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XTL Biopharm Ltd (XTL)

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Tuesday 15 August, 2006

XTL Biopharm Ltd

Interim Results


              XTL Biopharmaceuticals Announces Financial Results               
                    for the Six Months Ended June 30, 2006                     

New York, New York, August 15, 2006 - XTL Biopharmaceuticals Ltd. (NASDAQ:
XTLB; LSE: XTL; TASE: XTL), a biotechnology company focused on the acquisition,
development and commercialization of pharmaceutical products for the treatment
of infectious diseases, particularly the treatment of hepatitis C, today
announced its financial results for the six months ended June 30, 2006.

At June 30, 2006, the Company had cash, cash equivalents and short-term bank
deposits of $32.2 million, compared to cash, cash equivalents and short-term
bank deposits of $13.4 million at December 31, 2005, and $16.6 million at June
30, 2005. The increase of $18.8 million since December 31, 2005 is attributable
primarily to the Company's completion in May of a private placement of $28.0
million in gross proceeds, or $24.4 million in net proceeds. This increase was
partially offset by operating expenditures associated with the development and
support of our hepatitis C clinical product candidates, XTL-2125 and XTL-6865,
as well as to the development of the DOS hepatitis C pre-clinical program.

The loss for the six months ended June 30, 2006 was $7,291,000, or $0.04 per
ordinary share, compared to the loss of $4,954,000, or $0.03 per ordinary
share, for the six months ended June 30, 2005, representing an increase in net
loss of $2,337,000. The increase in loss was primarily attributable to an
increase of $1,459,000 in research and development costs and a $932,000
increase in general and administrative expenses. The increase in research and
development costs was primarily associated with expenditures related to the DOS
program acquired from VivoQuest in September 2005. During the six months ended
June 30, 2006, general and administrative expenses included a non-cash
compensation charge of $1,105,000 associated with stock options in accordance
with FAS 123R, as compared to a $3,000 non-cash compensation charge for the
comparable period last year.

Ron Bentsur, Chief Executive Officer of XTL, commented, "During the first half
of the year, amidst a very unfavorable biotechnology market, we continued to
strengthen the foundation of our company. Patient enrollment into the XTL-2125
and XTL-6865 Phase 1 clinical proof of principle trials is progressing very
well and our DOS pre-clinical hepatitis C platform continues to make
substantial strides. Moreover, the $28 million capital raise that we completed
in May should carry us into 2008 and the additional funds should provide us not
only with capital to support our current and planned clinical programs for
XTL-2125 and XTL-6865, but also with the ability to build out our pipeline
through the in-licensing of additional clinical-stage drug candidates." Mr.
Bentsur added, "The first half of the year proved once again that we are an
extremely cash prudent organization that is focused on meeting the milestones
that we have set out to achieve. We look forward to an eventful second half of
the year as we continue to build long-term shareholder value."

Contacts:

XTL

Ron Bentsur, Chief Executive Officer          Tel: +1 (212) 531-5960

ABOUT XTL BIOPHARMACEUTICALS LTD.

XTL is engaged in the acquisition, development and commercialization of
therapeutics for the treatment of infectious diseases, with a focus on
hepatitis C. XTL is developing XTL-2125 - a small molecule, non-nucleoside
inhibitor of the hepatitis C virus polymerase - presently in Phase 1 clinical
trials in patients with chronic hepatitis C. XTL is also developing XTL-6865 -
a combination of two monoclonal antibodies against the hepatitis C virus -
presently in Phase 1 clinical trials in patients with chronic hepatitis C.
XTL's hepatitis C pipeline also includes several families of pre-clinical
hepatitis C small molecules. XTL is publicly traded on the Nasdaq, London, and
Tel-Aviv Stock Exchanges (NASDAQ: XTLB; LSE: XTL; TASE: XTL).

Cautionary Statement

Some of the statements included in this press release, particularly those
anticipating future financial performance, clinical and business prospects for
our clinical compounds for hepatitis C, XTL-2125 and XTL-6865, growth and
operating strategies and similar matters, may be forward-looking statements
that involve a number of risks and uncertainties. For those statements, we
claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. Among the
factors that could cause our actual results to differ materially are the
following: our ability to successfully complete cost-effective clinical trials
for the drug candidates in our pipeline which would affect our ability to
continue to fund our operations with our available cash reserves, our ability
to meet anticipated development timelines for the drug candidates in our
pipeline due to recruitment, clinical trial results, manufacturing capabilities
or other factors; the effect of  current conditions in the Middle East on our
clinical trials and other operations in that region; and other risk factors
identified from time to time in our reports filed with the Securities and
Exchange Commission and the London Stock Exchange, including our annual report
on Form 20-F filed with the Securities and Exchange Commission on May 25, 2006.
Any forward-looking statements set forth in this press release speak only as of
the date of this press release. We do not intend to update any of these
forward-looking statements to reflect events or circumstances that occur after
the date hereof. This press release and prior releases are available at http://
www.xtlbio.com. The information in our website is not incorporated by reference
into this press release and is included as an inactive textual reference only.

