws require all
stockholder actions to be taken by a vote of the stockholders at
an annual or special meeting and denies the ability of
stockholders to act by written consent without a meeting.
Stockholder proposals
At an annual meeting of stockholders, only business that is
properly brought before the meeting will be conducted or
considered. To be properly brought before an annual meeting of
stockholders, business must be specified in the notice of the
meeting (or any supplement to that notice), brought before the
meeting by or at the direction of the board (or any duly
authorized committee of the board) or properly brought before
the meeting by a stockholder. For business to be properly
brought before an annual meeting by a stockholder, the
stockholder must:
•
be a stockholder of record on the
    date of the giving of the notice for the meeting;
•
be entitled to vote at the
    meeting; and
•
have given timely written notice
    of the business in proper written form to our secretary.
To be timely, a stockholder's notice must be delivered to
or mailed and received at our principal executive offices not
less than 90 days nor more than 120 days prior to the
anniversary date of the last annual meeting; provided, however,
that in the event that the annual meeting is called for a date
that is not within 30 days before or after the anniversary
date, notice by the stockholder must be received not later than
the close of business on the 10th day following the day on
which notice of the date of the annual meeting was mailed or
public disclosure of the date of the annual meeting was made,
whichever first occurs.
To be in proper written form, a stockholder's notice to the
secretary must set forth as to each matter the stockholder
proposes to bring before the annual meeting:
•
a brief description of the
    business desired to be brought before the annual meeting and the
    reasons for conducting the business at the annual meeting;
•
the name and address, as they
    appear on our books, of the stockholder proposing such business;
•
the class or series and number of
    our shares which are owned beneficially or of record by the
    stockholder proposing the business;
•
a description of all arrangements
    or understandings between such stockholder and any other person
    or persons (including their names) in connection with the
    proposal of such business by such stockholder and any material
    interest of such stockholder in the business; and
•
a representation that the
    stockholder intends to appear in person or by proxy at the
    meeting to bring the business before the meeting.
Similarly, at a special meeting of stockholders, only such
business as is properly brought before the meeting will be
conducted or considered. To be properly brought before a special
meeting, business must be specified in the notice of the meeting
(or any supplement to that notice).
Nomination of candidates for election to our board
Under our
by-laws,
only
persons who are properly nominated will be eligible for election
to be members of our board. To be properly nominated, a director
candidate must be nominated at an annual meeting of the
stockholders or any special meeting called for the purpose of
electing directors
97
Description of capital stock
by or at the direction of our board (or any duly authorized
committee of the board) or properly nominated by a stockholder.
To properly nominate a director, a stockholder must:
•
be a stockholder of record on the
    date of the giving of the notice for the meeting;
•
be entitled to vote at the
    meeting; and
•
have given timely written notice
    in proper written form to our secretary.
To be timely, a stockholder's notice must be delivered to
or mailed and received at our principal executive offices:
•
in the case of an annual meeting,
    not less than 90 days nor more than 120 days prior to
    the anniversary date of the last annual meeting of our
    stockholders; provided, however, that in the event that the
    annual meeting is called for a date that is not within
    30 days before or after the anniversary date of the last
    annual meeting, notice by the stockholder must be received not
    later than the close of business on the 10th day following
    the day on which notice of the date of the annual meeting was
    mailed or public disclosure of the date of the annual meeting
    was made, whichever first occurs; and
•
in the case of a special meeting
    of stockholders called for the purpose of electing directors,
    not later than the close of business on the 10th day
    following the day on which notice of the date of such meeting
    was mailed or public disclosure of the date of the special
    meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
secretary must be accompanied by a written consent of each
proposed nominee to being named as a nominee and to serve as a
director if elected and must set forth:
•
as to each person whom the
    stockholder proposes to nominate for election as a director:
-
the name, age, business address and residence address of the
    person;
-
the principal occupation or employment of the person;
-
the class or series and number of shares of our capital stock
    that are owned beneficially or of record by the person; and
-
any other information relating to the person that would be
    required to be disclosed in a proxy statement or other filings
    required to be made in connection with solicitations of proxies
    for election of directors pursuant to Section 14 of the
    Securities Exchange Act of 1934, as amended, or the Exchange
    Act, and the rules and regulations promulgated
    thereunder; and
•
as to the stockholder giving the
    notice:
-
the name and record address of such stockholder;
-
the class or series and number of shares of our capital stock
    that are owned beneficially or of record by such stockholder;
-
a description of all arrangements or understandings between such
    stockholder and each proposed nominee and any other person or
    persons (including their names) under which the nomination(s)
    are to be made by such stockholder;
-
a representation that the stockholder intends to appear in
    person or by proxy at the meeting to nominate the persons named
    in its notice; and
-
any other information relating to such stockholder that would be
    required to be disclosed in a proxy statement or other filings
    required to be made in connection with solicitations of proxies
98
Description of capital stock
for election of directors pursuant to Section 14 of the
    Exchange Act and the rules and regulations promulgated
    thereunder.
Amendment of certificate of incorporation and by-laws
Our certificate of incorporation generally requires the approval
of the holders of at least eighty percent (80%) of the voting
power of the issued and outstanding shares of our capital stock
entitled to vote generally at an election of directors to amend
certain provisions of our certificate of incorporation described
in this section. Our certificate of incorporation and by-laws
provide that the holders of at least eighty percent (80%) of the
voting power of the issued and outstanding shares of our capital
stock entitled to vote generally at an election of directors
have the power to amend or repeal our
by-laws.
In addition,
our certificate of incorporation grants our board of directors
the authority to amend and repeal our
by-laws
without a
stockholder vote in any manner not inconsistent with the laws of
the State of Delaware or our certificate of incorporation.
Delaware law
We will be subject to the provisions of Section 203 of the
DGCL regulating corporate takeovers. In general, those
provisions prohibit a Delaware corporation from engaging in any
business combination with any interested stockholder for a
period of three years following the date that the stockholder
became an interested stockholder, unless:
•
prior to that date, the board of
    directors of the corporation approved either the business
    combination or the transaction which resulted in the stockholder
    becoming an interested stockholder;
•
upon consummation of the
    transaction which resulted in the stockholder becoming an
    interested stockholder, the interested stockholder owned at
    least 85% of the voting stock of the corporation outstanding at
    the time the transaction commenced, excluding for purposes of
    determining the voting stock outstanding those shares owned by
    directors and officers and shares issued under employee stock
    plans under which employee participants do not have the right to
    determine confidentially whether shares held subject to the plan
    will be tendered in a tender or exchange offer; or
•
on or after the date the business
    combination is approved by the board of directors and authorized
    at an annual or special meeting of stockholders by at least
two-thirds
of the
    outstanding voting stock which is not owned by the interested
    stockholder.
Section 203 defines "business combination" to
include the following:
•
any merger or consolidation
    involving the corporation and the interested stockholder;
•
any sale, transfer, pledge or
    other disposition of 10% or more of the assets of the
    corporation involving the interested stockholder;
•
subject to certain exceptions, any
    transaction that results in the issuance or transfer by the
    corporation of any stock of the corporation to the interested
    stockholder;
•
any transaction involving the
    corporation that has the effect of increasing the proportionate
    share of the stock of any class or series of the corporation
    beneficially owned by the interested stockholder; or
•
the receipt by the interested
    stockholder of the benefit of any loans, advances, guarantees,
    pledges or other financial benefits provided by or through the
    corporation.
99
Description of capital stock
In general, Section 203 defines an interested stockholder
as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or
person affiliated with or controlling, controlled by, or under
common control with the entity or person.
Warrants and new convertible promissory notes
Warrants
As of December 31, 2005, the warrants described below were
outstanding. These warrants contain anti-dilution provisions
providing for adjustments to the exercise price and the number
of shares underlying the warrant upon the occurrence of certain
events, including any issuance of common stock at a certain
price, rights, options, or convertible securities,
reclassification, stock dividend, stock split, stock
combination, or merger, consolidation or sale of substantially
all of the assets, recapitalization or other similar
transaction. All of these warrants, except the one described in
the fourth bullet below, have net exercise provisions under
which the holder may, in lieu of payment of the exercise price
in cash, surrender the warrant and receive a net amount of
shares based on the fair market value of our common stock at the
time of exercise of the warrant after deduction of the aggregate
exercise price. The holder of the warrants described in the
third bullet below is entitled upon exercise of the warrants to
the payment of any declared or paid dividends (except for a
stock dividend payable in common stock) that would have been
paid to the holder of the warrant had the warrant been fully
exercised prior to the record date or date used to determine
entitlement to the dividend. In addition, the holders of
warrants, described in the first, second and fifth bullets below
are entitled to certain registration rights, as described in the
section of this prospectus entitled "—Registration
rights."
We have issued the following outstanding warrants that expire:
•
in December 2008 to
    purchase 449,410 shares of our common stock at a price
    per share of $5.55.
•
in December 2008 to purchase
    59,787 shares of our common stock at a price per share of
    $6.17.
•
in July 2014 to
    purchase 100,000 shares of our common stock at a price
    per share of $4.18.
•
in September 2009 to
    purchase 14,952 shares of our common stock at a price
    per share of $4.18 and December 2009 to
    purchase 14,952 shares of our common stock at a price
    per share of $4.18.
•
in August 2013 to
    purchase 100,000 shares of our common stock at a price
    per share of $4.40.
•
on the earlier of March 2012 or
    three years after an initial public offering to
    purchase 149,522 shares of our common stock at a price
    per share of $4.18.
New convertible promissory notes
As of December 31, 2005, we had outstanding an amended and
restated senior convertible promissory note, or the 2005
Series A Note, in the principal amount of $752,148, and a
series of amended and restated senior convertible promissory
notes, or the 2005 Series B Notes, in the principal amount
of $1,214,802. The 2005 Series A Note and the 2005
Series B Notes pay interest of 10%, compounded annually on
the basis of a 365 day year and are payable on the maturity
date of December 30, 2007. Both series of these new
convertible promissory notes have similar terms, except with
respect to prepayment premium. We may prepay the 2005
Series A Note, at any time, upon payment of the principal
amount and a prepayment premium equal to 50% of the principal
amount plus accrued interest to the date of prepayment. We may
prepay the 2005 Series B Note, at any time, upon payment
100
Description of capital stock
of the principal amount and a prepayment premium, equal to two
times the face amount up to January 29, 2006, one times the
face amount from January 29, 2006 to January 29, 2007
and one-half times the face amount thereafter.
The holder of either series of these new convertible promissory
notes may demand repayment of the notes, together with the
prepayment premium and accrued interest described above, upon a
change of control. A change of control is defined as the
consummation of any transaction or series of transactions where
holders of record of our common stock immediately prior to the
transaction hold less than 50% of our common stock after the
transaction on a fully diluted basis or consummation of an
initial public offering. Change of control does not include a
financing where our existing investors retain 50% or more of our
common stock on a fully diluted basis. At the sole election of
the holder of either series of these new convertible promissory
notes, the principal balance of the note and any accrued and
unpaid interest may be converted into securities issued in our
next financing upon the closing of such financing in which the
aggregate gross proceeds to us from third party purchasers are
at least $10,000,000, which financings that trigger a change of
control are excluded. To the extent the note is not converted in
the next financing the conversion privilege terminates. The
conversion price is equal to the lower of 80% of the price paid
by investors in the next financing and $2.25 per security.
The terms of the note restrict the incurrence of additional debt
to an aggregate of $5.0 million without consent of the
majority of the holders of the 2005 Series A Note and 2005
Series B Notes, acting as a single series.
Registration rights
Certain holders of shares of common stock, shares of common
stock issuable upon the exercise of outstanding options and
warrants are entitled to registration rights with respect to
these securities as set forth in agreements between us and the
holders of these securities. We are generally required to pay
all expenses, excluding underwriting discounts and commissions,
related to registrations effected in connection with the
following rights, including in some cases the fees and expenses
of counsel representing the registering security holders.
Investor rights agreement
In January 2005, in connection with our recapitalization, we
entered into an investor rights agreement, with certain holders
of our common stock. Under the agreement, beginning
180 days after the closing of this offering, if a holder or
holders of at least a majority of our outstanding shares of
common stock request that we file a registration statement
related to the sale of our securities held by such holders, we
will use our best commercial efforts to cause such shares to be
registered, subject to certain limitations. We are not obligated
to effect more than two registrations under this demand
provision. In the case of an underwritten offering, these demand
registration rights are subject to customary cutbacks.
If available for our use, a holder or holders of at least 1% of
our outstanding shares of common stock holding in the aggregate
not less than 1,000,000 shares that may be registered under
the agreement, may request that we file a registration statement
on
Form S-3
or
other similar short-form registration statement, subject to
customary cutbacks in the case of an underwritten offering.
In addition to the demand registration rights, if we register
any of our securities under the Securities Act after this
offering, any holder or holders of at least 1% of our
outstanding shares of common stock may require that we include
some or all of the shares held by them in that registration,
subject to cutbacks in the case of an underwritten offering.
However, in no event may the cutback reduce the number of shares
requested to be included by such holder or holders to be less
than 25% of the total included in the underwriting.
101
Description of capital stock
Our obligations to register shares of our common stock under the
agreement terminate as to shares that are: sold under a
registration statement or Rule 144 under the Securities
Act, transferred, prior to the consummation of this offering, in
a manner that was not in compliance with the stockholder rights
agreement between us and our stockholders or held by any holder
when less than 100,000 shares of common stock are held by
such holder and all of such shares may be sold under
Rule 144(k) of the Securities Act.
The holders of our common stock and warrants have agreed to not
sell or otherwise transfer or dispose of any shares (excluding
shares acquired in or following our initial public offering) for
such period of time as required by the underwriters, in
connection with our initial public offering, not to exceed
180 days following the effective date of the registration
statement.
Warrants
Under certain warrants that we have issued, we have agreed that
for five years after the closing of this offering, if we
register any of our securities under the Securities Act, a
holder may require that we include some or all of the shares
held by them in that registration, subject to cutbacks in the
case of an underwritten offering. In addition, we have agreed
that, if available for our use, a holder or holders of at least
$300,000 estimated value of securities that may be registered
under the terms of the warrant, may request that we file a
registration statement on
Form S-3
or other
similar short-form registration statement. Our obligation to
register shares of our common stock under the warrants on
Form S-3
or other
similar short-form registration statement terminates as to
shares that may be sold under Rule 144(k) within thirty
days of the proposed effective date of the registration
statement.
Under another warrant we have issued, we have agreed that if we
file a registration statement registering any common stock for
any of our other stockholders, we will include the common stock
issuable upon exercise of this warrant. However, we will not be
obliged to register any shares that may be sold under
Rule 144(k).
NASDAQ NATIONAL MARKET LISTING
We have applied to have our common stock approved for quotation
on NASDAQ under the symbol "OMRI."
TRANSFER AGENT AND REGISTRAR
Upon the closing of this offering, the transfer agent and
registrar for our common stock will be American Stock Transfer
and Trust Company.
102
Shares eligible for future sale
Prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of our common
stock in the public market, or the perception that these sales
could occur, could adversely affect the price of our common
stock.
Based on the number of shares outstanding as
of                     ,
we will have
approximately                      shares
of our common stock outstanding after the completion of this
offering
(approximately                      shares
if the underwriters exercise their over-allotment option in
full). Of those shares,
the                      shares
of common stock sold in this offering
(                     shares
if the underwriters exercise their over-allotment option in
full) will be freely transferable without restriction, unless
purchased by our affiliates. The
remaining                      shares
of common stock to be outstanding immediately following the
completion of this offering, which are "restricted
securities" under Rule 144 of the Securities Act, or
Rule 144, as well as any other shares held by our
affiliates, may not be resold except pursuant to an effective
registration statement or an applicable exemption from
registration, including an exemption under Rule 144.
LOCK-UP AGREEMENTS
The holders of
approximately                      shares
of outstanding common stock as of the closing of this offering
and the holders
of                      shares
of common stock underlying options and warrants as of the
closing of this offering, including all of our officers and
directors, have entered into
lock-up
agreements
under which they have generally agreed, subject to certain
exceptions, not to offer or sell any shares of common stock or
securities convertible into or exchangeable or exercisable for
shares of common stock for a period of at least 180 days
from the date of this prospectus without the prior written
consent of UBS Securities LLC. See "Underwriting— No
sale of similar securities."
RULE 144
In general, under Rule 144, an affiliate of ours who
beneficially owns shares of our common stock that are not
restricted securities, or a person who beneficially owns for
more than one year shares of our common stock that are
restricted securities, may generally sell, within any
three-month period, a number of shares that does not exceed the
greater of:
•
1% of the number of shares of our
    common stock then outstanding, which will equal
    approximately                      shares
    immediately after this offering; and
•
the average weekly trading volume
    of our common stock on NASDAQ during the four preceding calendar
    weeks.
Sales under Rule 144 are also subject to requirements with
respect to manner of sale, notice and the availability of
current public information about us. Generally, a person who was
not our affiliate at any time during the three months before the
sale, and who has beneficially owned shares of our common stock
that are restricted securities for at least two years, may sell
those shares without regard to the volume limitations, manner of
sale provisions, notice requirements or the requirements with
respect to availability of current public information about us.
Rule 144 does not supersede the contractual obligations of
our security holders set forth in the
lock-up
agreements
described above.
RULE 701
Generally, an employee, officer, director or consultant who
purchased shares of our common stock before the effective date
of the registration statement of which this prospectus is a
part, or who holds
103
Shares eligible for future sale
options as of that date, under a written compensatory plan or
contract, may rely on the resale provisions of Rule 701
under the Securities Act. Under Rule 701, these persons who
are not our affiliates may generally sell their eligible
securities, commencing 90 days after the effective date of
the registration statement of which this prospectus is a part,
without having to comply with the public information, holding
period, volume limitation or notice provisions of Rule 144.
These persons who are our affiliates may generally sell their
eligible securities under Rule 701, commencing 90 days
after the effective date of the registration statement of which
this prospectus is a part, without having to comply with
Rule 144's one-year holding period restriction.
Neither Rule 144 nor Rule 701 supersedes the
contractual obligations of our security holders set forth in the
lock-up
agreements
described above.
SALE OF RESTRICTED SHARES
The                      shares
of our common stock that were outstanding
on                     will
become eligible for sale, pursuant to Rule 144 or
Rule 701, without registration approximately as follows:
•
shares
    of common stock will be immediately eligible for sale in the
    public market without restriction;
•
shares
    of common stock will be eligible for sale in the public market
    under Rule 144 or Rule 701, beginning 90 days
    after the effective date of the registration statement of which
    this prospectus is a part, subject to the volume, manner of sale
    and other limitations under those rules; and
•
the
    remaining                      shares
    of common stock will become eligible under Rule 144 for
    sale in the public market from time to time after the effective
    date of the registration statement of which this prospectus is a
    part upon expiration of their respective holding periods.
