2.4	Effectiveness of Internal Control on Financial Reporting and Disclosure

 

 

2.5	Adoption of International Financial Reporting Standards (IFRS)

3.	Part III - Corporate Governance Aspects

 

3.1	Corporate Donations Policy

 

 

3.2	Internal Auditor

 

3.2.1

The Company's internal auditor is Mr. Daniel Shapira, an independent Certified Public Accountant who owns an independent firm that specializes in providing internal audit services to companies traded in Israel and abroad. The firm has some 17 years experience in performing internal audits at public companies and specializes in diverse fields of operations. The auditor does not work at the Company and has been providing the service as an external entity since December 26, 2000.

 

3.2.2

As far as the Company is aware, the internal auditor complies with the provisions prescribed in Section 146(b) of the Companies Law-1999 and in Sections 3(a) and 8 of the Internal Audit Law-1992.

 

3.2.3

Based on the internal auditor's statement, the professional standards according to which he performs the audits are the customary professional standards prescribed in the above Law.

 

3.2.4

The organizational officer overseeing the internal auditor is the chairman of the Audit Committee.

 

3.2.5

To the best of Management's knowledge, the nature and continuity of the internal auditor's work plan are reasonable in the circumstances, and capable of attaining the audit's objectives within the organization.  As set forth in Section 9 of the Internal Audit Law, the internal auditor has free, constant and direct access, as required, to the Company's data system, including financial data.

 

3.2.6

In 2009, an internal audit was performed, addressing the following topics:  approval of resolutions at the Company's institutions and monitoring them; the method of reporting to the authorities on resolutions adopted by the Company's institutions.

 

3.2.7

The topics covered by the annual work plan are approved each year by the Audit Committee and/or the Board of Directors.

 

3.2.8

The work plan grants the internal auditor discretion to deviate from it. In accordance with the Company's customary procedures, the auditor should report and give reasons for the deviations from the work plan.

 

3.2.9

The audit's overall budget for the year 2009: In view of the fact that the Company was not engaged in development activity during 2009, the audit budget amounted to approximately 40 hours.

 

3.2.10

Professional Standards:  The internal auditor, upon his notification, performs the audit according to the customary professional standards prescribed in Section 146(b) of the Companies Law-1999, and Section 8 of the Internal Audit Law (hereinafter - "the Internal Audit Law"), including, inter alia,  Attribute and Performance Standards.  In conformity with the professional guidelines issued by the Institute of Internal Auditors in Israel, the internal auditor executes a quality assurance plan including a self assessment internal review.

 

3.2.11

In the Board's opinion, the audit work is carried out in conformity with the customary professional standards applicable to internal audits.

 

3.2.12

The Board and the Audit Committee on its behalf have approved the internal auditor's appointment, while paying due consideration to his professional qualifications, experience and familiarity with the Company's business.

 

3.2.13

In 2009, a single audit was performed, due to the fact that the Company had no development activity in the reported year.  The internal audit report was discussed at the Audit Committee meeting held in February, 2010, when the members decided to accept the auditor's recommendations.  The latter submits his reports to the chairman of the Board and to the chairman of the Audit Committee.  In 2008, 4 Audit Committee meetings were held at the Company, to discuss the reports. All the documents and information required by the auditor are furnished to him, as referred to in Section 9 of the Internal Audit Law, and he is also given free access to information, including constant and direct access to the Company's data systems and financial data.

 

3.2.14

Since the Company was not engaged in active development operations as of the date of the report, and also because the Company is currently in the advanced stages of completing the merger with Bio-Gal, it was resolved, jointly with the internal auditor, that the topics to be included in the 2010 audit would be determined promptly upon finalizing the said transaction.

 

3.2.15

The internal auditor's remuneration for the services provided in 2009 amounted to NIS 9 thousand.

 

3.2.16

In the Board's opinion, the said remuneration is reasonable in the circumstances and has no effect on the internal auditor's professional discretion, and this inter alia, while bearing in mind the Board's overall impression from the manner in which he performs the internal audit task at the Company.

 

3.3	Directors Possessing Accounting and Financial Expertise

 

1.

During the reported period, 14 Board meetings and 4 Audit Committee meetings were held.

 

2.

Particulars of Directors Possessing Accounting and Financial Expertise

 

 

 

3.3.1

Amit Yonay - received a BS in Electrical Engineering from Binghamton University and an MBA from Tel-Aviv University in Finance and International Business. He is involved in independent investments in the real estate in the U.S.