August 14, 2006

The Board of Directors of
XTL Biopharmaceuticals Ltd.


Re:   Review of unaudited interim consolidated financial statements
      for the six months ended June 30, 2006                       

At your request, we have reviewed the interim consolidated balance sheet of XTL
Biopharmaceuticals Ltd. (hereafter - the Company) and its subsidiary at
June 30, 2006 and the interim consolidated statements of operations, changes in
shareholders' equity and cash flows for the six month period then ended. We
have also reviewed the consolidated statements of operations and cash flows for
the period from March 9, 1993 (incorporation date) to June 30, 2006 (the
amounts included therein, which relate to the period through December 31, 2000,
are based on the financial statements for 2000, which were audited by another
accounting firm).

Our review was performed in accordance with the procedures prescribed by the
Institute of Certified Public Accountants in Israel. Inter-alia, these
procedures included: reading the financial statements referred to above,
reading the minutes of meetings of shareholders and of the board of directors
and its committees and making inquiries of Company officers responsible for
financial and accounting matters.

Since our review was limited in scope and did not constitute an audit in
accordance with auditing standards generally accepted in Israel and in the
United States, we do not express an opinion on the condensed consolidated
interim financial statements.

In performing our review, nothing came to our attention that indicated that
material adjustments should be made to the interim condensed consolidated
financial statements referred to above in order for them to be considered as
having been prepared in accordance with the accounting principles generally
accepted in the United States.

Sincerely yours,

Kesselman & Kesselman
Certified Public Accountants (Israel)
A Member of PricewaterhouseCoopers International Limited
Tel-Aviv, Israel




                          XTL BIOPHARMACEUTICALS LTD.                          
                         (A Development Stage Company)                         
                          CONSOLIDATED BALANCE SHEETS                          
                        (in thousands of U.S. dollars)                         

                                                    June 30         December 31,  
                                               2006        2005        2005    
                                                  (Unaudited)        (Audited) 

                A s s e t s                                                    
                                                                               
CURRENT ASSETS:                                                                
                                                                               
  Cash and cash equivalents                     32,172       4,967      13,360 
                                                                               
  Short-term bank deposits                          --      11,658          -- 
                                                                               
  Accounts receivable - trade                       --       1,667          -- 
                                                                               
  Accounts receivable - other                      644         318         431 
                                                                               
       T o t a l current assets                 32,816      18,610      13,791 
                                                                               
EMPLOYEE SEVERENCE PAY FUNDS                       173         465         449 
                                                                               
RESTRICRED LONG-TERM DEPOSIT                       119         108         110 
                                                                               
PROPERTY AND EQUIPMENT, NET                        620         791         762 
                                                                               
PROPERTY AND EQUIPMENT (HELD FOR SALE), NET         43          --          -- 
                                                                               
INTANGIBLE ASSETS, NET                              32          --          39 
                                                                               
                                                33,803      19,974      15,151 
                                                                               
   Liabilities and shareholders' equity                                        
                                                                               
CURRENT LIABILITIES:                                                           
                                                                               
  Accounts payable and accruals                  2,705       2,680       2,007 
                                                                               
  Deferred gain                                    399         399         399 
                                                                               
       T o t a l current liabilities             3,104       3,079       2,406 
                                                                               
LIABILITY IN RESPECT OF EMPLOYEE                                               
SEVERANCE OBLIGATIONS                              444         752         695 
                                                                               
DEFERRED GAIN                                      598         998         798 
                                                                               
       T o t a l liabilities                     4,146       4,829       3,899 
                                                                               
SHAREHOLDERS' EQUITY:                                                          
                                                                               