The above does not take into consideration the effect of the
lock-up
agreements
described above.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of
approximately                      shares
of common
stock,                      shares
of common stock issuable upon the exercise of outstanding
options
and                      shares
of common stock issuable upon the exercise of outstanding
warrants and new convertible promissory notes, or their
transferees, will be entitled to various rights with respect to
the registration of these shares under the Securities Act.
Registration of these shares under the Securities Act would
result in these shares becoming freely tradeable without
restriction under the Securities Act immediately upon the
effectiveness of the registration, except for shares held by
affiliates.
EQUITY PLAN
We intend to file a registration statement on
Form S-8
under the
Securities Act to register the shares of common stock available
for issuance under our 2004 Equity Incentive Plan and 2005
Equity Incentive Plan for Israeli Employees. Subject to the
lock-up
agreements,
shares issued under these plans after the effective date of such
registration statement will be available for sale in the open
market and, for our affiliates, subject to the conditions and
restrictions of Rule 144. As of December 31, 2005,
options to purchase a total of 2,026,796 shares of common
stock were outstanding and 1,968,507 shares of our common
stock were available for future grant.
104
Material U.S. federal income and estate tax consequences to
non-U.S. holders
The following is a general discussion of material
U.S. federal income and estate tax consequences of the
ownership and disposition of our common stock that may be
relevant to a
non-U.S. holder
that acquires our common stock pursuant to this offering. The
discussion is based on provisions of the Internal Revenue Code
of 1986, as amended, or the Code, applicable U.S. Treasury
regulations promulgated thereunder and U.S. Internal
Revenue Service, or IRS, rulings and pronouncements and judicial
decisions, all as in effect on the date of this prospectus, and
all of which are subject to change, possibly on a retroactive
basis, or different interpretations. We have not sought, and
will not seek, any ruling from the IRS with respect to the tax
consequences discussed in this prospectus, and there can be no
assurance that the IRS will not take a position contrary to the
tax consequences discussed below or that any positions taken by
the IRS would not be sustained.
The discussion is limited to
non-U.S. holders
that hold our common stock as a "capital asset" within
the meaning of Section 1221 of the Code (generally,
property held for investment). As used in this discussion, the
term
"non-U.S. holder"
means a beneficial owner of our common stock that is not, for
U.S. federal income tax purposes:
•
an individual who is a citizen or
    resident of the U.S.;
•
a corporation (including any
    entity treated as a corporation for U.S. federal income tax
    purposes) created or organized in or under the laws of the
    U.S. or any political subdivision thereof;
•
an estate the income of which is
    includible in gross income for U.S. federal income tax
    purposes regardless of its source; or
•
a trust (1) if a
    U.S. court is able to exercise primary supervision over the
    administration of the trust and one or more U.S. persons
    have authority to control all substantial decisions of the
    trust, or (2) that has made a valid election to be treated as a
    U.S. person for such purposes.
This discussion specifically does not address U.S. federal
income and estate tax rules applicable to any person who holds
our common stock through entities treated as partnerships for
U.S. federal income tax purposes or through entities which
are disregarded for U.S. federal income tax purposes or to
such entities themselves. If a partnership (including any entity
or arrangement treated as a partnership for such purposes) owns
our common stock, the tax treatment of a partner in the
partnership will depend upon the status of the partner and the
activities of the partnership. A holder that is a partnership, a
disregarded entity or holders of interests in such entities
should consult their own tax advisor regarding the tax
consequences of the purchase, ownership and disposition of our
common stock.
This discussion does not consider:
•
any U.S. state, local or
    foreign tax consequences;
•
any U.S. federal gift tax
    consequences;
•
any U.S. federal tax
    consideration that may be relevant to a
non-U.S.
holder
    in light of its particular circumstances or to
non-U.S.
holders
    that may be subject to special treatment under U.S. federal
    tax laws, including without limitation, banks or other financial
    institutions, insurance companies, common trust funds,
    tax-exempt organizations, certain trusts, hybrid entities,
    certain former citizens or residents of the U.S., holders
    subject to U.S. federal alternative minimum tax,
    broker-dealers, and dealers or traders in securities or
    currencies; or
•
special tax rules that may apply
    to a
non-U.S. holder
that is deemed to sell our common stock under the constructive
    sale provisions of the Code and to a
non-U.S. holder
that holds our common
105
Material U.S. federal income and estate tax consequences
to
non-U.S. holders
stock as part of a "straddle," "hedge,"
    "conversion transaction," "synthetic
    security" or other integrated investment.
This discussion is for general purposes only. Prospective
investors are urged to consult their own tax advisors regarding
the application of the U.S. federal income and estate tax laws
to their particular situations and the consequences under U.S.
federal gift tax laws, as well as foreign, state and local laws
and tax treaties.
DIVIDENDS
As previously discussed, we do not anticipate paying dividends
on our common stock in the foreseeable future as described in
the section of this prospectus entitled "Dividend
policy." If we pay dividends on our common stock, those
payments will constitute dividends for U.S. federal income
tax purposes to the extent paid from our current or accumulated
earnings and profits, as determined under U.S. federal
income tax principles. To the extent those distributions exceed
our current and accumulated earnings and profits, the
distributions will constitute a return of capital and first
reduce the
non-U.S. holder's
adjusted tax basis, but not below zero, and then will be treated
as gain from the sale of stock, as described in the section of
this prospectus entitled "Gain on disposition of common
stock."
Dividends paid to a
non-U.S. holder
generally will be subject to withholding of U.S. federal
income tax at a 30% rate, or a lower rate under an applicable
income tax treaty, unless the dividend is effectively connected
with the conduct of a trade or business of the
non-U.S. holder
within the U.S. or, if an income tax treaty applies,
attributable to a permanent establishment of the
non-U.S. holder
within the U.S. Under applicable U.S. Treasury
regulations, a
non-U.S. holder
(including, in certain cases of
non-U.S. holders
that are entities, the owner or owners of such entities) will be
required to satisfy certain certification and disclosure
requirements in order to claim a reduced rate of withholding
pursuant to an applicable income tax treaty.
Non-U.S. holders
should consult their tax advisors regarding their entitlement to
benefits under a relevant income tax treaty.
Dividends that are effectively connected with a
non-U.S. holder's
conduct of a trade or business in the U.S. or, if an income
tax treaty applies, attributable to a permanent establishment in
the U.S., are taxed on a net income basis at the regular
graduated U.S. federal income tax rates in the same manner
as if the
non-U.S. holder
were a resident of the U.S. In such cases, we will not have to
withhold U.S. federal income tax if the
non-U.S. holder
complies with applicable certification and disclosure
requirements. In addition, a "branch profits tax" may
be imposed at a 30% rate, or a lower rate under an applicable
income tax treaty, on dividends received by a foreign
corporation that are effectively connected with the conduct of a
trade or business in the U.S.
A
non-U.S. holder
that is eligible for a reduced rate of U.S. federal
withholding tax under an income tax treaty may obtain a refund
or credit of any excess amounts withheld by filing an
appropriate claim for a refund together with the required
information with the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A
non-U.S. holder
generally will not be subject to U.S. federal income tax
with respect to gain realized on a sale or other disposition of
our common stock unless one of the following applies:
•
the gain is effectively connected
    with the
non-U.S. holder's
conduct of a trade or business in the U.S. or, if an income
    tax treaty applies, is attributable to a permanent establishment
    maintained by the
non-U.S.
holder in the
    U.S.; in these cases, the
non-U.S.
holder
    generally will be taxed on its net gain derived from the
    disposition at the regular graduated rates and in the manner
    applicable to U.S. persons and, if the
non-U.S.
holder is a
    foreign corporation, the "branch profits tax"
    described above may also apply;
106
Material U.S. federal income and estate tax consequences
to
non-U.S. holders
•
the
non-U.S. holder
is
    an individual who holds the common stock as a capital asset and
    is present in the U.S. for 183 days or more in the
    taxable year of the disposition and certain other conditions are
    met; in this case, the
non-U.S. holder
will be subject to a 30% tax on the gain derived from the sale
    or other disposition or such lower rate as may be specified by
    an applicable income tax treaty; or
•
we are or have been a
    "U.S. real property holding corporation" for
    U.S. federal income tax purposes at any time within the
    shorter of the five-year period ending on the date of
    disposition or the period that the
non-U.S. holder
held our common stock. We do not believe that we have been,
    currently are, or will become, a U.S. real property holding
    corporation. If we were or were to become a U.S. real
    property holding corporation at any time during the applicable
    period, however, any gain recognized on a disposition of our
    common stock by a
non-U.S. holder
that did not own (directly, indirectly or constructively) more
    than 5% of our common stock during the applicable period would
    not be subject to U.S. federal income tax, provided that
    our common stock is "regularly traded on an established
    securities market" (within the meaning of
    Section 897(c)(3) of the Code).
FEDERAL ESTATE TAX
Common stock owned or treated as owned by an individual who is a
non-U.S. holder
at
the time of death will be included in the individual's
gross estate for U.S. federal estate tax purposes, unless
an applicable estate tax or other treaty provides otherwise,
and, therefore, such individual may be subject to
U.S. federal estate tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Dividends and proceeds from the sale or other taxable
disposition of our common stock are potentially subject to
backup withholding. In general, backup withholding will not
apply to dividends on our common stock made by us or our paying
agents, in their capacities as such, to a
non-U.S. holder
if
the holder has provided the required certification that it is a
non-U.S. holder
and neither we nor our paying agent has actual knowledge (or
reason to know) that the holder is a U.S. holder.
Generally, we must report to the IRS the amount of dividends
paid, the name and address of the recipient, and the amount, if
any, of tax withheld. These information reporting requirements
apply even if withholding was not required. A similar report is
sent to the recipient of the dividend. Pursuant to income tax
treaties or some other agreements, the IRS may make its reports
available to tax authorities in the recipient's country of
residence.
In general, backup withholding and information reporting will
not apply to proceeds from the disposition of our common stock
paid to a
non-U.S. holder
if
the holder has provided the required certification that it is a
non-U.S. holder
and neither we nor our paying agent has actual knowledge (or
reason to know) that the holder is a U.S. holder.
Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in
an overpayment of taxes, a refund or credit against the
holder's U.S. federal income tax liability, if any,
may be obtained provided that the required information is
furnished to the IRS in a timely manner.
Non-U.S. holders
should consult their tax advisors regarding the application of
the information reporting and backup withholding rules to them.
Prospective
non-U.S. holders
of our common stock should consult their tax advisors with
respect to the particular tax consequences to them of owning and
disposing of our common stock, including the consequences under
the laws of any state, local or foreign jurisdiction or under
any applicable tax treaty.
107
Underwriting
We are offering the shares of our common stock described in this
prospectus through the underwriters named below. UBS Securities
LLC, CIBC World Markets Corp., Leerink Swann & Company
and Oppenheimer & Co. are the representatives of the
underwriters. We have entered into an underwriting agreement
with the representatives. Subject to the terms and conditions of
the underwriting agreement, each of the underwriters has
severally agreed to purchase the number of shares of common
stock listed next to its name in the following table:
Number of
Underwriters
shares
UBS Securities LLC
CIBC World Markets Corp.
Leerink Swann & Company
Oppenheimer & Co. Inc.
Total
The underwriting agreement provides that the underwriters must
buy all of the shares if they buy any of them. However, the
underwriters are not required to take or pay for the shares
covered by the underwriters' over-allotment option
described below.
Our common stock is offered subject to a number of conditions,
including:
•
receipt and acceptance of the
    common stock by the underwriters; and
•
the underwriters' right to
    reject orders in whole or in part.
The representatives have advised us that the underwriters intend
to make a market in our common stock but that they are not
obligated to do so and may discontinue making a market at any
time without notice.
In connection with this offering, certain of the underwriters or
securities dealers may distribute prospectuses electronically.
Sales of shares made outside of the United States may be made by
affiliates of the underwriters.
OVER-ALLOTMENT OPTION
We have granted the underwriters an option to buy up
to                     additional
shares of our common stock. The underwriters may exercise this
option solely for the purpose of covering over-allotments, if
any, made in connection with this offering. The underwriters
have 30 days from the date of this prospectus to exercise
this option. If the underwriters exercise this option, they will
each purchase additional shares approximately in proportion to
the amounts specified in the table above.
COMMISSIONS AND DISCOUNTS
Shares sold by the underwriters to the public will initially be
offered at the offering price set forth on the cover of this
prospectus. Any shares sold by the underwriters to securities
dealers may be sold at a discount of up to
$          per
share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the
underwriters to other brokers or dealers at a discount of up to
$          per
share from the initial public offering price. If all the shares
are not sold at the initial public offering price, the
representatives may change the offering price and the other
selling terms. Upon execution of the underwriting agreement, the
underwriters will be obligated to purchase the shares at the
prices and upon the terms stated therein and, as a result, will
thereafter bear any risk
108
Underwriting
associated with changing the offering price to the public or
other selling terms. The underwriters have informed us that they
do not expect discretionary sales to exceed 5% of the shares of
common stock to be offered.
The following table shows the per share and total underwriting
discounts and commissions we will pay to the underwriters,
assuming both no exercise and full exercise of the
underwriters' option to purchase up to an
additional                      shares:
No exercise
Full exercise
Per share
$
$
Total
$
$
We estimate that the total expenses of this offering payable by
us, not including the underwriting discounts and commissions,
will be approximately
$           million.
NO SALES OF SIMILAR SECURITIES
We, our executive officers and directors and substantially all
of our existing security holders have entered into
lock-up
agreements with
the underwriters. Under these agreements, subject to certain
exceptions, we and each of these persons may not, without the
prior written approval of UBS Securities LLC, offer, sell,
contact to sell or otherwise dispose of, directly or indirectly,
or hedge our common stock or securities convertible into or
exchangeable for our common stock. These restrictions will be in
effect for a period of 180 days after the date of this
prospectus. At any time and without public notice, UBS
Securities LLC may, in its sole discretion, release some or all
of the securities from these
lock-up
agreements.
If during the period that begins on the date that is 15 calendar
days plus 3 business days before the last day of the
180-day
lock-up
period and ends
on the last day of the
180-day
lock-up
period, we
issue an earnings release or material news or a material event
relating to us occurs; or prior to the expiration of the
180-day
lock-up
period, we
announce that we will release earnings results during the
16-day
period beginning
on the last day of the
180-day
lock-up
period, then
the
180-day
lock-up
period will be
extended until the expiration of the date that is 15 calendar
days plus 3 business days after the date on which the issuance
of the earnings release or the material news or material event
occurs.
INDEMNIFICATION AND CONTRIBUTION
We have agreed to indemnify the underwriters and their
controlling persons against certain liabilities, including
liabilities under the Securities Act. If we are unable to
provide this indemnification, we have agreed to contribute to
payments the underwriters and their controlling persons may be
required to make in respect of those liabilities.
NASDAQ NATIONAL MARKET QUOTATION
We have applied to have our common stock approved for quotation
on NASDAQ under the symbol "OMRI."
109
Underwriting
PRICE STABILIZATION, SHORT POSITIONS
In connection with this offering, the underwriters may engage in
activities that stabilize, maintain or otherwise affect the
price of our common stock, including:
•
stabilizing transactions;
•
short sales;
•
purchases to cover positions
    created by short sales;
•
imposition of penalty
    bids; and
•
syndicate covering transactions.
Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market
price of our common stock while this offering is in progress.
These transactions may also include making short sales of our
common stock, which involve the sale by the underwriters of a
greater number of shares of common stock than they are required
to purchase in this offering. Short sales may be "covered
short sales," which are short positions in an amount not
greater than the underwriters' over-allotment option
referred to above, or may be "naked short sales,"
which are short positions in excess of that amount.
The underwriters may close out any covered short position either
by exercising their over-allotment option, in whole or in part,
or by purchasing shares in the open market. In making this
determination, the underwriters will consider, among other
things, the price of shares available for purchase in the open
market compared to the price at which they may purchase shares
through the over-allotment option.
Naked short sales are sales in excess of the over-allotment
option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position
is more likely to be created if the underwriters are concerned
that there may be downward pressure on the price of the common
stock in the open market that could adversely affect investors
who purchased in this offering.
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of that underwriter in stabilizing or short covering
transactions.
As a result of these activities, the price of our common stock
may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be
discontinued by the underwriters at any time. The underwriters
may carry out these transactions on NASDAQ, in the
over-the
-counter market
or otherwise.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there was no public market for our
common stock. The initial public offering price will be
determined by negotiation by us and the representatives of the
underwriters. The principal factors to be considered in
determining the initial public offering price include:
•
the information set forth in this
    prospectus and otherwise available to the representatives;
•
our history and prospects and the
    history of, and prospects for, the industry in which we compete;
•
our past and present financial
    performance and an assessment of our management;
•
our prospects for future earnings
    and the present state of our development;
110
Underwriting
•
the general condition of the
    securities markets at the time of this offering;
•
the recent market prices of, and
    the demand for, publicly traded common stock of generally
    comparable companies; and
•
other factors deemed relevant by
    the underwriters and us.
AFFILIATIONS
Certain of the underwriters and their affiliates may from time
to time provide certain commercial banking, financial advisory,
investment banking and other services for us for which they will
be entitled to receive separate fees.
111
Notice to investors
EUROPEAN ECONOMIC AREA
In relation to each Member State of the European Economic Area,
or EEA, which has implemented the Prospectus Directive (each, a
Relevant Member State), with effect from and including the date
on which the Prospectus Directive is implemented in that
Relevant Member State, or the Relevant Implementation Date, our
common stock will not be offered to the public in that Relevant
Member State prior to the publication of a prospectus in
relation to our common stock that has been approved by the
competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and
notified to the competent authority in that Relevant Member
State, all in accordance with the Prospectus Directive, except
that, with effect from and including the Relevant Implementation
Date, our common stock may be offered to the public in that
Relevant Member State at any time:
•
to legal entities which are
    authorized or regulated to operate in the financial markets or,
    if not so authorized or regulated, whose corporate purpose is
    solely to invest in securities;
•
to any legal entity which has two
    or more of (1) an average of at least 250 employees
    during the last financial year; (2) a total balance sheet
    of more than
€
43,000,000 and
    (3) an annual net turnover of more than
€
50,000,000, as
    shown in its last annual or consolidated accounts; or
•
in any other circumstances which
    do not require the publication by us of a prospectus pursuant to
    Article 3 of the Prospectus Directive.
As used above, the expression "offered to the public"
in relation to any of our common stock in any Relevant Member
State means the communication in any form and by any means of
sufficient information on the terms of the offer and our common
stock to be offered so as to enable an investor to decide to
purchase or subscribe for our common stock, as the same may be
varied in that Member State by any measure implementing the
Prospectus Directive in that Member State and the expression
"Prospectus Directive" means Directive 2003/71/ EC and
includes any relevant implementing measure in each Relevant
Member State.