 

 

3.3.3

Dafna Cohen - Holds B.A. in Economics and Political Science and an MBA in Finance and Accounting from the Hebrew University, Jerusalem. Serves as a director of Formula Systems (1985) Ltd.

 

3.3.4

Boaz Shweiger - received an LL.B, magna cum laude, from the College of Management and an MBA in Finance and Auditing from Tel - Aviv University. He manages a private holding company.

 

3,3,5

Marc Allouche - received a MBA with major in Corporate Finance and Accounting and a BA in Economics and Management from Dauphine University, Paris. He is also a Chartered Public Accountant in France. Serves as an advisor to private equity funds and entrepreneur.

 

3.4	Independent Directors

 

 

3.5	Auditor's Remuneration

 

 

 

 

4.	Part IV - Corporate Financial Reporting

 

4.1	Significant Events After Balance Sheet Date

 

4.1.1

On January 27, 2010 the Company's Board authorized the allocation of 100,000 share options (unregistered) to a Company employee.  The share options may be exercised into 100,000 ordinary shares par value NIS 0. 1 each, with an exercise price of NIS 0.1 per option warrant. The fair value of all the share options, based on the "B&S" Model, as of the date of the Board's resolution, is NIS 0.2765 each, and altogether NIS 27,654.  The exercise period for the options is a maximum of 120 months from allocation date, such that 8.33% of the amount thereof is exercisable in installments at the end of each calendar quarter from their allocation date, over a period of 3 years.

 

4.1.2

On February 28, 2010 the Company and Bio-Gal signed an agreement extending the transaction until April 30, 2010, in order to enable its completion. Management estimates that the Tax Authorities shall approve the Share Swap  transaction during the second quarter of 2010. The closing of the transaction is expected in the second quarter of 2010. However, there is no certainty for the completion of the transaction (see note 1d for the company financial statements).

 

4.1.3

On March 2, 2010, at an Extraordinary Meeting of Shareholders, the Company's shareholders approved the Bio-Gal transaction and the Share Swap, in accordance with the transaction outline signed between the parties on December 31, 2009 and made public on January 14, 2010.

 

4.1.4

On March 2, 2010 the Annual General Meeting of Shareholders convened and approved the following:

 

4.1.4.1

Re-appointment of Kesselman and Kessleman, C.P.A., as the Company's independent auditors for the year 2009. The Board was authorized to determine its fees.

4.1.4.2

Re-election of directors - to approve the re-election of Messrs. Marc Allouche, Amit Yonay, Boaz Shweiger, and David Grossman as Company directors until the next Annual Meeting, including the grant of 150,000 share options to each director (excluding David Grossman who also serves as the Company's CEO).  The options are registered, non-marketable and exercisable into Company shares.  The share options may be exercised into 150,000 ordinary shares, par value NIS 0.1 each with an exercise price of NIS 0.298 per option.  The fair value of all the share options, based on the "B&S" Model, as of the date of the Board's resolution, is NIS 0.2347 each, and altogether NIS 105,615. The maximum exercise period is 120 months from the allocation date, such that 33.33% of the amount thereof may be exercised immediately upon allocation, while the remaining 66.67% may be exercised in equal installments each month, from the effective date, over a 24-month period.

 

4.1.4.3

Subject to closing of the Bio-Gal transaction, the terms of employment of Mr. David Grossman, the Company's CEO and director, were approved, including the grant of 1,610,000 registered non-marketable share options, exercisable into Company shares. The share options may be exercised into 1,610,000 ordinary shares, par value NIS 0.1 each, with an exercise price of NIS 0.075 per option.  The fair value of all the share options, based on the "B&S" Model, as of the date of the Board's resolution, is NIS 0.2849 per option and altogether NIS 458,744.  The maximum exercise period of the options is 120 months from the allocation date, such that 33.33% of the amount thereof may be exercised immediately upon allocation, while the remaining 66.67% may be exercised in equal installments each month from the effective date, over a 24-month period.

 

 

4.1.5

In March, 2010 the Company terminated the agreement with DOV concerning the Bicifadine drug research, and all the rights under the agreement were returned to DOV in coordination with them.

 

4.2	Office Holders' Remuneration

 

 

4.3	Critical Accounting Estimates

 

 

4.4	Colleague Survey

 

 

4.5	Authorized Signatories

 

 

4.6	Disclosure of Proceedings for Approval of Financial Statements