  Ordinary shares of NIS 0.02 par value                                          
  (authorized 300,000,000 as                                                     
  of June 30, 2006, June 30, 2005 and                                            
  December 31, 2005, issued                                                      
  and outstanding 220,069,801, 169,183,254       1,072         846         864 
  and 173,180,441 as                                                             
  of June 30, 2006, June 30, 2005 and                                            
  December 31, 2005, respectively)                                                                  
                                                                               
  Additional paid in capital                   135,667     105,029     110,179 
                                                                               
  Deficit accumulated during the development  (107,082)    (90,730)    (99,791)
  stage                                                                          
                                                                               
       T o t a l shareholders' equity           29,657      15,145      11,252 
                                                                               
       T o t a l liabilities and shareholders'  33,803      19,974      15,151 
       equity                                                                         


Date of approval of the interim financial statements: August 14, 2006.

     /s/ Michael Weiss                                   /s/ Ron Bentsur    
       Michael Weiss                                       Ron Bentsur      
      Chairman of the                                Chief Executive Officer
     Board of Directors                                                     

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



                          XTL BIOPHARMACEUTICALS LTD.                          
                         (A Development Stage Company)                         
                 INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS                 
                FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005                
      (in thousands of U.S. dollars, except share and per share amounts)       

                                                                      Period from  
                                                 Six months ended    March 9, 1993*
                                                     June 30,         to June 30,  
                                                  2006      2005          2006     
                                                   (Unaudited)        (Unaudited)  

REVENUES:                                                                      
                                                                               
  Reimbursed out-of-pockets expenses               --       2,408           6,012
                                                                               
  License                                         227         227             866
                                                                               
                                                  227       2,635           6,878
                                                                               
COST OF REVENUES:                                                              
                                                                               
  Reimbursed out-of-pockets expenses               --       2,408           6,012
                                                                               
  License (with respect to royalties)              27          27             113
                                                                               
                                                   27       2,435           6,125
                                                                               
GROSS MARGIN                                      200         200             753
                                                                               
RESEARCH AND DEVELOPMENT COSTS                                                 
                                                                               
  (includes non-cash compensation of $107       5,008       3,549          87,898
  and $80, for the six months ended June 30,                                     
  2006 and 2005, respectively)                                                   
                                                                               
L E S S - PARTICIPATIONS                           --          --          10,950
                                                                               
                                                 5,008      3,549          76,948
                                                                               
IN - PROCESS RESEARCH AND                                                      
DEVELOPMENT COSTS                                  --          --           1,783
                                                                               
GENERAL AND ADMINISTRATIVE                                                     
                                                                               
  EXPENSES (includes non-cash compensation      2,532       1,600          31,544
  of $1,105 and $3, for the six months ended                                     
  June 30, 2006 and 2005, respectively)                                          
                                                                               
  BUSINESS DEVELOPMENT COSTS                      168         130           4,681
  (includes non-cash compensation of $1 and                                      
  $0, for the six months ended June 30, 2006                                     
  and 2005, respectively)                                                        
                                                                               
OPERATING LOSS                                  7,508       5,079         114,203
                                                                               
FINANCIAL INCOME, net                             323         176           7,466
                                                                               
LOSS BEFORE INCOME TAXES                        7,185       4,903         106,737
                                                                               
INCOME TAXES                                      106          51             345
                                                                               
LOSS FOR THE PERIOD                             7,291       4,954        107,082 

BASIC AND DILUTED LOSS PER ORDINARY                                             
SHARE:                                                                          
                                                                                
  Loss per ordinary share                      $ 0.04      $ 0.03                     
                                                                                
  Weighted average number of shares used                                          
  in computing basic and diluted loss per 183,085,938 168,540,438                
  ordinary share                                                                  

                      * Incorporation date see note 1(a).                      

     The accompanying notes are an integral part of the condensedfinancial     
                                  statements.                                  



                          XTL BIOPHARMACEUTICALS LTD.                          
                         (A Development Stage Company)                         
      INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY       
                FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005                
             (in thousands of U.S. dollars, except share amounts)              

                                               Ordinary shares    Additional 
                                             Number of              paid in  
                                              shares      Amount    capital  

BALANCE AT JANUARY 1, 2006 (audited)        173,180,441      864    110,179 
                                                                            
CHANGES DURING THE SIX MONTHS                                               
ENDED JUNE 30, 2006 (unaudited):                                            
                                                                            
  Comprehensive loss - loss for the period          --        --         -- 
                                                                            
  Employee stock option compensation                --        --      1,213 
  expenses                                                                    
                                                                            