The EEA selling restriction is in addition to any other selling
restrictions set out below.
UNITED KINGDOM
Our common stock may not be offered or sold and will not be
offered or sold to any persons in the United Kingdom other than
to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or
as agent) for the purposes of their businesses and in compliance
with all applicable provisions of the Financial Services and
Markets Act 2000, or the FSMA, with respect to anything done in
relation to our common stock in, from or otherwise involving the
United Kingdom. In addition, each underwriter has only
communicated or caused to be communicated and will only
communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning
of Section 21 of the FSMA) received by it in connection
with the issue or sale of our common stock in circumstances in
which Section 21(1) of the FSMA does not apply to us.
Without limitation to the other restrictions referred to herein,
this prospectus is directed only at (1) persons outside the
United Kingdom, (2) persons having professional experience
in matters relating to investments who fall within the
definition of "investment professionals" in
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005; or (3) high net
worth bodies corporate, unincorporated associations and
partnerships and trustees of high value trusts as described in
Article 49(2) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005. Without limitation to the
other restrictions referred to herein,
112
Notice to investors
any investment or investment activity to which this prospectus
relates is available only to, and will be engaged in only with,
such persons, and persons within the United Kingdom who receive
this communication (other than persons who fall within
(2) or (3) above) should not rely or act upon this
communication.
FRANCE
No prospectus (including any amendment, supplement or
replacement thereto) has been prepared in connection with the
offering of our common stock that has been approved by the
Autorité des marchés financiers or by the competent
authority of another State that is a contracting party to the
Agreement on the European Economic Area and notified to the
Autorité des marchés financiers; no common stock has
been offered or sold and will be offered or sold, directly or
indirectly, to the public in France except to permitted
investors, consisting of persons licensed to provide the
investment service of portfolio management for the account of
third parties, qualified investors (investisseurs
qualifiés) acting for their own account and/or corporate
investors meeting one of the four criteria provided in
Article 1 of Decree N° 2004-1019 of September 28,
2004 and belonging to a limited circle of investors (cercle
restreint d'investisseurs) acting for their own account,
with "qualified investors" and "limited circle of
investors" having the meaning ascribed to them in
Article L. 411-2 of the French Code Monétaire et
Financier and applicable regulations thereunder; none of this
prospectus or any other materials related to the offer or
information contained therein relating to our common stock has
been released, issued or distributed to the public in France
except to Permitted Investors; and the direct or indirect resale
to the public in France of any common stock acquired by any
Permitted Investors may be made only as provided by articles L.
412-1 and L. 621-8 of the French Code Monétaire et
Financier and applicable regulations thereunder.
ITALY
The offering of shares of our common stock has not been cleared
by the Italian Securities Exchange Commission (Commissione
Nazionale per le Società e la Borsa, or the CONSOB)
pursuant to Italian securities legislation and, accordingly,
shares of our common stock may not and will not be offered, sold
or delivered, nor may or will copies of this prospectus or any
other documents relating to shares of our common stock or the
offering be distributed in Italy other than to professional
investors (operatori qualificati), as defined in
Article 31, paragraph 2 of CONSOB
Regulation No. 11522 of July 1, 1998, as amended,
or Regulation No. 11522.
Any offer, sale or delivery of shares of our common stock or
distribution of copies of this prospectus or any other document
relating to shares of our common stock or the offering in Italy
may and will be effected in accordance with all Italian
securities, tax, exchange control and other applicable laws and
regulations, and, in particular, will be: (i) made by an
investment firm, bank or financial intermediary permitted to
conduct such activities in Italy in accordance with the
Legislative Decree No. 385 of September 1, 1993, as
amended, or the Italian Banking Law, Legislative Decree
No. 58 of February 24, 1998, as amended,
Regulation No. 11522, and any other applicable laws
and regulations; (ii) in compliance with Article 129
of the Italian Banking Law and the implementing guidelines of
the Bank of Italy; and (iii) in compliance with any other
applicable notification requirement or limitation which may be
imposed by CONSOB or the Bank of Italy.
Any investor purchasing shares of our common stock in the
offering is solely responsible for ensuring that any offer or
resale of shares of common stock it purchased in the offering
occurs in compliance with applicable laws and regulations.
This prospectus and the information contained herein are
intended only for the use of its recipient and are not to be
distributed to any third party resident or located in Italy for
any reason. No person
113
Notice to investors
resident or located in Italy other than the original recipients
of this document may rely on it or its content.
In addition to the above (which shall continue to apply to the
extent not inconsistent with the implementing measures of the
Prospective Directive in Italy), after the implementation of the
Prospectus Directive in Italy, the restrictions, warranties and
representations set out under the heading "European
Economic Area" above shall apply to Italy.
SPAIN
Neither the common stock nor this prospectus have been approved
or registered in the administrative registries of the Spanish
National Securities Exchange Commission (Comisión Nacional
del Mercado de Valores). Accordingly, our common stock may not
be offered in Spain except in circumstances which do not
constitute a public offer of securities in Spain within the
meaning of articles 30bis of the Spanish Securities Markets Law
of 28 July 1988 (Ley 24/1988, de 28 de Julio, del Marcado
de Valores), as amended and restated, and supplemental rules
enacted thereunder.
SWEDEN
This is not a prospectus under, and has not been prepared in
accordance with the prospectus requirements provided for in, the
Swedish Financial Instruments Trading Act (lagen (1991:980) om
handel med finasiella instrument) nor any other Swedish
enactment. Neither the Swedish Financial Supervisory Authority
nor any other Swedish public body has examined, approved, or
registered this document.
SWITZERLAND
The common stock may not and will not be publicly offered,
distributed or re-distributed on a professional basis in or from
Switzerland and neither this prospectus nor any other
solicitation for investments in our common stock may be
communicated or distributed in Switzerland in any way that could
constitute a public offering within the meaning of
Articles 1156 or 652a of the Swiss Code of Obligations or
of Article 2 of the Federal Act on Investment Funds of
March 18, 1994. This prospectus may not be copied,
reproduced, distributed or passed on to others without the
underwriters' prior written consent. This prospectus is not
a prospectus within the meaning of Articles 1156 and 652a
of the Swiss Code of Obligations or a listing prospectus
according to article 32 of the Listing Rules of the Swiss
Exchange and may not comply with the information standards
required thereunder. We will not apply for a listing of our
common stock on any Swiss stock exchange or other Swiss
regulated market and this prospectus may not comply with the
information required under the relevant listing rules. The
common stock offered hereby has not and will not be registered
with the Swiss Federal Banking Commission and has not and will
not be authorized under the Federal Act on Investment Funds of
March 18, 1994. The investor protection afforded to
acquirers of investment fund certificates by the Federal Act on
Investment Funds of March 18, 1994 does not extend to
acquirers of our common stock.
114
Legal matters
The validity of the common stock offered hereby will be passed
upon for us by Skadden, Arps, Slate, Meagher & Flom
LLP, New York, New York. Dewey Ballantine LLP, New York, New
York is counsel for the underwriters in connection with this
offering.
Experts
The consolidated financial statements of Omrix
Biopharmaceuticals, Inc. at December 31, 2004, and for the
year then ended, appearing in this Prospectus and Registration
Statement have been audited by Kost, Forer, Gabbay &
Kasierer, a member of Ernst & Young Global, an
independent registered public accounting firm, and at
December 31, 2003, and for each of the two years in the
period ended December 31, 2003, by Ziv Haft, a BDO member
firm, an independent registered public accounting firm, as set
forth in their respective reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given on
the authority of such firms as experts in accounting and
auditing.
115
Where you can find additional information
We have filed with the SEC a registration statement on
Form S-1
under the
Securities Act with respect to the shares of common stock we are
offering. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information
in the registration statement and the exhibits which are part of
the registration statement. For further information with respect
to us and our common stock, we refer you to the registration
statement and to the exhibits to the registration statement.
Statements contained in this prospectus about the contents of
any contract or any other document are not necessarily complete,
and, in each instance, we refer you to the copy of the contract
or other document filed as an exhibit to the registration
statement. Each of these statements is qualified in all respects
by this reference.
You may read and copy the registration statement of which this
prospectus is a part at the SEC's Public Reference Room,
which is located at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You can request copies of the
registration statement by writing to the SEC and paying a fee
for the copying cost. Please call the SEC at
1-800-SEC-0330
for more
information about the operation of the SEC's Public
Reference Room. In addition, the SEC maintains an Internet
website, which is located at www.sec.gov, that contains reports,
proxy and information statements and other information regarding
issuers that file electronically with the SEC. You may access
the registration statement of which this prospectus is a part at
the SEC's Internet website. Upon completion of this
offering, we will be subject to the information reporting
requirements of the Securities Exchange Act of 1934, and we will
file reports, proxy statements and other information with the
SEC.
This prospectus includes statistical data obtained from industry
publications. These industry publications generally indicate
that the authors of these publications have obtained information
from sources believed to be reliable but do not guarantee the
accuracy and completeness of their information. While we believe
these industry publications to be reliable, we have not
independently verified their data.
116
Omrix Biopharmaceuticals, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS at
SEPTEMBER 30, 2005
Page
Reports of independent registered public
    accounting firms
F-2
Consolidated balance sheets
F-4
Consolidated statements of operations
F-6
Statements of changes in stockholders'
    deficiency
F-7
Consolidated statements of cash flows
F-8
Notes to consolidated financial
    statements
F-10
Schedule II— Valuation and
    qualification accounts
F-35
F-1
Report of independent registered public accounting firm
To the stockholders of
Omrix Biopharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of
Omrix Biopharmaceuticals, Inc. ("the Company") and its
subsidiaries at December 31, 2004, and the related
consolidated statements of operations, changes in
stockholders' deficiency and cash flows for the year then
ended. Our audit also included the accompanying financial
statement schedule. These financial statements and schedule are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Company's and its subsidiaries' internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's and its
subsidiaries' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, based on our audit, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company and
its subsidiaries at December 31, 2004, and the consolidated
results of their operations and their cash flows for the year
then ended in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/
KOST FORER
GABBAY & KASIERER
A Member of Ernst & Young Global
Tel-Aviv, Israel
December 29, 2005
F-2
Report of independent registered public accounting firm
To the stockholders
Omrix Biopharmaceuticals Inc.
We have audited the consolidated balance sheets of Omrix
Biopharmaceuticals Inc. and its subsidiaries ("the
Company") at December 31, 2003 and the consolidated
statements of operations, changes in stockholders'
deficiency and cash flows for each of the two years in the
period ended December 31, 2003. Our audit also included the
accompanying financial statement schedule. These financial
statements and schedule 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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting.
Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of the Company at
December 31, 2003, and the related consolidated results of
operations and cash flows for each of the two years in the
period ended December 31, 2003, in conformity with
generally accepted accounting principles as applied in the
United States of America.
Also, in our opinion the related financial statement schedule
when considered in relation to the basic financial statement
taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/
ZIV HAFT
Certified Public Accountants (Isr.)
BDO member firm
Tel-Aviv, Israel
December 29, 2005
F-3
Omrix Biopharmaceuticals, Inc.
Consolidated balance sheets
December 31,
September 30,
Note
2003
2004
2005
(U.S. dollars in thousands)
(unaudited)
ASSETS
Current assets
Cash and cash equivalents
$
1,813
$
5,489
$
6,038
Account receivables:
Trade, net of allowance for doubtful accounts of $1,466, $16 and
    $23 at December 31, 2003 and 2004 and September 30,
    2005 (unaudited), respectively
4,786
5,564
7,279
Other
3
1,552
1,800
1,597
Inventory
4
8,534
6,899
7,284
Total current assets
16,685
19,752
22,198
Long-term receivables
672
678
385
Property, plant and equipment, net
5
3,258
4,171
4,205
Deferred charges and other assets
6
230
134
822
Total assets
$
20,845
$
24,735
$
27,610
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
Omrix Biopharmaceuticals, Inc.
Consolidated balance sheets
Pro forma
stockholders'
December 31,
deficiency at
September 30,
September 30,
Note
2003
2004
2005
2005
(U.S. dollars in thousands, except share and per
share data)
(unaudited)
(unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Short-term credit from banks and current maturities of long-term
    loans
9
$
903
$
2,491
$
4,573
Accounts payable and accruals:
Trade
11,772
7,537
7,006
Other
8
2,980
6,856
8,244
Convertible promissory notes
7
13,547
11,432
—
Total current liabilities
29,202
28,316
19,823
Long-term liabilities:
Long-term loans, net of current maturities
9
158
191
4,541
Convertible notes
10
22,063
24,328
—
Convertible promissory notes
7
—
—
2,098
Deferred revenues
1,938
7,387
6,726
Other long-term liabilities
11
167
640
543
Total long-term liabilities
24,326
32,546
13,908
Total liabilities
53,528
60,862
33,731
Commitments and contingent liabilities
12
Temporary equity:
Series A and B Convertible Redeemable Preferred stock of
    $0.01 par value—
13
Authorized: 17,000,000 shares, 2,500,000 shares and
    none at December, 31, 2003 and 2004 and at
    September 30, 2005 (unaudited), respectively; Issued and
    outstanding: 631,688 shares, 1,038,523 shares and none
    at December 31, 2003, 2004 and at September 30, 2005
    (unaudited), respectively; Aggregate liquidation preference of
    $10,121 at December 31, 2004; 20,000,000 shares
    authorized and none issued and outstanding pro forma (unaudited)
5,006
10,019
—
Stockholders' deficiency:
Common stock of $0.01 par value—
13
Authorized; 35,000,000, 37,500,000 and 40,000,000 shares at
    December 31, 2003 and 2004 and at September 30, 2005
    (unaudited); respectively; Issued: 9,560,583, 9,560,583 and
    29,915,654 shares at December 31, 2003 and 2004 and at
    September 30, 2005 (unaudited): Outstanding: 9,540,988,
    9,540,988 and 29,896,059 shares at December 31, 2003
    and 2004 and at September 30, 2005 (unaudited); Authorized:
    120,000,000 shares pro forma; Issued: XXX shares pro-
    forma; Outstanding: XXX shares pro-forma (unaudited)
95
95
299
Additional paid-in capital
28,563
28,601
86,782
Deferred stock-based compensation
—
(25
)
(19
)
Treasury stock, at cost (19,595 shares at December 31,
    2003 and 2004 and at September 30, 2005 (unaudited))
(44
)
(44
)
(44
)
Accumulated other comprehensive loss
(2,177
)
(3,922
)
(974
)
Accumulated deficit
(64,126
)
(70,851
)
(92,165
)
Total stockholders' deficiency
(37,689
)
(46,146
)
(6,121
)
Total liabilities and stockholders' deficiency
$
20,845
$
24,735
$
27,610
$
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
Omrix Biopharmaceuticals, Inc.
Consolidated statements of operations
Nine months ended
Year ended December 31,
September 30,
Note
2002
2003
2004
2004
2005
(U.S. dollars in thousands, except share and per share data)
(unaudited)
Revenues:
Product sales
$
11,822
$
14,232
$
17,567
$
12,451
$
16,019
Development services and grants
404
715
2,381
1,939
3,152
Total revenues
12,226
14,947
19,948
14,390
19,171
Cost of revenues:
Product sales
9,753
13,601
15,421
11,598
12,622
Development services and grants
—
715
2,121
1,751
2,641
Total cost of revenues
9,753
14,316
17,542
13,349
15,263
Gross profit
2,473
631
2,406
1,041
3,908
Research and development, clinical and regulatory expenses, net
3,441
2,751
2,980
2,671
2,014
Selling, marketing, general and administrative expenses
3,701
3,826
4,790
3,013
4,717
Operating loss
4,669
5,946
5,364
4,643
2,823
Financial expenses, net
15
805
627
2,466
3,885
24,982
Other income (expenses), net
16
(39
)
7
1,226
1,226
—
Net loss
$
5,513
$
6,566
$
6,604
$
7,302
$
27,805
Accrued dividend and induced conversion of Preferred stock and
    warrants
13
—
—
(121
)
(61
)
6,491
Net loss for common stockholders
$
5,513
$
6,566
$
6,725
$
7,363
$
21,314
Net loss per share—
17
Basic net loss per share of common stock
$
0.58
$
0.69
$
0.70
$
0.77
$
0.74
Diluted net loss per share of common stock
$
0.58
$
0.69
$
0.70
$
0.77
$
0.90
Weighted average number of shares of common stock outstanding
    during the year used to compute basic net loss per share
9,556,501
9,540,988
9,540,988
9,540,988
28,765,222
Weighted average number of shares of common stock outstanding
    during the year used to compute diluted net loss per share
9,556,501
9,540,988
9,540,988
9,540,988
28,822,917
Pro forma basic net loss per share of common stock (unaudited)
$
$
Pro forma diluted net loss per share of common stock (unaudited)
$
$
Weighted average number of shares of common stock used in
    computing pro forma net loss per common stock amounts—
    basic (unaudited)
Weighted average number of shares of common stock used in
    computing pro forma net loss per share of common stock—
    diluted (unaudited)
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
Omrix Biopharmaceuticals, Inc.