  Exercise of stock options                    222,690         1         91 
                                                                            
  Issuance of share warrants                        --        --      5,246 
                                                                            
  Issuance of shares, net of $3,609         46,666,670       207     18,938 
  share issuance expenses                                                     
                                                                            
BALANCE AT JUNE 30, 2006 (unaudited)       220,069,801     1,072    135,667 
                                                                            
BALANCE AT JANUARY 1, 2005 (audited)       168,079,196       841    104,537 
                                                                            
CHANGES DURING THE SIX MONTHS                                               
ENDED JUNE 30, 2005 (unaudited):                                            
                                                                            
  Comprehensive loss - loss for the period          --        --         -- 
                                                                            
  Non-employee stock option compensation            --        --         11 
  expenses                                                                    
                                                                            
  Employee stock option compensation                --        --         72 
  expenses                                                                    
                                                                            
  Exercise of stock options                  1,104,058         5        409 
                                                                            
BALANCE AT JUNE 30, 2005 (unaudited)       169,183,254       846    105,029 
                                                                            

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



                          XTL BIOPHARMACEUTICALS LTD.                          
                         (A Development Stage Company)                         
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (continued) 
                FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005                
             (in thousands of U.S. dollars, except share amounts)              

                                              Deficit                
                                            accumulated              
                                            during the               
                                            development              
                                               stage        Total    

BALANCE AT JANUARY 1, 2006 (audited)          (99,791)      11,252 
                                                                   
CHANGES DURING THE SIX MONTHS                                      
ENDED JUNE 30, 2006 (unaudited):                                   
                                                                   
  Comprehensive loss - loss for the period     (7,291)      (7,291)
                                                                   
  Employee stock option compensation               --        1,213 
  expenses                                                           
                                                                   
  Exercise of stock options                        --           92 
                                                                   
  Issuance of share warrants                       --        5,246 
                                                                   
  Issuance of shares, net of $3,609                --       19,145 
  share issuance expenses                                            
                                                                   
BALANCE AT JUNE 30, 2006 (unaudited)         (107,082)      29,657 
                                                                   
BALANCE AT JANUARY 1, 2005 (audited)          (85,776)      19,602 
                                                                   
CHANGES DURING THE SIX MONTHS                                      
ENDED JUNE 30, 2005 (unaudited):                                   
                                                                   
  Comprehensive loss - loss for the period     (4,954)     (4,954) 
                                                                   
  Non-employee stock option compensation           --           11 
  expenses                                                           
                                                                   
  Employee stock option compensation               --           72 
  expenses                                                           
                                                                   
  Exercise of stock options                        --          414 
                                                                   
BALANCE AT JUNE 30, 2005 (unaudited)          (90,730)      15,145 
                                                                   

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



                          XTL BIOPHARMACEUTICALS LTD.                          
                         (A Development Stage Company)                         
                 INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS                 
                FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005                
                        (in thousands of U.S. dollars)                         

                                                                    Period from  
                                                  Six months       March 9, 1993(*)
                                                ended June 30,      to June 30,  
                                                 2006      2005        2006      
                                                  (Unaudited)       (Unaudited)  

CASH FLOWS FROM OPERATING ACTIVITIES:                                          
                                                                               
  Loss for the period                          (7,291)  (4,954)       (107,082)
                                                                               
  Adjustments to reconcile loss to net cash                                      
  used in operating activities:                                                       
                                                                               
  Depreciation and amortization                   114      124           2,943 
                                                                               
  Linkage difference on restricted long-term       (4)      --              (1)
  deposits                                                                       
                                                                               
  Acquisition of in process research and           --       --           1,783 
  development                                                                    
                                                                               
  Gain on disposal of property and equipment      (25)      (4)             (7)
                                                                               
  Increase (decrease) in liability in respect                                    
  of employee                                      35     (539)          1,263 
  severance obligations                                                          
                                                                               
  Impairment charges                               --       --             380 
                                                                               
  Gain from sales of available for sale                     --            (410)
  securities                                                                     
                                                                               
  Stock based compensation expenses             1,213       83           4,491 
                                                                               
  Loss (gain) on amounts funded in respect of                                    
  employee                                         --       26             (91)
  severance pay funds                                                            
                                                                               
  Changes in operating assets and                                                
  liabilities:                                                                   
                                                                               
    Increase in accounts receivable - trade        --   (1,124)             -- 
                                                                               
    Decrease (increase) in accounts receivable     38      (12)           (393)
    - other                                                                        
                                                                               
    Increase (decrease) in accounts payable and   449     (454)          2,456 
    accruals                                                                       
                                                                               
    Increase (decrease) in deferred gain         (200)    (200)            997 
                                                                               
  Net cash used in operating activities        (5,671)  (7,054)        (93,671)
                                                                               
CASH FLOWS FROM INVESTING ACTIVITIES:                                          
                                                                               
  Increase in short-term deposits                  --   (1,522)             -- 
                                                                               
  Restricted long-term deposits, net               (5)       5            (118)
                                                                               
  Investment in available for sale securities      --       --          (3,363)
                                                                               
  Proceeds from sales of available for sale        --       --           3,773 
  securities                                                                     
                                                                               
  Employee severance pay funds                    (12)     339            (903)
                                                                               
  Purchase of property and equipment              (16)     (38)         (4,037)
                                                                               
  Proceeds from disposals of property and          33       35             182 
  equipment                                                                      
                                                                               
  Acquisition in respect of license and            --       --            (548)
  purchase of assets                                                             
                                                                               
  Net cash used in investing activities            --   (1,181)         (5,014)



                          XTL BIOPHARMACEUTICALS LTD.                          
                         (A Development Stage Company)                         
           INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)           
            FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2006 AND 2005             
                        (in thousands of U.S. dollars)                         

                                                                    Period from  
                                                  Six months       March 9, 1993(*)
                                                 ended June 30,      to June 30,  
                                                2006      2005         2006      
                                                  (Unaudited)       (Unaudited)  

CASH FLOWS FROM FINANCING ACTIVITIES:                                          
                                                                               
  Issuance of share capital - net of share    24,391        --         128,762 
  issuance expenses                                                              
                                                                               
  Exercise of share warrants and stock            92       414           2,095 
  options                                                                        
                                                                               
  Proceeds from long-term debt                    --        --             399 
                                                                               
  Proceeds from short-term debt                   --        --              50 
                                                                               
  Repayment of long-term debt                     --        --            (399)
                                                                               
  Repayment of short-term debt                    --        --             (50)
                                                                               
  Net cash provided by financing activities   24,483       414         130,857 
                                                                               
NET INCREASE (DECREASE) IN CASH AND CASH                                       
EQUIVALENTS                                   18,812    (7,821)         32,172 
                                                                               
BALANCE OF CASH AND CASH EQUIVALENTS                                           
AT BEGINNING OF PERIOD                        13,360    12,788              -- 
                                                                               
BALANCE OF CASH AND CASH EQUIVALENTS                                           
AT END OF PERIOD                              32,172     4,967          32,172 
                                                                               
                                                                               
                                                                               
Supplementary information on investing and                                     
financing activities not involving cash flows -                                          
                                                                               
  Issuance of ordinary shares in respect of                                      
  license, and                                    --        --           1,391 
  purchase of assets                                                             
                                                                               
  Conversion of convertible subordinated          --        --           1,700 
  debenture into shares                                                          
                                                                               
Supplemental disclosures of cash flow                                          
information:                                                                   
                                                                               
  Income taxes paid                               63        57             384 
                                                                               
  Interest paid                                   --        --             350 

(*) Incorporation date see note 1(a).

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



                          XTL BIOPHARMACEUTICALS LTD.                          
                         (A Development Stage Company)                         
              NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS               
                        AS OF JUNE 30, 2006 (UNAUDITED)                        

Note 1 - General

 a. XTL Biopharmaceuticals Ltd. ("the Company" or "XTL") was incorporated under
    the Israel Companies Ordinance on March 9, 1993. The Company is a
    development stage company in accordance with Financial Accounting Standard
    ("FAS") 7 "Accounting and Reporting by Development Stage Enterprises."
   
    The Company is a biopharmaceutical company engaged in the acquisition,
    development and commercialization of pharmaceutical products for the treatment
    of infectious diseases, particularly the treatment of hepatitis C.

    The Company licensed its product candidate HepeX-B to Cubist Pharmaceuticals,
    Inc. (hereinafter "Cubist") during 2004. See Note 4.

    During September 2005, the Company licensed perpetually from VivoQuest Inc.
    ("VivoQuest"), a US privately-held company which is a development stage
    enterprise, exclusive worldwide rights to VivoQuest's intellectual property and
    technology, covering a proprietary compound library, including VivoQuest's lead
    hepatitis C compounds. In addition, the Company also acquired from VivoQuest
    certain assets. See Note 5.