Consolidated statements of changes in stockholders'
deficiency
Common stock
Additional
Deferred
Accumulated other
Total
Number of
Share
paid-in
stock-based
Treasury
comprehensive
Accumulated
comprehensive
shares
capital
capital
compensation
stock
income (loss)
deficit
loss
Total
(U.S. dollars in thousands, except share and per share data)
Balance at January 1, 2002
9,560,583
$
95
$
28,528
$
—
$
—
$
3,833
$
(52,047
)
$
(19,591
)
Repurchase of common stock
(19,595
)
*) —
—
—
(44
)
—
—
(44
)
Comprehensive loss:
Net loss
—
—
—
—
—
—
(5,513
)
$
(5,513
)
(5,513
)
Foreign currency translation adjustments
—
—
—
—
—
(2,661
)
—
(2,661
)
(2,661
)
Total comprehensive loss
$
(8,174
)
Balance at December 31, 2002
9,540,988
95
28,528
—
(44
)
1,172
(57,560
)
(27,809
)
Compensation related to non- employee
—
—
35
—
—
—
—
35
Comprehensive loss:
Net loss
—
—
—
—
—
—
(6,566
)
$
(6,566
)
(6,566
)
Foreign currency translation adjustments
—
—
—
—
—
(3,349
)
—
(3,349
)
(3,349
)
Total comprehensive loss
$
(9,915
)
Balance at December 31, 2003
9,540,988
95
28,563
—
(44
)
(2,177
)
(64,126
)
(37,689
)
Deferred stock-based compensation
—
—
30
(30
)
—
—
—
—
Amortization of deferred stock- based compensation
—
—
—
5
—
—
—
5
Stock-based compensation to non- employees
—
—
8
—
—
—
—
8
Comprehensive loss:
Net loss
—
—
—
—
—
—
(6,604
)
$
(6,604
)
(6,604
)
Foreign currency translation adjustments
—
—
—
—
—
(1,745
)
—
(1,745
)
(1,745
)
Accrued dividend on Preferred stock
—
—
—
—
—
—
(121
)
—
(121
)
Total comprehensive loss
$
(8,349
)
Balance at December 31, 2004
9,540,988
95
28,601
(25
)
(44
)
(3,922
)
(70,851
)
(46,146
)
Recapitalization Agreement:
Conversion of convertible notes
17,926,262
179
54,509
—
—
—
—
54,688
Conversion of Preferred stock
2,406,792
25
5,313
—
—
—
—
5,338
Conversion of warrants
22,017
—
(1,785
)
—
—
—
—
(1,785
)
Amortization of deferred stock- based compensation (unaudited)
—
—
—
14
—
—
—
14
Deferred compensation related to employee stock option grants
    (unaudited)
—
—
8
(8
)
—
—
—
—
Stock-based compensation to non- employees (unaudited)
—
—
61
—
—
—
—
—
61
Warrants that were issued in contemplation with long-term loan
    (unaudited)
—
—
75
—
—
—
—
75
Comprehensive loss:
Net loss (unaudited)
—
—
—
—
—
—
(27,805
)
$
(27,805
)
(27,805
)
Foreign currency translation adjustments (unaudited)
—
—
—
—
—
2,948
—
2,948
2,948
Induced conversion of Preferred stock and warrants (unaudited)
—
—
—
—
—
—
6,491
—
6,491
Total comprehensive loss
$
(24,857
)
Balance at September 30, 2005 (unaudited)
29,896,059
$
299
$
86,782
$
(19
)
$
(44
)
$
(974
)
$
(92,165
)
$
(6,121
)
*)
Represents an amount less than $1.
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
Omrix Biopharmaceuticals, Inc.
Consolidated statements of cash flows
Nine months ended
Year ended December 31,
September 30,
2002
2003
2004
2004
2005
(U.S. dollars in thousands)
(unaudited)
Cash flows from operating activities:
Net loss
$
(5,513
)
$
(6,566
)
$
(6,604
)
$
(7,302
)
$
(27,805
)
Adjustments required to reconcile net loss to net cash provided
    by (used in) operating activities:
Depreciation of property, plant and equipment
733
656
659
482
541
Amortization of intangible assets
—
—
—
—
15
Amortization of deferred charges
65
127
96
65
139
Loss (gain) from sale of property, plant and equipment
39
(7
)
(11
)
(11
)
2
Increase (decrease) in accrued severance pay, net
(11
)
(2
)
56
34
(36
)
Accrued interest and exchange differences on long-term loans
(35
)
—
19
2
13
Accrued interest and exchange differences on long-term deposits
—
(26
)
16
21
—
Stock-based compensation and amortization of deferred stock
    compensation to employees
—
35
13
5
75
Inventory write-offs
497
505
177
150
97
Unrealized foreign exchange differences, net
(2,506
)
(2,766
)
(1,694
)
315
2,786
Interest and amortization of discount on convertible notes
2,619
4,148
2,649
1,868
246
Financing charges related to inducement and extinguishment of
    convertible notes and warrants(1)
—
—
—
—
20,932
Decrease (increase) in accounts receivable:
Trade, net
319
(554
)
(738
)
(810
)
(1,768
)
Other
(19
)
(554
)
(228
)
11
47
Decrease (increase) in inventory
(1,356
)
(2,651
)
1,495
1,504
(526
)
Increase (decrease) in accounts payable and accruals:
Trade
2,159
3,772
(2,777
)
870
(491
)
Other
(434
)
874
2,824
1,804
1,584
Deferred revenues
4
1,137
6,429
4,365
(728
)
Net cash provided by (used in) operating activities
(3,439
)
(1,872
)
2,381
3,373
(4,877
)
Cash flows from investing activities:
Investment in restricted cash
—
(250
)
—
—
—
Purchase of property, plant and equipment
(85
)
(328
)
(2,661
)
(1,592
)
(580
)
Proceeds from sale of property, plant and equipment
24
15
11
11
—
Investment in other assets
—
—
—
—
(585
)
Repayment of (investment in) long-term deposits, net
(2
)
78
(3
)
(3
)
295
Net cash used in investing activities
(63
)
(485
)
(2,653
)
(1,584
)
(870
)
The accompanying notes are an integral part of the consolidated
financial statements.
F-8
Omrix Biopharmaceuticals, Inc.
Consolidated statements of cash flows
Nine months ended
Year ended, December 31,
September 30,
2002
2003
2004
2004
2005
(U.S. dollars in thousands)
(unaudited)
Cash flows from financing activities:
Short-term credit from banks, net
(243
)
(143
)
1,446
417
(230
)
Debt issuance costs
(180
)
—
—
—
(257
)
Proceeds from long-term loans
5,532
230
464
446
7,100
Repayment of long-term loans
(141
)
(241
)
(309
)
(183
)
(450
)
Issuance of convertible preferred stock, net
—
—
4,892
4,892
—
Repayment of convertible promissory notes
—
—
(2,500
)
(2,500
)
—
Proceeds from issuance of warrants
—
—
—
—
75
Net cash provided by (used in) financing activities
4,968
(154
)
3,993
3,072
6,238
Translation differences from cash balances of subsidiary
(11
)
(61
)
(45
)
9
58
Increase (decrease) in cash and cash equivalents
1,455
(2,572
)
3,676
4,870
549
Balance of cash and cash equivalents at beginning of period
2,930
4,385
1,813
1,813
5,489
Balance of cash and cash equivalents at end of period
$
4,385
$
1,813
$
5,489
$
6,683
$
6,038
(1) In connection with the Recapitalization Agreement, the
    Company recorded the following:
Issuance of common stock
$
204
Conversion of convertible promissory notes
(9,501
)
Conversion of convertible notes
(24,407
)
Conversion of preferred stock
(5,313
)
Conversion of warrants
1,785
Common stock issuance costs
127
Additional paid-in capital
58,037
Financing charges related to inducement and extinguishment of
    convertible notes
$
20,932
(2) Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest
$
96
$
125
$
1,251
$
1,220
$
207
(3) Non-cash investing and financing activities:
Repurchase of treasury shares
$
44
Non-cash investments in property, plant and equipment
$
—
$
368
$
—
$
—
$
—
The accompanying notes are an integral part of the consolidated
financial statements.
F-9
OMRIX BIOPHARMACEUTICALS, INC.
Notes to consolidated financial statements
U.S. dollars in thousands except share and per share
data
NOTE 1:
GENERAL
a.     The Company:
Omrix Biopharmaceuticals, Inc. ("the Company") is a
biopharmaceutical company that develops and markets innovative
biological products for the biosurgical and passive
immunotherapy markets. The Company's research and
development and manufacturing activities are performed mainly by
its Israeli subsidiary, Omrix Biopharmaceuticals Ltd.
("Omrix Ltd.") and its European activities are
performed mainly by its European subsidiary, Omrix
Biopharmaceuticals S.A. ("Omrix S.A."). The Company
has one inactive subsidiary in Israel, Biopex Ltd.
The Company's currently marketed biosurgical product is a
fibrin sealant distributed in the U.S. under the trade name
"Crosseal" and in Europe and other territories under
the trade name "Quixil". The Company's marketed
immunotherapy products are marketed in Israel and Europe and are
used for the treatment of immune deficiencies and infectious
diseases.
Quixil/Crosseal was approved by the United States Food and Drug
Administration ("FDA") in 2003 and in Europe by
different countries, regulatory agencies and the European
Medicines Agency ("EMEA") at different times,
beginning in 1999 through 2003, and it is marketed by Ethicon,
Inc. ("Ethicon"), a Johnson and Johnson company,
mainly in the U.S. and Europe, and directly by the Company or
local distributors in other territories.
The Company's products are manufactured in a plant which is
leased from Magen David Adom, an Israeli not-for-profit
organization ("MDA") (see Note 12d).
b.     Agreements with Ethicon:
In September 2003, the Company entered into a distribution and
supply agreement ("the Ethicon 2003 Agreement") with
Ethicon for a period of 10 years.
The agreement stipulates, inter alia, that Ethicon is entitled
to exclusive distribution rights for certain biosurgical
products in the majority of the European countries. Sale price
to Ethicon is determined as a percentage of the sale price to
end-customers, subject to certain adjustments.
In addition to the product sales, the Company is entitled to
certain upfront and milestone payments.
Concurrently with the Ethicon 2003 Agreement, the Company and
Ethicon entered into a collaborative development agreement
("the 2003 Development Agreement") for the development
of new biosurgical products. Under the terms of the Development
Agreement, Ethicon agreed to finance a development plan of new
biosurgical products. In addition, the Company is entitled to
receive certain payments based on the achievement of defined
regulatory milestones.
In July 2004, the Company and Ethicon amended the Ethicon 2003
Agreement and the Development Agreement ("the Ethicon 2004
Amendments"). Under the Ethicon 2004 Amendments, the
Company and Ethicon agreed to add the U.S. and Canada as
exclusive territories. In addition, the dates of certain future
milestones under the Development Agreement were changed and
additional milestones were set.
In accordance with the terms of the Ethicon 2003 Agreement and
the Ethicon 2004 Amendments, the Company received $9,000 through
December 31, 2004 in upfront and milestone fees. Income in
respect of this consideration is recognized over the remaining
term of the agreement (see Note 2j). At December 31,
2004, the balance of deferred income with respect to
Ethicon's agreements amounted to $8,367.
F-10
Notes to consolidated financial statements
c.     As for major customers, see
Note 18.
NOTE 2:
SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are prepared
in accordance with U.S. generally accepted accounting
principles ("U.S. GAAP").
a.     Use of estimates:
The preparation of financial statements in conformity with
U.S. GAAP 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 accompanying financial statements have been prepared in
U.S. dollars.
Omrix Ltd. conducts the majority of its operations in Israel.
The majority of its revenues and expenses are denominated in
U.S. dollars. The Company's management believes that
the dollar is the primary currency of the economic environment
in which Omrix Ltd. operates. Thus, the functional and reporting
currency of Omrix Ltd. is the U.S. dollar. Accordingly,
monetary accounts maintained in currencies other than the dollar
are remeasured into dollars in accordance with Statement of the
Financial Accounting Standards Board 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 consolidated
statements of operations as financial income or expenses, as
appropriate.
Omrix S.A.'s functional currency has been determined to be
its local currency. Accordingly, assets and liabilities are
translated at year-end exchange rates and statement of
operations items are translated at average exchange rates
prevailing during the year. Such translation adjustments are
recorded as a separate component of accumulated other
comprehensive income (loss), "foreign currency translation
adjustments" in the statements of stockholders'
deficiency.
c.     Principles of consolidation:
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated upon
consolidation.
d.     Unaudited information:
The consolidated financial statements include the unaudited
consolidated balance sheet at September 30, 2005, the
related statements of operations for the nine-month periods
ended September 30, 2004 and 2005, the consolidated
statements of cash flows for the nine-month periods ended
September 30, 2004 and 2005 and the statement of changes in
stockholders' deficiency for the nine-month period ended
September 30, 2005, presented in accordance with accounting
principles generally accepted for interim financial reporting.
This unaudited information has been prepared by the Company on
the same basis as the audited annual consolidated financial
statements and, in management's opinion, reflects all
adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial information,
for the periods presented. Accordingly, they do not include all
of the information and footnotes required by U.S. GAAP for
audited financial statements. Results for interim periods are
not necessarily indicative of the results expected for the
entire year.
e.     Cash equivalents:
Cash equivalents are short-term, highly liquid investments that
are readily convertible to cash with an original maturity of
three months or less when purchased.
F-11
Notes to consolidated financial statements
f.     Inventory:
Inventory is stated at the lower of cost or market value. Cost
is determined as follows:
Raw materials and products in progress—on the basis of
    specific costs. Finished products—on the basis of
    production costs including materials, labor and direct and
    indirect manufacturing expenses.
Inventory write-offs are provided to cover risks arising from
    products with short term expiration dates in inventory and when
    market prices are lower than cost.
g.     Property, plant and equipment:
Property, plant and equipment are stated at cost, net of
accumulated depreciation. Depreciation is calculated by using
the straight-line method over the estimated useful lives of
assets.
Annual rates of depreciation are as follows:
%
Machinery and equipment
10-33
Office furniture and equipment
7-20
Computers and software
33
Vehicles
15
Leasehold improvements are depreciated over the shortest term of
the estimated useful life or the lease term. Payments on account
of the new plant facility were not subject to depreciation.
h.     Impairment of long-lived assets:
The Company's long-lived assets are reviewed for impairment
in accordance with Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144"),
whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.
Recoverability of an asset to be held and used is measured by a
comparison of the carrying amount of an asset to the future
undiscounted cash flows expected to be generated by the asset.
If such asset is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying
amount of the asset exceeds its fair value. Through
December 31, 2004, no impairment losses were identified.
i.     Convertible securities:
Convertible notes are accounted for in accordance with the
provisions of EITF Issue No. 98-5 "Accounting for
Convertible Securities with Beneficial Conversion Features"
("EITF 98-5") and EITF Issue
No. 00-27,
"Application of Issue No. 98-5 to Certain Convertible
Instruments"
("EITF 00-27").
Under these pronouncements, the Company, where applicable,
recorded a beneficial conversion feature that is being amortized
as additional discount on the debt and recorded this in
financial expense. The Company has also considered EITF
No. 05-2, "The Meaning of Conventional Convertible
Debt Instrument" in EITF Issue
No. 00-19,
"Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company's Own
Stock". The implementation of EITF 05-2 did not have
any material effect, accordingly, through December 31,
2004, no embedded derivative instruments have been classified as
liabilities.
j.     Revenue recognition:
The Company derives its revenues from product sales, research
and development services and research grants.
F-12
Notes to consolidated financial statements
The Company recognizes revenue in accordance with Staff
Accounting Bulletin No. 104, "Revenue
Recognition" ("SAB 104").
The Company entered into distribution, licensing, supply and
collaborative agreements that generate significant upfront fees
and/or subsequent milestone payments earned upon completion of
certain milestones. The Company concluded that under
EITF 00-21,
"Revenue Agreements with Multiple Deliverables"
("EITF 00-21"),
these arrangements should be accounted for as one unit of
accounting.
Nonrefundable upfront fees, guaranteed time based payments and
performance-based milestone payments under agreements providing
for the Company's continuing involvement in the form of
research and development or manufacturing efforts are recognized
as revenues ratably over the manufacturing period that is the
last deliverable over which there are continuing commitments for
the Company to perform under these agreements.
Deferred revenue is recognized for payments received in advance
of the culmination of the earnings process. Deferred revenue
expected to be recognized within the next twelve months is
included in other accounts payable and accruals.
Revenues from development services in collaborative agreements
are mainly related to reimbursement of development costs and are
recognized as the related costs are incurred.
When the selling price is based on the actual selling price of
the distributor to its end users, the Company recognizes
revenues for products shipped during the period based on the
estimated selling price to the end users. The estimates for the
selling price to end users are based on information, which is
timely available, from the distributor to the Company.
Adjustments are made in the following quarter reflecting the
difference between the Company's estimates and actual
reported selling prices. To date, adjustments have not been
significant.
Revenues from product sales that require no continuing
performance on the Company's part are recognized when
persuasive evidence of an agreement exists, delivery has
occurred, the fee is fixed or determinable, no further
obligation exists and collectability is probable. The Company
does not grant the right of return to its customers.
Revenue related to U.S. National Institute of Health grants
are related to the reimbursement of qualifying research and
development expenses. Revenue is recognized as related research
and development expenses are incurred. Grant payments received,
but not yet earned, are recorded as deferred revenue.
k.     Research and development,
clinical and regulatory expenses:
Costs consist primarily of salary and related costs for
personnel, as well as costs related to materials, supplies and
equipment depreciation. All research and development costs are
expensed as incurred. Expenses are presented net of grants from
the Government of Israel.
Non royalty-bearing grants from the government of Israel for
funding for approved research and development projects are
recognized at the time the Company is entitled to such grants,
on the basis of the costs incurred. During the years ended
December 31, 2002, 2003 and 2004, the Company recognized as
a deduction from expenses incurred $54, $123 and $77,
respectively, for grants from the government of Israel.
l.     Fair value of financial
instruments:
The carrying amounts of cash and cash equivalents, trade
receivables, other accounts receivable, short and long-term
credit from banks and others, trade payables, other accounts
payable and accruals and convertible promissory notes
approximate their fair value.
F-13
Notes to consolidated financial statements
The fair value of long-term loans (including the Convertible
Notes and the Convertible Promissory Notes) is estimated by
discounting the future cash flows using current interest rates
for loans of similar terms and maturities. The carrying amount
of the long-term loans approximates their fair value.
m.     Income taxes:
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes"
("SFAS No. 109"). SFAS No. 109
prescribes the use of the liability method whereby deferred tax
asset and liability account balances are determined based on
differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are
expected to reverse. The Company provides a valuation allowance,
if necessary, to reduce deferred tax assets to their estimated
realizable value.
Results for tax purposes for Omrix Ltd. are measured and
reflected in real terms in accordance with the change in the
Israeli Consumer Price Index ("CPI"). As explained in
b. above, the consolidated financial statements are presented in
U.S. dollars. In accordance with paragraph 9(f) of
SFAS No. 109, the Company has not provided deferred
income taxes on the differences resulting from changes in
exchange rates and indexing for tax purposes.
n.     Severance pay:
Omrix Ltd.'s liability for severance pay is calculated
pursuant to Israel's Severance Pay Law, based on the most
recent salary of the employee multiplied by the number of years
of employment, at the balance sheet date. Employees are entitled
to one month's salary for each year of employment or a
portion thereof. The Company's liability for all of its
Israeli employees is covered by monthly deposits for insurance
policies and/or pension funds and by accruals. The value of
these policies and/or funds is recorded as an asset in the
Company's balance sheet. The deposited funds include
profits accumulated to the balance sheet date. The deposited
amounts may be withdrawn only upon the fulfillment of the
obligations 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 profits.
Severance expense for the years ended December 31, 2002,
2003 and 2004, amounted to $(15), $35 and $80, respectively.
o.     Net loss per share:
The Company applies the two-class method as required by EITF No.
03-6, "Participating Securities and the
Two-Class Method" under FASB Statement No. 128,
Earnings per Share ("EITF No. 03-6"). EITF
No. 03-6 requires the income per share for each class of
shares to be calculated assuming that 100% of the Company's
earnings are distributed as dividends to each class of shares
based on their contractual rights.
In compliance with EITF No. 03-6, the series of preferred
stock do not participate in losses, and therefore are not
included in the computation of net loss per share.
Basic net loss per share is computed using the weighted average
number of common stock outstanding during the period. Diluted
net loss per share is computed based on the weighted average
number of common stock outstanding during the period, plus
dilutive potential. Common stock is considered outstanding
during the period in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per
Share".
For the years ended December 31, 2002, 2003 and 2004, and
for nine months ended September 30, 2004 and 2005
(unaudited), all outstanding stock options, warrants and
preferred stock have been excluded from the calculation of the
diluted net loss per share since their effect was anti-dilutive,
F-14
Notes to consolidated financial statements
except for preferred stock that were included in diluted loss
per share calculations using the if converted method for the
nine-month period ended September 30, 2005 (see
Note 17).
p.     Stock-based compensation:
The Company accounts for its employee stock option plans using
the intrinsic value method prescribed by APB 25,
"Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, the compensation cost relating to
stock options is charged on the date of grant of such options,
to stockholders' deficiency, under deferred compensation,
and is thereafter amortized as expense by the straight-line
method over the vesting period.
SFAS No. 148, "Accounting for Stock-Based
Compensation—Transition and Disclosure"
("SFAS No. 148") amends
SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS no. 123") to provide
alternative methods of a voluntary change to the fair value
based methods of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require
more prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect for the method used on
reported results.
As provided for in SFAS No. 148, the Company has
elected to continue to follow APB No. 25 and related
interpretations in accounting for its employee stock options.
Compensation expense, if any, is generally based on the
difference between the exercise price of an option or the amount
paid for the award and the market price or fair value of the
underlying common stock at the date of the grant. To the extent
that compensation expense is recognized with respect to stock
options issued to employees or directors, such expense is
amortized over the vesting period of such options.
The Company applies SFAS No. 123 and Emerging Issues
Task Force No. 96-18 "Accounting for Equity
Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services" ("EITF 96-18"), with respect to
options and warrants issued to non-employees.
SFAS No. 123 and EITF 96-18 require the use of
option valuation models to measure the fair value of the options
and warrants at the measurement date.
F-15
Notes to consolidated financial statements
The following table illustrates the effect on net loss
attributed to common stockholders and net loss per share,
assuming that the Company had applied the fair value recognition
provision of SFAS No. 123 on its stock-based employee
compensation:
Nine months ended
Year ended December 31,
September 30,
2002
2003
2004
2004
2005
(unaudited)
Net loss attributable to common stockholders as reported
$
5,513
$
6,566
$
6,725
$
7,363
$
21,314
Deduct—stock-based employee compensation expense included
    in the reported net loss
—
—
5
—
14
Add—total stock-based employee compensation expense
    determined under fair value based method
116
80
35
26
32
Pro forma net loss attributable to common stockholders
$
5,629
$
6,646
$
6,755
$
7,389
$
21,332
Basic net loss per share as reported
$
0.58
$
0.69
$
0.70
$
0.77
$
0.74
Pro forma basic net loss per share
$
0.59
$
0.70
$
0.71
$
0.77
$
0.74
Diluted net loss per share as reported
$
0.58
$
0.69
$
0.70
$
0.77
$
0.90
Pro forma diluted net loss per share
$
0.59
$
0.70
$
0.71
$
0.77
$
0.90
The fair value of each option granted is estimated on the date
of the grant using the Minimum Value model with the following
weighted average assumptions:
Year ended
December 31,
2002
2003
2004
Dividend yield
0
%
0
%
0
%
Risk-free interest rate
3.15
%
3.01
%
3.67
%
Expected life in years
5.5
5.5
4.9
Volatility
0
%
0
%
0
%
q.     Accumulated other comprehensive
income (loss):
Comprehensive income (loss), presented in stockholders'
deficiency, includes foreign currency translation adjustments.
r.     Concentration of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
cash equivalents, short-term investments, marketable securities
and trade receivables.
Cash and cash equivalents are invested in dollars, Euros and NIS
(mainly in dollars) with major banks in the U.S. and Israel.
Management believes that the financial institutions that hold
the Company's investments are financially sound and,
accordingly, minimal credit risk exists with respect to these
investments.
The Company's trade receivables are generally derived from
sales and services rendered to large and well established
organizations located primarily in the United States, Israel and
Europe. The Company
F-16
Notes to consolidated financial statements
does not expect any credit losses in excess of the allowance for
doubtful accounts included in the financial statements.
Allowance for doubtful accounts is determined for specific debts
doubtful of collection and amounted to $1,466 and $16 at
December 31, 2003 and 2004, respectively.
s.     Recently issued accounting
pronouncements in the United States:
On December 16, 2004, the Financial Accounting Standards
Board issued Statement No. 123 (revised 2004),
"Share-Based Payment"
("Statement 123(R)"), which is a revision of FASB
Statement No. 123, "Accounting for Stock-Based
Compensation" ("Statement 123"). Generally,
the approach in Statement 123(R) is similar to the approach
described in Statement 123. However, Statement 123
permitted, but did not require, share-based payments to
employees to be recognized based on their fair values while
Statement 123(R) requires all share-based payments to
employees to be recognized based on their fair values.
Statement 123(R) also revises, clarifies and expands
guidance in several areas, including measuring fair value,
classifying an award as equity or as a liability and attributing
compensation cost to reporting periods. Statement 123(R) will be
applicable to the Company in the first fiscal year beginning
after January 1, 2006. The adoption of
Statement 123(R) is not expected to have a significant
effect on the Company's results of operations.
In March 2005, the SEC released SEC Staff Accounting
Bulletin No. 107, "Share-Based Payment"
("SAB 107"). SAB 107 provides the SEC
staff's position regarding the application of
SFAS 123(R) and contains interpretive guidance related to
the interaction between SFAS 123(R) and certain SEC rules
and regulations, and also provides the SEC staff's views
regarding the valuation of share-based payment arrangements for
public companies. SAB 107 highlights the importance of
disclosures made relating to the accounting for share-based
payment transactions. The Company is currently reviewing the
effect of SAB 107, however, it does not believe that
SAB 107 will have a material effect on its financial
position, results of operations or cash flows.
In November 2004, the FASB issued Statement of Financial
Accounting Standard No. 151, "Inventory Costs, an
Amendment of ARB No. 43, Chapter 4."
("SFAS No. 151"). SFAS No. 151
amends Accounting Research Bulletin ("ARB")
No. 43, Chapter 4, to clarify that abnormal amounts of
idle facility expense, freight handling costs and wasted
materials (spoilage) should be recognized as current-period
charges. In addition, SFAS No. 151 requires that the
allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production
facilities. SFAS No. 151 is effective for inventory
costs incurred during fiscal years beginning after June 15,
2005. The Company does not expect that the adoption of
SFAS No. 151 will have a material effect on its
financial position or results of operations.
In May 2005, the FASB issued Statement of Financial Accounting
Standard No. 154 ("SFAS 154"),
"Accounting Changes and Error Corrections," a
replacement of APB No. 20, "Accounting Changes"
and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements". SFAS 154 provides
guidance on the accounting for and reporting of accounting
changes and error corrections. APB No. 20 previously
required that most voluntary changes in accounting principles be
recognized by including in net income for the period of the
change the cumulative effect of changing to the new accounting
principle. SFAS 154 requires retroactive application to
prior periods' financial statements of a voluntary change
in accounting principles unless it is impracticable.
SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 15, 2005.
F-17
Notes to consolidated financial statements
NOTE 3:
OTHER RECEIVABLES
December 31,
2003
2004
Restricted
    cash
(1)
$
250
$
250
Advances to suppliers
127
137
Government authorities
381
298
Prepaid expenses and other
794
1,115
$
1,552
$
1,800
(1)
Restricted cash related to letters of credit issued by a bank
    to suppliers.
NOTE 4:
INVENTORY
December 31,
September 30,
2003
2004
2005
Raw materials
$
1,866
$
2,054
$
2,063
Products in progress
821
394
318
Finished
    products
(1)
5,847
4,451
4,903
$
8,534
$
6,899
$
7,284
(1)
At December 31, 2003 and 2004 and at September 30,
    2005, includes inventory at a customer site, for which revenue
    was not yet recognized, in a total amount of $1,877, $0 and $815
    (unaudited), respectively.
For the years ended December 31, 2002, 2003 and 2004, the
Company wrote-off approximately $497, $505 and $177,
respectively, to reflect products with short term expiration
dates and product market prices that are lower than cost. These
write-offs were included in the cost of revenues.
F-18
Notes to consolidated financial statements
NOTE 5:
PROPERTY, PLANT AND EQUIPMENT, NET
December 31,
2003
2004
Cost:
Machinery and equipment
$
5,435
$
5,572
Office furniture and equipment
428
422
Computers and software
628
663
Vehicles
198
170
Leasehold improvements
248
235
6,937
7,062
Accumulated depreciation:
Machinery and equipment
2,848
2,651
Office furniture and equipment
315
337
Computers and software
552
564
Vehicles
166
150
Leasehold improvements
166
160
4,047
3,862
Payments on account of property, plant and
    equipment
(1)
368
971
Depreciated cost
$
3,258
$
4,171
(1)
The Company intends to expand its production facilities by
    building a new production facility in Israel. At
    December 31, 2004 a payment of $971 on account of a new
    plant facility was not subject to depreciation.
Depreciation expenses for the years ended December 31,
2002, 2003 and 2004 were $733, $656 and $659, respectively.
As for charges and pledges, refer to Note 12.
NOTE 6:
DEFERRED CHARGES AND OTHER ASSETS
a.     Intangible assets:
On June 26, 2005, the Company acquired from a former
supplier a perpetual and exclusive license to use all
intellectual property rights related to a certain component of
the application device used for the Company's biosurgical
products. The total consideration, which amounted to $585, will
be amortized over the estimated useful life of this intangible
asset, which management estimates to be 10 years.
Amortization expenses for the nine-month period ended
September 30, 2005 were $15 (unaudited) and are
included in cost of product sales.
b.     Deferred charges:
Costs related to the issuance of loans and convertible debts are
amortized over the term of the notes as interest expense.
Deferred charges amounted to $230 and $134 at December 31,
2003 and 2004, respectively.
F-19
Notes to consolidated financial statements
NOTE 7:
CONVERTIBLE PROMISSORY NOTES
a.     Composed as follows:
December 31,
2003
2004
Principal
$
11,132
$
8,632
Accrued interest
2,415
2,800
$
13,547
$
11,432
b.     In August 2002, the Company
issued two series of 10% secured convertible promissory notes
(the "Convertible Promissory Notes") in the amount of
$11,132 out of which $5,600 amended the notes that were issued
in 2001. In addition to interest payments, certain Convertible
Promissory Notes, due in August 2004, entitled the holders to an
additional payment of $1.5 million upon maturity. This
additional payment is recorded as additional interest and
recognized over the term of the notes. The Convertible
Promissory Notes could only be converted into common stock upon
the closing of the Company's "next equity
financing" as defined in the Convertible Promissory Notes,
at 80% of the purchase price then paid by the investors. In
addition, the Convertible Promissory Notes carried certain yield
preference upon a "change of control" as defined in
the Convertible Promissory Notes. On August 30, 2004, the
Company repaid part of the Convertible Promissory Notes in a
principal amount plus accrued interest of $3,657. The maturity
date for the balance of the principal of the remaining
Convertible Promissory Notes, in the amount of $8,632, was
deferred to January 29, 2005. No beneficial conversion
feature was recorded in connection with the Convertible
Promissory Notes.
Issuance costs relating to the Convertible Promissory Notes, in
the amount of $180, were recorded as deferred charges and were
amortized to interest expense over the life of the notes, using
the interest method.
c.     In January 2005, certain
Convertible Promissory Notes, representing a principal amount of
$7,149, were converted as part of the Recapitalization Agreement
in consideration for 5,473,349 shares of common stock (see
Note 13b). Note holders that did not participate in the
Recapitalization Agreement, holding a principal amount of
$1,483, entered into a new Convertible Promissory Note agreement
which mature on December 31, 2007 and that carry an annual
interest rate of 10%. These new Convertible Promissory Notes are
not readily convertible and may only be converted upon the
closing of the Company's "next equity financing"
as defined in the Convertible Promissory Notes agreements, into
shares issued in the next equity financing at the lower of 80%
of the purchase price then paid by the investors and
$2.25 per security. No beneficial conversion feature was
recorded in connection with these new Convertible Promissory
Notes.
NOTE 8:
ACCOUNTS PAYABLE AND ACCRUALS—OTHER
December 31,
2003
2004
Deferred revenues
$
1,821
$
3,718
Payroll and related expenses
627
1,041
Government authorities
268
256
Stockholders and affiliates
5
—
Accrued expenses and other
259
1,841
$
2,980
$
6,856
F-20
Notes to consolidated financial statements
NOTE 9:
SHORT-TERM CREDIT FROM BANKS AND LONG-TERM LOANS
a.     Long-term loans:
Annual
interest rate at
December 31,
December 31,
September 30,
2004
2003
2004
2005
Bank
    loans
(1)
5-7.5
%
$
394
$
568
$
2,261
Hercules
    loans
(2)
11.45
%
—
—
4,970
Less—current maturities
(236
)
(377
)
(2,690
)
$
158
$
191
$
4,541
(1)
The bank loans are denominated in NIS. The loans at
    December 31, 2004 mature in 2006.
(2)
See also c below.
b.     Short-term bank credit and loans:
Annual
interest rate at
December 31,
December 31,
2004
2003
2004
Shot-term credit from bank
6.4
%
$
541
$
1,881
Short-term loan
5.1-7
%
126
233
Current maturities of long-term loans
236
377
$
903
$
2,491
Total credit available at December 31, 2004 amounted to
$278.
c.     On March 31, 2005, the
Company entered into a loan agreement with Hercules Technology
Growth Capital (the "2005 loan agreement") to borrow
up to $5,000 by October 1, 2005. This loan bears interest
at a rate of 11.45% per annum. At September 30, 2005,
the Company used the entire facility, which is due by March 2008.
According to the 2005 loan agreement, the Company was obligated
to pay interest on the first day of each month until
October 1, 2005, followed by equal monthly installments of
principal plus accrued interest through March 1, 2008. The
2005 loan agreement can be repaid at any time with a premium
over the remaining principal equal to 2.5% if repayment is prior
to March 31, 2006, 1.25% if it is between March 31,
2006 and March 31, 2007 and 0.5% if it is after
March 31, 2007.
The 2005 loan agreement was followed by the issuance of a
warrant for the purchase of up to 149,522 shares of common
stock at a price of $4.18 per share. This warrant expires
on the earlier of March 31, 2012 or three years after the
consummation of an IPO. On the commitment date, the Company
allocated the proceeds between the 2005 loan agreement and the
warrant as required by APB 14, "Accounting for
Convertible Debt and Debt Issued with Stock Purchase
Warrants" ("APB 14") (see also
Note 13f). As a result, the Company recorded debt discount
arising from the fair value allocation to the warrant in the
total amount of $75, which is amortized as interest expense from
the commitment date to the stated redemption date using the
interest method.
Issuance costs allocated to the 2005 loan agreement, in the
amount of $162, were recorded as deferred charges and are
amortized to interest expense over the life of the loan.
F-21
Notes to consolidated financial statements
NOTE 10:
CONVERTIBLE NOTES
December 31,
2003
2004
Par value
$
23,500
$
23,500
Less—discount, net of accumulated accretion
6,333
5,067
17,167
18,433
Accrued interest
4,896
5,895
$
22,063
$
24,328
In December 1998 and May 1999, the Company raised $20,000 (gross
proceeds) by issuance of warrants, common stock and convertible
notes ("the Convertible Notes"). The Convertible Notes
were due on December 31, 2008, bore annual interest of
4.25% and were convertible into shares of common stock, at any
time, for $7.40 per share.
The abovementioned warrants had an exercise price of
$5.55 per share of common stock, exercisable at any time,
and they had expiration date of 10 years from issuance. At
inception, the Company allocated the proceeds between the common
stock, warrants and Convertible Notes as required by APB 14.
As a result, the Company recorded discount on the Convertible
Notes in the amount of $2,064 with respect to a beneficial
conversion feature that was amortized immediately as required
under EITF 98-5. As the Convertible Notes were convertible
into common stock at the holder's discretion, the discount
arising from the fair value allocation to the warrants under
APB 14 in a total amount of $1,891 has been amortized to
interest expense from the commitment date to the stated
redemption date using the interest method.
Issuance costs allocated to the Convertible Notes, in the amount
of $332, were recorded as deferred charges and were amortized to
interest expense using the interest method from the commitment
date to the stated redemption date using the interest method.
The Convertible Notes and warrants were part of the
Recapitalization Agreement (see Note 13b) and were
converted into common stock on January 13, 2005.
NOTE 11:
OTHER LONG-TERM LIABILITIES
December 31,
2003
2004
MDA (see Note 12d)
$
—
$
400
Accrued severance pay
167
240
Total
$
167
$
640
NOTE 12:
COMMITMENTS AND CONTINGENT LIABILITIES
a.     The Company leases premises
under long-term operating lease agreements mainly in Israel (see
also d. below), the majority of which expire in the year 2010.
F-22
Notes to consolidated financial statements
Future minimum non-cancelable operating lease payments under
those leases, at December 31, 2004, for the next five years
and thereafter, are as follows:
2005
$
1,281
2006
$
1,216
2007
$
1,170
2008
$
1,164
2009
$
1,100
2010 and thereafter
$
1,100
b.     Under vehicle lease agreements,
the Company is committed to pay monthly lease payments. The
projected lease payments for the next three years and
thereafter, are as follows:
2005
$
267
2006
$
217
2007
$
158
2008 and thereafter
$
51
c.     In 1996, the Company entered
into an agreement with the New York Blood Center, Inc.
("NYBC") that was amended in February 2002, to
license, on a non-exclusive basis, certain virus inactivation
technology of NYBC for use in its manufacturing process. Under
the terms of the agreement, as amended, which is for a period
ending at the expiration of the last applicable patent, (2009),
NYBC is entitled to royalties of up to 5.25% on the net sales of
all products manufactured using the licensed technology in
locations where the relevant patents are protected. During the
years ended December 31, 2002, 2003 and 2004, the Company
recorded $0, $179 and $118, respectively, as an expense in cost
of product sales.
d.     In April 1997, the Company
entered into a lease and operation agreement with MDA which was
replaced in July 2000 by a new lease and operation agreement
(the "Lease Agreement"). The July 2000 agreement was
subsequently amended on December 16, 2004 (the
"Amended Lease Agreement").
Under the Lease Agreements and the Amended Lease Agreement with
MDA, the Company leases its manufacturing facility and certain
machinery and equipment from MDA. In addition, the Company is
committed to purchase certain amounts of plasma from MDA.