    The Company has a wholly-owned subsidiary in the United States, XTL
    Biopharmaceuticals Inc. ("Subsidiary"), which was incorporated in 1999 under
    the law of the State of Delaware. The Subsidiary is primarily engaged in
    development activities and business development.

 b. Through June 30, 2006, the Company has incurred losses in an aggregate
    amount of $107,082,000. Such losses have resulted primarily from the
    Company's activities as a development stage company. With the recent
    completion of a private placement that was completed in May 2006, the
    Company does not foresee any cash limitations to finance its operations for
    the coming year. See Note 3.
   
 c. The interim financial statements at June 30, 2006 ("the interim
    statements") were drawn up in condensed form, in accordance with accounting
    principles generally accepted in the United States and applicable to
    interim statements. Thus, the accounting principles applied in preparation
    of the interim statements are consistent with those applied in the
    preparation of annual financial statements. Nevertheless, the interim
    statements do not include all the information and explanations required for
    annual financial statements.
   
 d. Certain comparative figures have been reclassified to conform to the
    current period presentation.
   
Note 2 - Functional Currency

The currency of the primary economic environment in which the operations of the
Company are conducted is the U.S. dollar ("$" or "dollar").

Most of the Company's expenses and revenues are incurred in dollars. A
significant part of the Company's capital expenditures and most of its external
financing is in dollars. The Company holds most of its cash, cash equivalents
and bank deposits in dollars. Thus, the functional currency of the Company is
dollars.

                          XTL BIOPHARMACEUTICALS LTD.                          
                         (A Development Stage Company)                         
              NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS               
                  AS OF JUNE 30, 2006 (UNAUDITED) (continued)                  

Note 2 - Functional Currency (continued)

Since the dollar is the primary currency in the economic environment in which
the Company operates, monetary accounts maintained in currencies other than the
dollar (principally cash and liabilities) are remeasured using the
representative foreign exchange rate at the balance sheet date. Operational
accounts and nonmonetary balance sheet accounts are measured and recorded at
the rate in effect at the date of the transaction. The effects of foreign
currency remeasurement are reported in current operations (as "financial income
- net") and have not been material to date.

Following are the changes in the exchange rate of the dollar and in the Israeli
Consumer Price Index ("CPI"):

                                          Six months ended        Year ended  
                                              June 30,           December 31, 
                                          2006         2005          2005     
                                            %            %             %       

Rate of change of the Israeli                                                 
currency against the dollar               -3.5         6.2           6.8      
                                                                              
Changes in the Israeli CPI                 1.6         0.5           2.4      
                                                                              
Exchange rate of one dollar (at end    NIS 4.440    NIS 4.574     NIS 4.603   
of period)                                                                    

Note 3 - Shareholders' Equity

 a. Share Capital
   
    On March 22, 2006, the Company completed a private placement of 46,666,670
    ordinary shares (equivalent to 4,666,667 ADRs) at $0.60 per share ($6.00 per
    ADR), together with warrants for the purchase of an aggregate of 23,333,335
    ordinary shares (equivalent to 2,333,333.5 ADRs) at an exercise price of $0.875
    ($8.75 per ADR). Total proceeds to the Company from this private placement were
    approximately $24.4 million, net of offering expenses of approximately $3.6
    million. The private placement closed on May 25, 2006.

 b. Stock- based compensation
   
    Effective January 1, 2005 the Company adopted Statement of Financial Accounting
    Standard No. 123R "Share-Based Payment" ("FAS 123R") and Staff Accounting
    Bulletin No. 107 ("SAB 107"), which was issued in March 2005 by the Securities
    and Exchange Commission regarding the SEC's interpretation of FAS 123R. FAS
    123R addresses the accounting for share-based payment transactions in which a
    company obtains employee services in exchange for (a) equity instruments of a
    company or (b) liabilities that are based on the fair value of a company's
    equity instruments or that may be settled by the issuance of such equity
    instruments.

    Prior to January 1, 2005, the Company accounted for employee stock-based
    compensation under the intrinsic value model in accordance with Accounting
    Principles Board Opinion No. 25 - "Accounting for Stock Issued to Employees"
    ("APB 25") and related interpretations. Under APB 25, compensation expense is
    based on the difference, if any, on the date of the grant, between the fair
    value of the Company's ordinary shares and the exercise price. FAS 123R
    eliminates the ability to account for employee share-based payment transactions
    using APB 25, and requires instead that such transactions be accounted for
    using the grant-date fair value based method. In addition, compensation cost
    for the unvested portion of previously granted awards that remain outstanding
    on the effective date shall be recognized on or after the effective date, as
    the related services are rendered, based on the awards' grant-date fair value
    as previously calculated for the pro-forma disclosure under FAS 123 No.
    "Accounting for Stock-Based Compensation."