The Lease Agreement
The Lease Agreement with MDA was for a period ending on
December 31, 2014. The Company, at its own discretion, may
terminate the lease on December 31, 2001 or 2006. Annual
lease fee was in the amount of $1,000. In addition, MDA was
entitled to additional annual rent payments of $500 commencing
on the date of FDA approval of the leased facility (which was
obtained in 2003).
The Amended Lease Agreement
The Amended Lease Agreement with MDA terminates on
December 31, 2010. After December 31, 2007, the
Company has the right to terminate this agreement by giving
12 months advance written notice to MDA. If the Company
exercises this early termination right, the Company will be
required to pay MDA an amount equal to $500 per year, or
such pro rata amount for a part of a year, from the date of
termination until December 31, 2010.
Under the terms of the Amended Lease Agreement, the Company
leases its manufacturing facility and certain machinery and
equipment from MDA in return for a rent and lease fee in the
amount of $700 plus a certain percent of the sales of products
to third parties in each fiscal year. Such fee shall not be less
than $1,100 and not more than $2,000 per year. In addition,
the parties agreed to the
F-23
Notes to consolidated financial statements
continuation of the plasma purchase obligation by the Company at
certain fixed prices and to provide the Company with the right
of first refusal for MDA plasma at higher prices.
Investments in the manufacturing facility
Under the Lease Agreement, certain investment in the facility
resulting from new laws, regulations, directives, requirements
or instructions by legal authorities, and that may be necessary
to preserve appropriate licenses to market products
("Compulsory Investments"), are to be borne entirely
or partially by MDA.
Under the agreement, the Company has agreed to finance all of
the required Compulsory Investments, including MDA's share,
which the Company is entitled to offset against the rent and
lease fee. Because the Compulsory Investments will be
transferred to MDA at the termination of the lease agreement,
the Company recorded its investments in Compulsory Investments
as prepaid rental fees in its financial statements and recorded
the reimbursements as lease incentives, both of which are
amortized over the term of the lease.
Guarantee
Under the terms of the Lease Agreement, the Company is required
to maintain an unconditional bank guarantee in the amount of
$250 in order to secure various payments due to MDA. Such
guarantee is to be maintained for a period of six months after
the Company vacates the manufacturing facility. In addition, the
Company has provided MDA with a security interest on inventory
of uncompleted products and raw materials.
e.     To secure a bank guarantee in
respect of lease agreements, bank deposits included in long-term
receivables in a total amount of $276 were restricted.
f.     As security for its liabilities
to banks, the Company recorded fixed charges on property and
equipment of Omrix Ltd. and floating charges on various assets
of Omrix Ltd.
g.     The Company's employment
agreement with its Chief Executive Officer ("the
CEO"), who is a significant stockholder, includes a
consulting agreement which will be in effect upon termination of
his employment with the Company. Under the consulting agreement,
the CEO will receive $175 as annual fees paid monthly, of which
the first 6 months are guaranteed. Upon consummation of the
consulting agreement, the CEO will be entitled to
100,000 shares of the Company's common stock, of which
50% will vest immediately. The remaining 50% will vest over the
following 18 months, provided that the CEO provides
services under the consulting agreement.
NOTE 13:
STOCKHOLDERS' DEFICIENCY
a.     Share capital:
1.     The holders of common stock are
    entitled to one vote for each share held. Subject to the rights
    and preferences of the holders of any series of preferred stock
    which may at the time be outstanding, holders of common stock
    are entitled to dividends which the Company's board of
    directors may declare from time to time out of legally available
    funds. Dividends on the common stock are not cumulative.
In the event of any liquidation, dissolution or
winding-up
of the
    Company's affairs, after payment of all of the
    Company's debts and liabilities, and subject to the rights
    and preferences of any series of preferred stock, the common
    stockholders will be entitled to receive their pro rata
    distribution of any remaining assets.
2.     The preferred stock confers on
    the holders thereof all the rights conferred by common stock and
    certain priorities upon liquidation. In addition, each preferred
    share shall be
F-24
Notes to consolidated financial statements
convertible into one share of common stock. The conversion ratio
    shall be subject to certain standard anti-dilution provisions.
The preferred stock had redemption rights, at the discretion of
    the holders, anytime after the earlier of
    (1) December 31, 2008 or (2) the payment of the
    Convertible Notes with a redemption value of the stated
    liquidation preference on each class.
The Company's preferred stock was converted to common stock
    in connection with the Recapitalization Agreement (see
    Note 13b).
The Series B Convertible Preferred Stock had cumulative
    non-compounding dividends at 5% of the liquidation preference
    per share per year.
3.     In October 2002, 19,595 shares
    of common stock were repurchased by the Company for the amount
    of $44.
b.     Recapitalization agreement:
On January 13, 2005, the Company, its stockholders, all
Convertible Notes holders and certain Convertible Promissory
Note holders entered into an agreement for the conversion of
securities of the Company into common stock
("Recapitalization Agreement") and certain other
agreements regarding stockholders' rights.
Pursuant to the Recapitalization Agreement, the Company
exchanged all of the Convertible Notes, part of the Convertible
Promissory Notes and certain warrants that were issued in
connection with the Convertible Notes, into shares of common
stock. In addition, the Company induced the conversion of its
Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock into shares of common stock. The
number of shares of common stock issued to each instrument
holder was stated in the Recapitalization Agreement between the
Company and all participating investors.
The financial statements for the period ended September 30,
2005, include financing charges in the amount of $20,932 related
to the Convertible Notes induced conversion as required under
SFAS 84, "Induced Conversion" and APB Opinion
No. 26, "Early Extinguishments of Debt" for the
Convertible Promissory Notes that were not readily convertible.
In addition, these financial statements include an amount of
$6,491 attributed to the excess carrying amount of preferred
stock and warrants over the value of common stock received by
their holders upon conversion of preferred stock and warrants
pursuant to the Recapitalization Agreement as required by EITF
D-42, "The Effect on the Calculation of Earnings per Share
for the Redemption or Induced Conversion of Preferred
Stock" and EITF D-53, "Computation of Earnings per
Share for a Period that Includes a Redemption or an Induced
Conversion of a Portion of a Class of Preferred Stock".
In addition, expenses incurred with respect to the
Recapitalization Agreement in the amount of $635 were allocated
between the different components of the transaction. $509 of
those costs were recorded as financial expenses in the
consolidated statement of operations for the nine month period
ended September 30, 2005.
c.     In connection with the
Convertible Notes issuance in 1998 and 1999 (see Note 10),
the Company issued several classes of warrants:
1.     All Convertible Note holders
    received warrants for the purchase of 667,445 common stock of
    the Company. Each warrant entitled the holder to purchase one
    share of common stock of the Company at a price of
    $5.55 per share (subject to certain adjustments) until the
F-25
Notes to consolidated financial statements
expiration date of such warrant. All of these warrants were
    eliminated in the Recapitalization Agreement (see also b above).
2.     Warrants for 509,197 shares of
    common stock in connection with investment and advisory services
    rendered in connection with the 1998 and 1999 financing
    ("the Advisory Warrants"). Of these warrants, 449,410
    warrants have terms identical to those issued to the investors
    in the private placement (see 1 above). Warrants for an
    additional 59,787 shares of common stock had identical terms,
    except for an exercise price per share of $6.17 (subject to
    certain adjustments).
The fair value of the warrants was estimated to be $1,765 by
    using the Black-Scholes option-pricing model at the measurement
    date.
d.     In 2001, the Company issued
631,688 shares of Series A Convertible Preferred stock
at $0.01 par value per share in consideration of $5,000.
e.     On July 15, 2004, the
Company raised $5,000 ($4,892—net of issuance costs) in a
private placement in which 406,835 shares of the
Company's Series B Convertible Preferred Stock, par
value of $0.01 per share, and warrants to
purchase 100,000 shares of common stock, par value of
$0.01 per share, were issued. Each warrant entitles the holder
to purchase one share of common stock of the Company at a price
of $12.29 per share (subject to certain adjustments). The
exercise price of these warrants was amended to $4.18 per
share as part of the recapitalization. According to the terms of
the warrants, if the Company declares a dividend, it shall set
aside such dividend for payment to the warrant holder upon
exercise of the warrant had the warrant been fully exercised
immediately prior to the date on which the divided was declared.
The fair value of the above warrants was estimated to be
insignificant by using the Black-Scholes option-pricing model at
the measurement date.
f.     In connection with the 2005 loan
agreement (see also Note 9c), the Company issued warrants
for up to 149,522 shares of common stock at an exercise
price of $4.18 per share. This warrant terminates on the
earlier of March 31, 2012, or three years after the
consummation of an IPO. On the commitment date, the Company
allocated the proceeds between the 2005 loan agreement and the
warrants as required by APB 14.
The fair value of the warrants of $75 was estimated by using the
Black-Scholes option-pricing model at the measurement date,
using the following measurements: expected volatility of 37%;
risk-free interest rates of 4.4%; and expected lives of
5.5 years.
g.     Stock option plans and stock
options:
Options granted under the Company's stock option plans are
exercisable within no more than ten years from the date of
grant. The exercise price of the options may not be less than
the fair market value of the shares for which the options are
exercisable at the date of grant, and options generally vest
over a four year period of employment.
1.     Under the Company's 2004
    Equity Incentive Plan (the "2004 Plan") and the 2005
    Equity Incentive Plan for Israeli Employees (the "2005
    Plan"), which is a sub-plan of the 2004 Plan, the Company
    may issue up to 3,275,636 shares of common stock to
    directors, officers, employees and consultants of the Company
    and its subsidiary. At September 30, 2005, 600,000 options
    were granted under the 2004 Plan and the 2005 Plan.
2. In January 2005, the Company's 1998 Stock Incentive
    Plan (the "1998 Plan") for the issuance of up to
    900,000 shares of common stock to officers, key employees,
    non-employee
F-26
Notes to consolidated financial statements
directors and consultants was terminated. Options granted and
    not forfeited under the 1998 Plan prior to termination survived
    the termination of the Plan.
3. In addition to options under the 2004 Plan, the 2005
    Plan and the 1998 Plan, the Company issued options exercisable
    into 788,623 shares of common stock, to certain consultants and
    investors in connection with financing transactions and other
    services, which are still outstanding.
The following is a summary of the status of the Company's
stock option plans to its employees:
Year ended December 31,
2002
2003
2004
Weighted
Weighted
Weighted
average
average
average
exercise
exercise
exercise
Number
price
Number
price
Number
price
Balance outstanding at beginning of year
777,000
$
4.18
512,500
$
4.31
626,500
$
3.08
Changes during the year:
Granted—at market price
100,000
$
1.00
300,000
$
1.00
—
$
—
Forfeited
364,500
$
3.13
(186,000
)
$
3.11
(4,000
)
$
7.36
Balance outstanding at end of year
512,500
$
4.31
626,500
$
3.08
622,500
$
3.06
Balance exercisable at end of year
180,375
$
5.57
198,500
$
5.86
327,000
$
4.49
The following table summarizes information about options to
employees outstanding at December 31, 2004 under the plans:
Weighted
Options
Weighted
Options
average
outstanding
average
Weighted
exercisable
exercise
at
remaining
average
at
price of
Exercise
December 31,
contractual
exercise
December 31,
options
price
2004
life
price
2004
exercisable
Years
$7.76
82,000
3.02
$
7.76
61,500
$
7.76
$6.17
140,500
1.81
$
6.17
140,500
$
6.17
$1.00
400,000
5.07
$
1.00
125,000
$
1.00
622,500
$
3.06
327,000
$
4.49
The weighted average fair values and exercise prices of options
granted during the years ended December 31, 2002, 2003 and
2004 were:
Exercise price higher
than fair value
Year ended
December 31,
2002
2003
2004
Weighted average exercise prices
$
1.00
$
1.00
$
—
Weighted average fair values on grant date
$
0.16
$
0.15
$
—
h.     During 2004, a major stockholder
entered into an agreement with one of the Company's
employees according to which the major stockholder granted the
employee 250,000 options to
F-27
Notes to consolidated financial statements
purchase common stock. According to the agreement, the grant
terms were not fixed and were subject to the Company's
board of directors modification. During 2005, the Company's
Board of Directors approved modification of the grant.
Accordingly, the number of options increased to 325,000 options
of which the terms of only 25,000 options remain not fixed. The
options vest over a four year period of employment.
As required by AIN-APB 25, "Accounting for Stock
Issued to Employees: Accounting Interpretations of APB Opinion
No. 25", the Company accounted for the award with
non-fixed terms as a variable award. At the date on which the
Company's Board of Directors fixed the terms, the Company
measured the value on the option at that date and accounted for
that grant prospectively as a fixed grant under APB 25.
Total compensation cost as a result of this grant amounted to $5
and $14 for the year ended December 31, 2004, and for the
nine months ended September 30, 2005 (unaudited). The
option granted for the major stockholder's share was
accounted for as capital contribution.
i.     According to specific agreements
signed with non-employee service providers, the Company has
granted options to purchase common stock as described below.
Each option entitles the holder to purchase one share of common
stock of the Company.
The following table summarizes information about options
outstanding and exercisable at December 31, 2004:
Exercise
Options for
price
common
per
Options
Issuance date
stock
share
exercisable
February 2000
20,000
$
6.17
20,000
March 2003
50,000
$
1.00
12,500
August 2003
100,000
$
4.40
100,000
October 2004
14,952
$
4.18
14,952
184,952
147,452
The charges for stock compensation relating to options granted
to non-employees were $0.2, $35 and $8 in 2002, 2003 and 2004,
respectively.
The fair value of options granted was estimated by using the
Black-Scholes option-pricing model at the measurement dates. The
Company used the following weighted average assumptions in its
measurements: expected volatility of 42-47% for 2003 and 2004;
risk-free interest rates (in dollar terms) of 3.4-4.4% for 2003
and 2004; and expected lives of
5-10 years
for
2003 and 2004.
NOTE 14:
TAXES ON INCOME
a.     The Company, Omrix S.A., Omrix
Ltd. and Biopex are separately taxed under the domestic tax laws
of the state of incorporation of each entity.
b.     Tax laws applicable to the
companies in Israel:
Measurement of taxable income under the Income Tax (Inflationary
Adjustments) Law, 1985:
In accordance with the above law, results for tax purposes are
    measured and reflected in real terms in accordance with the
    changes in the Israeli CPI.
c.     Tax rates applicable to the
Group companies:
1.     The income of the Israeli
    subsidiaries (other than income from "approved
    enterprises," see 3. below) is taxed at the regular rate.
    Through December 31, 2003, the corporate tax was
F-28
Notes to consolidated financial statements
36%. In July 2004, an amendment to the Income Tax Ordinance was
    enacted. One of the provisions of this amendment gradually
    reduce the corporate tax rate from 36% to 30%, in the following
    manner: the rate for 2004 will be 35%, in 2005—34%, in
    2006—32%, and in 2007 and thereafter—30%.
2.     On July 25, 2005, the
    Israeli Parliament passed the second and third readings of the
    proposed Income Tax Ordinance Amendment (No. 147 and Ad Hoc
    Provision) Law, 2005 (the "2005 Amendment"). The 2005
    Amendment further reduces the corporate tax rates stipulated
    under the 2004 amendment, and provides for the gradual
    reduction, commencing from January 1, 2006, in the
    following manner: the rate in 2006 will be 31%, in
    2007—29%, in 2008—27%, in 2009—26%, and in 2010
    and thereafter—25%.
Since a full valuation allowance is currently provided against
    all of the Israeli related deferred tax assets, the
    abovementioned amendment has no effect on the financial
    statements.
3.     Pursuant to another amendment to
    the Income Tax Ordinance, which became effective in 2003,
    capital gains are taxed at a reduced rate of 25% from
    January 1, 2003, instead of the regular corporate tax rate
    at which such gains were taxed until the aforementioned date.
    The aforesaid amendment stipulates that with regard to the sale
    of assets acquired prior to January 1, 2003, the reduced
    tax rate will be applicable only for the gain allocated to
    capital gains earned after the implementation of the amendment,
    which will be calculated, as prescribed by said amendment.
d.     Encouragement Laws in Israel:
1. Tax benefits under the law for the Encouragement of
    Capital Investments, 1959 (the "Law"):
Under the Law, by virtue of the "Approved Enterprise"
    status granted to Omrix Ltd., Omrix Ltd. is entitled to certain
    tax benefits. Due to reported losses for tax purposes, the
    benefit period has not yet commenced.
Omrix Ltd. is entitled to additional tax benefits as a
    "foreign investors' company," as defined by the
    Law.
The main tax benefits available to Omrix Ltd. are:
a) Reduced tax rates:
During the period of benefits, 10 years for a foreign
    investors' company as defined by the Law, commencing in the
    first year in which the Company earns taxable income from the
    Approved Enterprises (provided the maximum period to which it is
    restricted by law has not elapsed), the following reduced tax
    rates, or tax exemptions, apply:
Tax exemption on income from Approved Enterprise for a period of
    four years, after which the income from this enterprise is
    taxable at the rate of 10%-20% for an additional three to six
    years, depending on the level of foreign investors in the
    Company.
The period of tax benefit, as detailed above, is limited to the
    earlier of 12 years from the "operational year"
    or 14 years from the year our program received
    "approved enterprise" status (2009 for Omrix Ltd.).
In the event of distribution of cash dividends out of income,
    which was tax exempt, the Company would have to pay the 10% tax
    in respect of the amount distributed, as stated above.
F-29
Notes to consolidated financial statements
b)     Accelerated depreciation:
Omrix Ltd. is entitled to claim, for tax purposes, accelerated
    depreciation for five tax years commencing in the first year of
    operation of each asset, with respect to machinery and equipment
    used by the Approved Enterprise.
c)     Conditions for entitlement to
    the benefits:
The entitlement to the above benefits is conditional upon Omrix
    Ltd.'s fulfilling the conditions stipulated by the Law,
    regulations published thereunder and the instruments of approval
    for the specific investments in approved enterprises. In the
    event of failure to comply with these conditions, the benefits
    may be cancelled and Omrix Ltd. may be required to refund the
    amount of the benefits, in whole or in part, with the addition
    of interest. To date, Omrix Ltd. has not utilized any benefit
    under the Approved Enterprise status. Management believes that
    Omrix Ltd. has complied with all relevant conditions.
d)     On April 1, 2005, an
    amendment to the Investment Law came into effect (the
    "Amendment") and has significantly changed the
    provisions of the Investment Law. The Amendment limits the scope
    of enterprises which may be approved by the Investment Center by
    setting criteria for the approval of a facility as an Approved
    Enterprise, with such provisions as those that generally require
    that at least 25% of the Approved Enterprise's income will
    be derived from export. Additionally, the Amendment enacted
    major changes in the manner in which tax benefits are awarded
    under the Investment Law so that companies no longer require
    Investment Center approval in order to qualify for tax benefits.