    The Company implemented FAS 123R using the modified prospective application
    transition method, as permitted by FAS 123R. Under such transition method, the
    Company's financial statements for periods prior to the effective date of FAS
    123R (January 1, 2005) have not been restated to reflect the fair value method
    of expensing share-based compensation.

                          XTL BIOPHARMACEUTICALS LTD.                          
                         (A Development Stage Company)                         
              NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS               
                  AS OF JUNE 30, 2006 (UNAUDITED) (continued)                  

Note 3 - Shareholders' Equity (continued)

    The following table shows total non-cash share-based compensation expense
    included in the Interim Consolidated Statements of Operations:

                                                       Six months ended       
                                                            June 30,           
                                                      2006           2005      
                                                     (in thousands of U.S.     
                                                            dollars)           

    Research and development costs                      107            80
                                                                     
    General and administrative expenses               1,105             3
                                                                     
    Business development costs                            1            --
                                                                     
    Total non-cash share-based compensation           1,213            83
    expense                                                              

    In March 2006, the Company's board of directors granted the Chief Executive
    Officer options to purchase a total of 7,000,000 ordinary shares at an exercise
    price equal to $0.774 per share (closing price of the last trading day prior to
    official appointment). These options are exercisable for a period of ten years
    from the date of issuance, and granted under the same terms and conditions as
    the Company's 2001 Share Option Plan and any option agreement entered into with
    the Chief Executive Officer. Of these, 2,333,334 options vest as follows:
    777,782 options on the one-year anniversary of the issuance of the options and
    194,444 options at the end of each quarter thereafter for the following two
    years. The balance of options vest upon achievement of certain milestones
    (2,333,333 upon the achievement of $350 million market capitalization or $75
    million in working capital, as set out in the agreement, and 2,333,333 upon the
    achievement of $550 million market capitalization or $125 million in working
    capital, as set out in the agreement).

    In addition, in June 2006, the Company's board of directors granted options to
    its employees to purchase a total of 4,625,000 ordinary shares at an exercise
    price equal to $0.60 per share (a price above the closing price on the date of
    grant). These options are exercisable for a period of ten years from the date
    of issuance, and granted under the Company's 2001 Share Option Plan. The
    options vest annually over a period of four years.

    As of June 30, 2006, a balance of approximately $6.4 million of total
    unrecognized compensation costs related to non-vested awards is expected to be
    recognized over a weighted-average period of approximately 3.5 years.

Note 4 - License Agreement with Cubist

The Company entered into a licensing agreement with Cubist in June 2004, under
which the Company granted to Cubist an exclusive, worldwide license (with the
right to sub-license) to commercialize HepeX-B and any other product containing
an hMAb, or humanized monoclonal antibody, or fragment directed at the
hepatitis B virus owned or controlled by the Company.

In August 2005, the Company amended its licensing agreement with Cubist. Under
the terms of the agreement, as amended, Cubist paid the Company an initial
up-front nonrefundable payment of $1 million upon the signing of the agreement,
and a payment of $1 million (out of which $227,000 and $227,000 was recorded as
revenue in the six months ended June 30, 2006 and 2005, respectively) as
collaboration support paid in 2004 (instead of a total of $2 million to be paid
in installments through 2005, as per the original agreement). Furthermore under
the terms of the agreement, as amended, Cubist shall make a payment in the
amount of $3 million upon achievement of certain regulatory milestones until
the end of 2007 or an amount of $2 million upon achievement of the same certain
regulatory milestones until the end of 2008. Under this agreement, as amended,
the Company was responsible for certain clinical and product development
activities of HepeX-B through August 2005, at the expense of Cubist. The
Company has transferred full responsibility for completing the development of
HepeX-B to Cubist. Cubist will be responsible for completing the development
and for registration and commercialization of the product worldwide.

                          XTL BIOPHARMACEUTICALS LTD.                          
                         (A Development Stage Company)                         
              NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS               
                  AS OF JUNE 30, 2006 (UNAUDITED) (continued)                  

Note 4 - License Agreement with Cubist (continued)

The Company accounts for the payments resulting from the agreement as follows:
(i) the $1 million up-front fee and the collaboration support payments are
recorded as deferred revenue upon receipt, and amortized through 2008 or date
regulatory approvals are reached, if earlier, and (ii) the milestone contingent
payments will be recorded as revenue when regulatory approval milestones are
obtained.

Under the agreement, the Company is entitled to receive royalties from net
sales by Cubist, if any, generally ranging from 10% to 17%, depending on levels
of net sales achieved by Cubist, subject to certain deductions based on patent
protection of HepeX-B in that territory, total cost of HepeX-B development,
third party license payments and indemnification obligations. At this point,
Cubist has decided not to make any further investment in the HepeX-B program
while Cubist evaluates strategic options for HepeX-B.

The agreement expires on the later of the last valid patent claim covering
Hepex-B to expire, or 10 years after the first commercial sale of HepeX-B on a
country by country basis.

Note 5 - License and Asset Purchase Agreement with Vivoquest

During September 2005, the Company licensed perpetually from VivoQuest Inc.
("VivoQuest"), a US privately-held company, which is a development stage
enterprise, exclusive worldwide rights to VivoQuest's intellectual property and
technology, covering a proprietary compound library, including VivoQuest's lead
hepatitis C compounds. In addition, the Company acquired from VivoQuest certain
assets, including VivoQuest's laboratory equipment, assumed VivoQuest's lease
of its laboratory space and certain research and development employees. The
Company executed this transaction in order to broaden its pipeline and
strengthen its franchise in infectious diseases.

In connection with the VivoQuest transaction (the "Transaction"):

 1. the Company issued the fair value equivalent of $1,391,000 of its ordinary
    shares for a total of 1,314,420 ordinary shares (calculated based upon the
    average of the closing prices per share for the period commencing two days
    before, and ending two days after the closing of the transaction), made
    cash payments of approximately $400,000 to cover VivoQuest's operating
    expenses prior to the closing of the Transaction, and incurred $148,000 in
    direct expenses associated with the Transaction;
   
 2. the Company agreed to make additional contingent milestone payments
    triggered by certain regulatory and sales targets, totaling up to $34.6
    million, $25.0 million of which will be due upon or following regulatory
    approval or actual product sales, and are payable in cash or ordinary
    shares at the Company's election. No contingent consideration has been paid
    pursuant to the license agreement as of the balance sheet date, because
    none of the milestones have been achieved. The contingent consideration
    will be recorded as part of the acquisition costs in the future; and
   
 3. the Company agreed to make royalty payments on future product sales.
   
As VivoQuest is a development stage enterprise that had not yet commenced its
planned principal operations, the Company accounted for the Transaction as an
acquisition of assets pursuant to the provisions of FAS No. 142 "Goodwill and
Other Intangible Assets." Accordingly, the purchase price was allocated to the
individual assets acquired, based on their relative fair values, and no
goodwill was recorded.

The purchase price consisted of:

                                                      ($ in     
                                                   thousands)   
                                                              
  Fair value of the Company's ordinary                1,391     
  shares                                                        
                                                              
  Cash consideration paid                              400      
                                                              
  Direct expenses associated with the                  148      
  Transaction                                                   
                                                              
  Total purchase price                                1,939     
                                      

                        

                          XTL BIOPHARMACEUTICALS LTD.                          
                         (A Development Stage Company)                         
              NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS               
                  AS OF JUNE 30, 2006 (UNAUDITED) (continued)                  

Note 5 - License and Asset Purchase Agreement with Vivoquest (continued)

The tangible and intangible assets acquired consisted of the following:

                                                 ($ in thousands)
                                                               
  Tangible assets acquired - property and              113       
  equipment                                                      
                                                               
  Intangible assets acquired:                                    
                                                               
  In-process research and development                 1,783      
                                                               
  Assembled workforce                                   43       
                                                               
  Total intangible assets acquired                    1,826      
                                                               
  Total tangible and intangible assets                1,939      
  acquired                                                       

The amount allocated to in-process research and development represents the
relative fair value of purchased in-process research and development that, as
of the transaction date, have not reached technological feasibility and have no
proven alternative future use. Accordingly, they were charged in the
consolidated statement of operations as "in- process research and development
costs."

The assembled workforce that was acquired is being amortized using the
straight-line method over its estimated useful life of three years, and is
classified as "intangible assets" on the Company's balance sheet.
                                                                                                                                                                                                                        

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