However, the Investment Law provides that terms and benefits
    included in any certificate of approval already granted will
    remain subject to the provisions of the law as they were on the
    date of such approval. Therefore the Israeli subsidiary existing
    Approved Enterprise will generally not be subject to the
    provisions of the Amendment.
2.     The Law for the Encouragement of
    Industry (Taxation), 1969:
Omrix Ltd. currently qualifies as an "industrial
    company" under the above law. As such, the Company claimed
    amortization at the rate of 12.5% of patent rights purchased.
e.     Carryforward losses:
At December 31, 2004, Omrix Ltd. had carryforward losses,
including a carryforward capital loss, amounting to
approximately $17,428, which may be carried forward
indefinitely. At December 31, 2004, U.S. carryforward
losses related to the Company amounted to approximately $18,528,
which have expiration dates ranging from 2019 to 2024.
Utilization of U.S. net operating losses may be subject to
substantial annual limitation due to the "change in
ownership" provisions of the Internal Revenue Code of 1986
and similar state provisions. The annual limitation may result
in the expiration of net operating losses before utilization. At
December 31, 2004, Omrix S.A. had carryforward losses of
approximately $18,520, which may be carried forward indefinitely.
F-30
Notes to consolidated financial statements
f.     Deferred income taxes:
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. Significant components of the
Company's deferred tax liabilities and assets are as
follows:
December 31,
2003
2004
Deferred tax assets, reserves and allowance
$
272
$
318
Net operating loss carryforward—U.S.
5,779
6,485
Net operating loss carryforward—Belgium
6,357
7,020
Deferred tax asset before valuation allowance
12,408
13,823
Valuation allowance
(12,408
)
(13,823
)
Net deferred tax asset
$
—
$
—
The entire change in valuation allowance is for the increase in
net operating loss during the year and changes to reserves and
allowances.
The Company expects that during the period in which tax losses
related to Omrix Ltd. are utilized, its income would be
substantially tax exempt. Accordingly, there will be no tax
benefit available from such losses and no deferred income taxes
have been included in these financial statements. Deferred taxes
in respect of other temporary differences are immaterial.
Management currently believes that it is more likely than not
that other deferred tax assets from carryforward losses will not
be realized in the foreseeable future. Accordingly, a valuation
allowance has been recorded for the entire amount.
g.     Loss before income taxes is
comprised as follows:
Year ended December 31,
2002
2003
2004
Domestic
$
4,150
$
4,756
$
5,094
Foreign
1,363
1,810
1,510
Total
$
5,513
$
6,566
$
6,604
h.     At December 31, 2004, the
Belgian subsidiary and the Israeli subsidiaries tax returns for
all tax years through December 31, 1998 and
December 31, 2000, respectively, became final due to the
elapsed legal challenge period of the local tax authorities. No
other final tax assessments have been received yet.
F-31
Notes to consolidated financial statements
NOTE 15:
FINANCIAL INCOME (EXPENSES), NET
Year ended December 31,
2002
2003
2004
Financial expenses:
Interest on loans, bank credit and others
$
(122
)
$
(169
)
$
(203
)
Interest and amortization of discount on convertible notes
(2,619
)
(4,148
)
(3,804
)
Amortization of deferred issuance costs
(57
)
(127
)
(96
)
(2,798
)
(4,444
)
(4,103
)
Financial income:
Foreign currency translation adjustments
1,959
3,787
1,542
Interest on short-term bank deposits and others
34
30
95
1,993
3,817
1,637
Net expenses
$
(805
)
$
(627
)
$
(2,466
)
NOTE 16:
OTHER INCOME (EXPENSES), NET
Year ended
December 31,
2002
2003
2004
Gain (loss) from sale of property, plant and equipment
$
(39
)
$
7
$
11
Gain from termination of agreement with distributor, net(1)
—
—
1,215
$
(39
)
$
7
$
1,226
(1)
In 2002, the Company entered into a distribution agreement with
    the American Red Cross ("ARC") for distribution of
    Crosseal products in the U.S. and Canada. According to the
    agreement, the Company and ARC split equally the average selling
    price ("ASP") to the end user. In addition, ARC was
    required to pay 2% of ASP as royalties.
The Company recognized revenues under this arrangement upon
    shipment of product by ARC to their end user (sale through) and
    when the fee is fixed and determinable. Advanced payments by ARC
    were recorded as deferred revenues until all revenue recognition
    criteria are met.
The agreement was terminated in July 2004. Pursuant to the
    termination agreement, the company received from ARC
    (1) all unsold inventory, (2) a waiver for any claim
    for advance payments previously made by ARC, and (3) 17,000
    liters of plasma to be supplied by ARC in four equal annual
    installments, at no additional consideration.
At the termination date, ARC plasma did not comply with certain
    regulatory standards required by the Company in order to use
    this plasma in its manufacturing process. As the Company had no
    alternative future use for this plasma, the Company did not
    assign any value to this element of the consideration.
Upon termination, the Company recorded $1,215 in other income
    representing the balance of deferred revenue net of the cost of
    obsolete inventory returned.
In the future, if ARC's plasma will comply with the
    required standards, the Company will record, upon receiving the
    plasma, the value of such inventory as other income.
F-32
Notes to consolidated financial statements
NOTE 17:
NET LOSS PER SHARE
The following table sets forth the computation of the basic and
diluted losses per share:
a.     Numerator:
Nine months ended
Year ended December 31,
September 30,
2002
2003
2004
2004
2005
Net loss available to common stockholders for basic net loss per
    share
$
5,513
$
6,566
$
6,725
$
7,363
$
21,314
Induced conversion of Preferred stock
—
—
—
—
4,706
Net loss available to common stockholders for diluted net loss
    per share
$
5,513
$
6,566
$
6,725
$
7,363
$
26,020
b.     Denominator:
Nine months ended
Year ended December 31,
September 30,
2002
2003
2004
2004
2005
Number of shares
Weighted average number of shares of common stock for basic net
    loss per share of common stock
9,556,501
9,540,988
9,540,988
9,540,988
28,765,222
Effect of dilutive securities:
Shares of preferred stock
*) —
*) —
*) —
*) —
57,695
Denominator for diluted net loss per share of common stock
9,556,501
9,540,988
9,540,988
9,540,988
28,822,917
*)
Anti-dilutive.
NOTE 18:
MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company operates in one reportable segment (see Note 1
for a brief description of the Company's business). The
following data is presented in accordance with Statement of
Financial Accounting Standards No. 131, "Disclosure
About Segments of an Enterprise and Related Information".
The following present total revenues for the years ended
December 31, 2002, 2003 and 2004 and long-lived assets at
December 31, 2003 and 2004:
Year ended December 31,
2002
2003
2004
Revenues from sales to unaffiliated customers:
Israel
$
10,574
$
9,542
$
12,127
United States
—
2,434
1,766
Europe
471
1,727
1,916
Central and Latin America
695
529
1,700
Others
82
—
58
Total
$
11,822
$
14,232
$
17,567
F-33
Notes to consolidated financial statements
December 31,
2003
2004
Long-lived assets:
Israel
$
3,183
$
4,143
United States
4
5
Europe
71
23
Total
$
3,258
$
4,171
Revenues are attributed by product lines as follows:
Year ended December 31,
2002
2003
2004
Biosurgical products
Product sales
$
693
$
2,469
$
5,211
Development services
404
659
1,950
1,097
3,128
7,161
Passive immunotherapy products
Product sales
7,948
8,968
10,447
Grants
—
56
431
7,948
9,024
10,878
Other products
3,181
2,795
1,909
Total
$
12,226
$
14,947
$
19,948
Revenues from major customers (constituting 10% or more of the
Company's consolidated revenues) amounted to 50% and 38%
and 63% of revenues in the years ended December 31, 2002
and 2003 and 2004, respectively, as set forth below:
2002
2003
2004
% of consolidated revenues
Customer A
29
20
25
Customer B
21
18
14
Customer C
—
*) —
24
*)
Less than 10% of the Company's consolidated revenues.
NOTE 19:
SUBSEQUENT EVENTS (UNAUDITED)
a.     In December 2005, the Company
granted to employees, director and consultant nine options to
purchase 460,000 of the Company's shares of common
stock, at an exercise price of $5.00 per share. The options
will vest over a four year period of employment and are
exercisable for a period of nine years. In addition, the Company
issued 20,833 restricted shares with similar vesting period to
an employee.
b.     See Note 12g with respect
to the amendment of the CEO agreement.
F-34
Omrix Biopharmaceuticals, Inc.
Schedule II—Valuation and qualification accounts
Three years ended December 31, 2004
(U.S. $ in thousands)
Column A
Column B
Column C
Column D
Column E
Column F
Balance at
Charged to
Balance
beginning
cost and
Translation
at end of
of period
expenses
Deductions
differences
period
Allowance for doubtful accounts:
Year ended December 31, 2002
400
792
50
1,242
Year ended December 31, 2003
1,242
1
16
239
1,466
Year ended December 31, 2004
1,466
16
1,466
—
16
Allowance for inventory write-offs:
Year ended December 31, 2002
—
497
—
—
497
Year ended December 31, 2003
497
505
261
—
741
Year ended December 31, 2004
741
177
269
—
649
F-35
DEALER PROSPECTUS DELIVERY OBLIGATION
Through and
including                     ,
2006 (the 25th day after the date of this prospectus),
federal securities laws may require all dealers that effect
transactions in our common stock, whether or not participating
in this offering, to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold
allotments or subscriptions.
Part II
Information not required in prospectus
ITEM 13.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs, other than
underwriting discounts and commission, to be paid by the
Registrant in connection with the sale of the common stock being
registered. All amounts, except the Securities and Exchange
Commission registration fee and the National Association of
Securities Dealers Inc. filing fee, are estimated.
Amount
to be paid
Securities and Exchange Commission registration fee
$
National Association of Securities Dealers Inc. filing fee
Nasdaq National Market listing fee
*
Accountants' fees and expenses
*
Legal fees and expenses
*
Transfer agent and registrar fees and expenses
*
Printing and engraving expenses
Blue Sky fees and expenses (including legal fees)
*
Miscellaneous expenses
*
Total
$
*
*
To be filed by amendment.
ITEM 14.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our certificate of incorporation provides that we will indemnify
our directors and officers to the fullest extent permitted by
the Delaware General Corporation Law, or DGCL. Section 145
of the DGCL provides that a corporation has the power to
indemnify a director, officer, employee, or agent of the
corporation and certain other persons serving at the request of
the corporation in related capacities against expenses
(including attorneys' fees), judgments, fines, and amounts
paid in settlements actually and reasonably incurred by the
person in connection with a threatened, pending, or completed
action, suit or proceeding to which he or she is or is
threatened to be made a party by reason of such position, if
such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal action or
proceeding, had no reasonable cause to believe his or her
conduct was unlawful, except that, in the case of actions
brought by or in the right of the corporation, indemnification
is limited to expenses (including attorney fees) actually and
reasonably incurred by the person in connection with defense or
settlement of such action or suit if the person acted in good
faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and no
indemnification shall be made with respect to any claim, issue,
or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Court of Chancery or other adjudicating court determines that,
despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
In addition, to the extent that a present or former director or
officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit, or proceeding
described above, or defense of any claim, issue, or matter
therein, such person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
II-1
Part II
Expenses (including attorneys' fees) incurred by an officer
or director in defending any civil, criminal, administrative, or
investigative action, suit, or proceeding may be advanced by the
corporation upon receipt of an undertaking by such person to
repay such amount if it is ultimately determined that such
person is not entitled to indemnification by the corporation
under Section 145 of the DGCL.
Our certificate of incorporation provides that we will, to the
fullest extent permitted by law, indemnify, and upon request
shall advance expenses to, any person made or threatened to be
made a party to an action or proceeding by reason of the fact
that he or she (or his or her testators or in testate) is or was
our director or officer or serves or served at any other
corporation, partnership, joint venture, trust or other
enterprise in a similar capacity or as an employee or agent at
our request, including service with respect to employee benefit
plans, against expenses (including attorneys' fees and
expenses), judgments, fines, penalties, and amounts paid in
settlement incurred in connection with the investigation,
preparation to defend, or defense of such action, suit,
proceeding, or claim. However, we are not required to indemnify
or advance expenses in connection with any action, suit,
proceeding, claim or counterclaim initiated by or on behalf of
such person.
Our certificate of incorporation also provides that, to the
fullest extent permitted by law, a director of the corporation
shall not be personally liable to the corporation or our
stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law, (iii) for payments of unlawful dividends or
unlawful stock repurchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal
benefit.
Any repeal or modification of these provisions of our
certificate of incorporation shall not adversely affect any
right or protection of a director of the corporation for or with
respect to any acts or omissions of that director occurring
prior to the amendment or repeal.
We expect to obtain insurance policies under which our directors
and officers are insured, within the limits and subject to the
limitations of those policies, against certain expenses in
connection with the defense of, and certain liabilities which
might be imposed as a result of, actions, suits or proceedings
to which they are parties by reason of being or having been
directors or officers.
Prior to the completion of this offering, we will enter into
indemnification agreements with each of our officers and
directors under which we agreed to indemnify each of them
against: (a) expenses, judgments, and settlements paid in
connection with third-party claims and (b) expenses and
settlements paid in connection with claims on our behalf, in
each case provided that the director acted in good faith. In
addition, we agreed to indemnify each director to the extent
permitted by DGCL against all expenses, judgments, and amounts
paid in settlement unless the director's conduct
constituted a breach of his or her duty of loyalty to the
stockholders. Subject to the director's obligation to pay
us in the event that he or she is not entitled to
indemnification, we will pay the expenses of the director prior
to a final determination as to whether the director is entitled
to indemnification.
Reference is also made to the Underwriting Agreement filed as
Exhibit 1.1 to the Registration Statement for information
concerning the underwriters' obligation to indemnify us and
our officers and directors in certain circumstances.
ITEM 15.
RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is information regarding securities sold by us
since January 1, 2002 which were not registered under the
Securities Act of 1933 as amended, or Securities Act.
II-2
Part II
(a)     Issuances and Sales of
    Preferred Stock
In July 2004, we issued and sold an aggregate of
    406,835 shares of our Series B Convertible Preferred
    Stock at a price per share of $12.29 and a warrant to purchase
    up to 100,000 shares of common stock for an aggregate
    offering price of approximately $5,000,000.
No underwriters were involved in the foregoing sales of
securities. The securities described in this
paragraph (a) of Item 15 were issued to a
U.S. investor in reliance upon the exemption from the
registration requirements of the Securities Act, as set forth in
Section 4(2) under the Securities Act and Rule 506 of
Regulation D promulgated thereunder relating to sales by an
issuer not involving any public offering, to the extent an
exemption from such registration was required. The purchaser of
shares of our stock described above represented to us in
connection with their purchase that they were an accredited
investor and were acquiring the shares for investment and not
distribution, that they could bear the risks of the investment
and could hold the securities for an indefinite period of time.
The purchaser received written disclosures that the securities
had not been registered under the Securities Act and that any
resale must be made pursuant to a registration or an available
exemption from such registration. The sales of these securities
were made without general solicitation or advertising.
(b)     Issuances and Sales of
    Convertible Promissory Notes and New Convertible Promissory Notes
(1)     In August 2002, we sold two
    series of convertible promissory notes to 19 investors for
    an aggregate offering price of approximately $11,131,700 in
    exchange for cash and refinancing of indebtedness.
(2)     As of January 2005, new
    convertible promissory notes were held by six investors for an
    aggregate offering price of approximately $2,000,000, with an
    extended maturity and changes to compounded interest, conversion
    rights and removal of collateral.
No underwriters were involved in the foregoing sales of
securities. The securities described in this
paragraph (b) of Item 15 were issued to a
combination of U.S., European and other investors in reliance
upon the exemption from the registration requirements of the
Securities Act, as set forth in Section 4(2) under the
Securities Act and Rule 506 of Regulation D
promulgated thereunder relating to sales by an issuer not
involving any public offering, to the extent an exemption from
such registration was required. The purchasers of shares of our
notes described above represented to us in connection with their
purchase that they were accredited investors and were acquiring
the shares for investment and not distribution, that they could
bear the risks of the investment and could hold the securities
for an indefinite period of time. The purchasers received
written disclosures that the securities had not been registered
under the Securities Act and that any resale must be made
pursuant to a registration or an available exemption from such
registration. The sales of these securities were made without
general solicitation or advertising.
(c)     Issuances of Common Stock
(1)     In January 2005, 13 investors
    participated in the recapitalization plan and exchanged:
•
an aggregate of $23,500,000
    principal face amount of 1998/1999 convertible notes and 667,455
    1998/1999 warrants for an aggregate of 12,059,595 shares of
    common stock;
II-3
Part II
•
an aggregate of $2,600,000
    principal amount of one of the 2002 convertible promissory notes
    series for an aggregate 2,102,114 shares of common
    stock; and
•
an aggregate of $4,049,200
    principal amount of the other 2002 convertible promissory notes
    series for an aggregate 3,371,234 shares of common stock.
(2)     In connection with this
    recapitalization, we also reclassified each share of
    Series A Convertible Preferred Stock into
    1.91524 shares of our common stock to one accredited
    investor. In connection with this recapitalization, we
    reclassified each share of Series B Convertible Preferred
    Stock into 2.94212 shares of our common stock to one
    accredited investor.
(3)     In January 2005 following the
    recapitalization, we exchanged $500,000 principal amount of the
    2002 convertible promissory notes for 415,335 shares of
    common stock to one investor.
No underwriters were involved in the foregoing sales of
securities. The securities described in this
paragraph (c) of Item 15 were issued to a
combination of U.S., European and other investors in reliance
upon the exemption from the registration requirements of the
Securities Act, as set forth in Section 4(2) under the
Securities Act and Rule 506 of Regulation D
promulgated thereunder relating to sales by an issuer not
involving any public offering, to the extent an exemption from
such registration was required. The purchasers of shares of our
stock described above represented to us in connection with their
purchase that they were accredited investors and were acquiring
the shares for investment and not distribution, that they could
bear the risks of the investment and could hold the securities
for an indefinite period of time. The purchasers received
written disclosures that the securities had not been registered
under the Securities Act and that any resale must be made
pursuant to a registration or an available exemption from such
registration. The sales of these securities were made without
general solicitation or advertising.
(d)     Issuances and Sales of Warrants
(1)     In August 2003, we issued
    warrants for the issuance of up to 100,000 shares of common
    stock at a price of $4.40 per share to one accredited
    investor.
(2)     In July 2004, we issued
    warrants for the issuance of up to 100,000 shares of common
    stock at a price of $12.29 per share to one accredited
    investor. The exercise price was amended to be $4.18 per
    share by the waiver and amendment agreement dated
    January 13, 2005.
(3)     In March 2005, we issued
    warrants for the issuance of up to 179,426 shares of common
    stock at a price of $4.18 per share to two accredited
    investors.
No underwriters were involved in the foregoing sales of
securities. The securities described in this
paragraph (d) of Item 15 were issued to
U.S. investors in reliance upon the exemption from the
registration requirements of the Securities Act, as set forth in
Section 4(2) under the Securities Act and Rule 506 of
Regulation D promulgated thereunder relating to sales by an
issuer not involving any public offering, to the extent an
exemption from such registration was required. The purchasers of
shares of our stock described above represented to us in
connection with their purchase that they were accredited
investors and were acquiring the shares for investment and not
distribution, that they could bear the risks of the investment
and could hold the securities for an indefinite period of time.
The purchasers received written disclosures that the securities
had not been registered under the Securities
II-4
Part II
Act and that any resale must be made pursuant to a registration
or an available exemption from such registration. The sales of
these securities were made without general solicitation or
advertising.
(e)     Stock Option Grants and Grants
    of Restricted Shares
(1)     In October 2002, we issued to
    certain of our employees and directors options to purchase an
    aggregate of 100,000 shares of our common stock at an
    exercise price of $1.00 per share.
(2)     In March 2003, we issued to
    certain of our employees and directors options to purchase an
    aggregate of 350,000 shares of our common stock at an
    exercise price of $1.00 per share.
(3)     In January and March 2005, we
    issued to certain of our employees, directors and consultants
    options to purchase an aggregate of 600,000 shares of our
    common stock at an exercise price of $2.25 per share.
(4)     In December 2005, we issued to
    certain of our employees, directors and consultants options to
    purchase an aggregate of 460,000 shares of our common stock
    at an exercise price of $5.00 per share.
(5)     In December 2005, we issued to
    a certain employee 20,833 restricted shares of our common stock.
The stock option grants described in this
paragraph (e) of Item 15 were made under written
compensatory plans or agreements in reliance on the exemption
provided by Rule 701 promulgated under the Securities Act.
ITEM 16.
EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a)     Exhibits.
Exhibit
Number
Exhibit
1
.1*
Form of Underwriting Agreement
3
.1
Amended and Restated Certificate of Incorporation
3
.2*
Second Amended and Restated Certificate of Incorporation (to be
    effective upon completion of the offering)
3
.3
Amended and Restated Bylaws
3
.4*
Second Amended and Restated Bylaws (to be effective upon
    completion of the offering)
4
.1*
Specimen Common Stock Certificate
4
.2
Investor Rights Agreement dated January 13, 2005
4
.3
Warrant Agreement between Omrix Biopharmaceuticals, Inc. and
    Hercules Technology Growth Capital, Inc. dated March 31,
    2005
4
.4
Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and Capricorn Venture Partners N.V. dated December 31,
    1998
4
.5
Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and Wolfgang Stoiber dated December 31, 1998
4
.6
Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and T. Scott Johnson dated September 19, 2000
II-5
Part II
Exhibit
Number
Exhibit
4
.7
Common Stock Purchase Warrant
    between Omrix Biopharmaceuticals, Inc. and The Marwood Group
    dated January 20, 2004
4
.8
First Amendment to Common Stock
    Purchase Warrant between Omrix Biopharmaceuticals, Inc. and
    Marwood Group LLC dated December 1, 2005
4
.9
Warrant Agreement between Omrix
    Biopharmaceuticals, Inc. and Asanté Partners LLC dated
    March 31, 2005
4
.10
Common Stock Purchase Warrant
    between Omrix Biopharmaceuticals, Inc. and Johnson &
    Johnson Development Corporation dated August 11, 2004
4
.11
Waiver and Amendment Agreement
    between certain warrantholders and Omrix Biopharmaceuticals,
    Inc. dated January 13, 2005
4
.12
First Amendment and Waiver between
    Omrix Biopharmaceuticals, Inc. and Johnson & Johnson
    Development Corporation dated January 13, 2005
4
.13
Waiver Agreement between certain
    warrantholders and Omrix Biopharmaceuticals, Inc. dated
    February 22, 2005
4
.14
Amended and Restated Senior
    Convertible 2005 Series A Promissory Note of Omrix
    Biopharmaceuticals, Inc. in the amount of $752,148 dated
    January 29, 2005
4
.15
Amended and Restated Senior
    Convertible 2005 Series B Promissory Note of Omrix
    Biopharmaceuticals, Inc. in the amount of $154,555 dated
    January 29, 2005
5
.1*
Opinion of Skadden, Arps, Slate,
    Meagher & Flom LLP
10
.1**
Lease and Operation Agreement
    between Omrix Biopharmaceuticals Ltd. and Magen David Adom in
    Israel dated July 20, 2000
10
.2**
Addendum to an Agreement between
    Magen David Adom in Israel and Omrix Biopharmaceuticals, Inc.
    dated as of December 16, 2004
10
.3**
Agreement between Omrix
    Biopharmaceuticals Ltd. and Medimop Medical Projects Ltd. dated
    June 26, 2005
10
.4**
Development Agreement between Omrix
    Biopharmaceuticals, Inc. and Ethicon, Inc. dated
    September 22, 2003
10
.5**
Amendment No. 1 to Development
    Agreement between Omrix Biopharmaceuticals, Inc. and Ethicon,
    Inc. dated July 15, 2004
10
.6**
Distribution and Supply Agreement
    between Omrix Biopharmaceuticals, Inc. and Ethicon, Inc. dated
    September 22, 2003
10
.7**
Amendment No. 1 to
    Distribution and Supply Agreement between Omrix
    Biopharmaceuticals, Inc. and Ethicon, Inc. dated July 15,
    2004
10
.8**
Patent and Know-How License
    Agreement between Omrix Biopharmaceuticals Ltd. and Amersham
    Biosciences AB dated February 18, 2003
10
.9**
Supply Agreement between Omrix
    Biopharmaceuticals Ltd. and PlastMed Ltd. dated March 25,
    2004
10
.10**
Addendum to Supply Agreement
    between Omrix Biopharmaceuticals Ltd. and PlastMed Ltd. dated
    June 30, 2004
10
.11
Supply Agreement between Daiichi
    Pharmaceutical Co., Ltd and Omrix Biopharmaceuticals S.A. dated
    August 24, 1999
II-6
Part II
Exhibit
Number
Exhibit
10
.12
Planova Sales Agreement between
    Omrix Biopharmaceuticals Ltd. and Asahi Kasei Pharma Corporation
    dated March 1, 2004
10
.13
Contract for the Supply of Vaccinia
    Immunoglobulin between Omrix Biopharmaceuticals S.A. and NHS
    Purchasing and Supply Agency dated December 12, 2005
10
.14
Senior Loan and Security Agreement
    between Omrix Biopharmaceuticals, Inc. and Hercules Technology
    Growth Capital, Inc. dated March 31, 2005
10
.15
First Amendment to Senior Loan and
    Security Agreement between Omrix Biopharmaceuticals, Inc. and
    Hercules Technology Growth Capital, Inc. dated March 31,
    2005
10
.16
Guaranty between Hercules
    Technology Growth Capital, Inc. and Omrix Biopharmaceuticals,
    S.A. dated March 31, 2005
10
.17
Guaranty between Hercules
    Technology Growth Capital, Inc. and Omrix Biopharmaceuticals
    Ltd. dated March 31, 2005
10
.18
Account Control Agreement
    between Hercules Technology Growth Capital, Inc. and Omrix
    Biopharmaceuticals, Inc. dated July 6, 2005
10
.19*
Form of Indemnification Agreement
    between Omrix Biopharmaceuticals, Inc. and its directors and
    officers
10
.20
2004 Equity Incentive Plan
10
.21
2005 Equity Incentive Plan for
    Israeli Employees
10
.22
Employment Agreement between Omrix
    Biopharmaceuticals Ltd. and Nissim Mashiach dated
    September 21, 1997
10
.23
Amended and Restated Employment
    Agreement between Omrix Biopharmaceuticals Ltd. and Michael
    Burshtine dated January 1, 2006
10
.24
Consulting Agreement between Omrix
    Biopharmaceuticals, Inc. and Philippe Romagnoli dated
    October 1, 2002
10
.25
Consulting Agreement, as amended in
    September 2004 between Omrix Biopharmaceuticals, Inc. and
    Philippe Romagnoli dated September 23, 2004
10
.26
Director Agreement between Omrix
    Biopharmaceuticals, Inc. and Fredric Price dated
    January 13, 2006
10
.27
Form of Undertaking to Maintain
    Confidentiality between Omrix Biopharmaceuticals Ltd. and its
    employees
21
.1
List of subsidiaries of Omrix
    Biopharmaceuticals, Inc.
23
.1
Consent of Kost, Forer,
    Gabbay & Kasierer, a member of Ernst & Young
    Global
23
.2
Consent of Ziv Haft, a BDO member
    firm
23
.3*
Consent of Skadden, Arps, Slate,
    Meagher & Flom LLP (included in Exhibit 5.1)
24
.1
Power of Attorney (set forth on the
    signature page to this registration statement)
*
To be filed by amendment.
**
Confidential treatment has been requested with respect to
    portions of this exhibit.
II-7
Part II
(b)     Financial Statement Schedules.
Financial statements filed as a part of this registration
statement are listed in the Index to Financial Statements on
page F-1.
All
other financial statement schedules are omitted because they are
not applicable or not required, or because the required
information is included in the financial statements or notes
thereto.
ITEM 17.
UNDERTAKINGS
(1)     The undersigned registrant
hereby undertakes to provide to the underwriters at the closing
specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(2)     Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(3)     The undersigned registrant
hereby undertakes that:
(i) For purposes of determining any liability under the
    Securities Act, the information omitted from the form of
    prospectus filed as part of this registration statement in
    reliance upon Rule 430A and contained in a form of
    prospectus filed by the registrant pursuant to
    Rule 424(b)(1) or (4) or 497(h) under the Securities
    Act shall be deemed to be part of this registration statement as
    of the time it was declared effective.
(ii)     For the purpose of determining
    any liability under the Securities Act, each post-effective
    amendment that contains a form of prospectus shall be deemed to
    be a new registration statement relating to the securities
    offered therein, and the offering of such securities at that
    time shall be deemed to be the initial bona fide offering
    thereof.
II-8
Part II
Signatures
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New
York on January 18, 2006.
OMRIX BIOPHARMACEUTICALS, INC.
By:
/s/ Michael Burshtine
Name: Michael Burshtine
Title:     Senior Vice President and
    Chief Financial Officer
II-9
Part II
Power of attorney
Each person whose signature appears below hereby constitutes and
appoints Michael Burshtine and Philippe Romagnoli, and each of
them, as his true and lawful
attorneys-in
-fact and
agents, with full power of substitution and resubstitution for
him and in his name, place and stead, in any and all capacities,
to sign any or all amendments or supplements to this
registration statement, whether pre-effective or post-effective,
including any subsequent registration statement for the same
offering which may be filed under Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same with
all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said
attorneys-in
-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing necessary or appropriate to
be done with respect to this registration statement or any
amendments or supplements hereto in the premises, as fully to
all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said
attorneys-in
-fact and
agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed below by
the following persons, in the capacities and on the dates
indicated.
Title
Date
Signature
/s/ Robert Taub
Robert Taub
President, Chief Executive Officer and Director
January 18, 2006
/s/ Fredric D. Price
Fredric D. Price
Chairman of the Board of Directors
January 18, 2006
/s/ Michael Burshtine
Michael Burshtine
Senior Vice President and Chief Financial Officer
January 18, 2006
/s/ Jos B. Peeters
Jos B. Peeters
Director
January 18, 2006
/s/ Steven St. Peter
Steven St. Peter
Director
January 18, 2006
/s/ Douglas A. Cotter
Douglas A. Cotter
Director
January 18, 2006
II-10
Exhibit index
Exhibit
Number
Exhibit
1
.1*
Form of Underwriting Agreement
3
.1
Amended and Restated Certificate of Incorporation
3
.2*
Second Amended and Restated Certificate of Incorporation (to be
    effective upon completion of the offering)
3
.3
Amended and Restated Bylaws
3
.4*
Second Amended and Restated Bylaws (to be effective upon
    completion of the offering)
4
.1*
Specimen Common Stock Certificate
4
.2
Investor Rights Agreement dated January 13, 2005
4
.3
Warrant Agreement between Omrix Biopharmaceuticals, Inc. and
    Hercules Technology Growth Capital, Inc. dated March 31,
    2005
4
.4
Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and Capricorn Venture Partners N.V. dated December 31,
    1998
4
.5
Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and Wolfgang Stoiber dated December 31, 1998
4
.6
Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and T. Scott Johnson dated September 19, 2000
4
.7
Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and The Marwood Group dated January 20, 2004
4
.8
First Amendment to Common Stock Purchase Warrant between Omrix
    Biopharmaceuticals, Inc. and Marwood Group LLC dated
    December 1, 2005
4
.9
Warrant Agreement between Omrix Biopharmaceuticals, Inc. and
    Asanté Partners LLC dated March 31, 2005
4
.10
Common Stock Purchase Warrant between Omrix Biopharmaceuticals,
    Inc. and Johnson & Johnson Development Corporation
    dated August 11, 2004
4
.11
Waiver and Amendment Agreement between certain warrantholders
    and Omrix Biopharmaceuticals, Inc. dated January 13, 2005
4
.12
First Amendment and Waiver between Omrix Biopharmaceuticals,
    Inc. and Johnson & Johnson Development Corporation dated
    January 13, 2005
4
.13
Waiver Agreement between certain warrantholders and Omrix
    Biopharmaceuticals, Inc. dated February 22, 2005
4
.14
Amended and Restated Senior Convertible 2005 Series A
    Promissory Note of Omrix Biopharmaceuticals, Inc. in the amount
    of $752,148 dated January 29, 2005
4
.15
Amended and Restated Senior Convertible 2005 Series B
    Promissory Note of Omrix Biopharmaceuticals, Inc. in the amount
    of $154,555 dated January 29, 2005
5
.1*
Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10
.1**
Lease and Operation Agreement between Omrix Biopharmaceuticals
    Ltd. and Magen David Adom in Israel dated July 20, 2000
10
.2**
Addendum to an Agreement between Magen David Adom in Israel and
    Omrix Biopharmaceuticals, Inc. dated as of December 16, 2004
10
.3**
Agreement between Omrix Biopharmaceuticals Ltd. and Medimop
    Medical Projects Ltd. dated June 26, 2005
Exhibit index
Exhibit
Number
Exhibit
10
.4**
Development Agreement between Omrix
    Biopharmaceuticals, Inc. and Ethicon, Inc. dated
    September 22, 2003
10
.5**
Amendment No. 1 to Development
    Agreement between Omrix Biopharmaceuticals, Inc. and Ethicon,
    Inc. dated July 15, 2004
10
.6**
Distribution and Supply Agreement
    between Omrix Biopharmaceuticals, Inc. and Ethicon, Inc. dated
    September 22, 2003
10
.7**
Amendment No. 1 to
    Distribution and Supply Agreement between Omrix
    Biopharmaceuticals, Inc. and Ethicon, Inc. dated July 15,
    2004
10
.8**
Patent and Know-How License
    Agreement between Omrix Biopharmaceuticals Ltd. and Amersham
    Biosciences AB dated February 18, 2003
10
.9**
Supply Agreement between Omrix
    Biopharmaceuticals Ltd. and PlastMed Ltd. dated March 25,
    2004
10
.10**
Addendum to Supply Agreement
    between Omrix Biopharmaceuticals Ltd. and PlastMed Ltd. dated
    June 30, 2004
10
.11
Supply Agreement between Daiichi
    Pharmaceutical Co., Ltd and Omrix Biopharmaceuticals S.A. dated
    August 24, 1999
10
.12
Planova Sales Agreement between
    Omrix Biopharmaceuticals Ltd. and Asahi Kasei Pharma Corporation
    dated March 1, 2004
10
.13
Contract for the Supply of Vaccinia
    Immunoglobulin between Omrix Biopharmaceuticals S.A. and NHS
    Purchasing and Supply Agency dated December 12, 2005
10
.14
Senior Loan and Security Agreement
    between Omrix Biopharmaceuticals, Inc. and Hercules Technology
    Growth Capital, Inc. dated March 31, 2005
10
.15
First Amendment to Senior Loan and
    Security Agreement between Omrix Biopharmaceuticals, Inc. and
    Hercules Technology Growth Capital, Inc. dated March 31,
    2005
10
.16
Guaranty between Hercules
    Technology Growth Capital, Inc. and Omrix Biopharmaceuticals,
    S.A. dated March 31, 2005
10
.17
Guaranty between Hercules
    Technology Growth Capital, Inc. and Omrix Biopharmaceuticals
    Ltd. dated March 31, 2005
10
.18
Account Control Agreement
    between Hercules Technology Growth Capital, Inc. and Omrix
    Biopharmaceuticals, Inc. dated July 6, 2005
10
.19*
Form of Indemnification Agreement
    between Omrix Biopharmaceuticals, Inc. and its directors and
    officers
10
.20
2004 Equity Incentive Plan
10
.21
2005 Equity Incentive Plan for
    Israeli Employees
10
.22
Employment Agreement between Omrix
    Biopharmaceuticals Ltd. and Nissim Mashiach dated
    September 21, 1997
10
.23
Amended and Restated Employment
    Agreement between Omrix Biopharmaceuticals Ltd. and Michael
    Burshtine dated January 1, 2006
10
.24
Consulting Agreement between Omrix
    Biopharmaceuticals, Inc. and Philippe Romagnoli dated
    October 1, 2002
10
.25
Consulting Agreement, as amended in
    September 2004 between Omrix Biopharmaceuticals, Inc. and
    Philippe Romagnoli dated September 23, 2004
Exhibit index
Exhibit
Number
Exhibit
10
.26
Director Agreement between Omrix
    Biopharmaceuticals, Inc. and Fredric Price dated
    January 13, 2006
10
.27
Form of Undertaking to Maintain
    Confidentiality between Omrix Biopharmaceuticals Ltd. and its
    employees
21
.1
List of subsidiaries of Omrix
    Biopharmaceuticals, Inc.
23
.1
Consent of Kost, Forer,
    Gabbay & Kasierer, a member of Ernst & Young
    Global
23
.2
Consent of Ziv Haft, a BDO member
    firm
23
.3*
Consent of Skadden, Arps, Slate,
    Meagher & Flom LLP (included in Exhibit 5.1)
24
.1
Power of Attorney (set forth on the
    signature page to this registration statement)
*
To be filed by amendment.
**
Confidential treatment has been requested with respect to
    portions of this exhibit.