6-K 1 v167949_6k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the month of December, 2009

Commission File Number: 000-51310

XTL Biopharmaceuticals Ltd.

(Translation of registrant's name into English)

711 Executive Blvd., Suite Q

Valley Cottage, New York 10989

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F x Form 40-F ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ¨ No x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- N/A

Incorporation by Reference: This Form 6-K of XTL Biopharmaceuticals Ltd. dated March 11, 2009 is hereby incorporated by reference into the registration statements on Form F-3 (File No. 333-141529, File No. 333-147024 and File No. 333-153055) filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on March 23, 2007 , October 30, 2007 and August 15, 2008, respectively, and the registration statements on Form S-8 (File No. 333-148085, File No. 333-148754 and File No. 333-154795) filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on December 14, 2007, January 18, 2008, and October 28, 2008, respectively.

Attached is an English translation (from Hebrew) of the interim financial information and directors report of XTL Biopharmaceuticals Ltd. for the periods ended September 30, 2009 , and June 30, 2009 as published on the Tel Aviv Stock Exchange.

XTL BIOPHARMACEUTICALS LTD.

INTERIM FINANCIAL INFORMATION

AS OF SEPTEMBER 30, 2009

UNAUDITED

INDEX

	Page

Condensed Consolidated Financial Statements - in U.S. dollars:

Statement of Financial Position	2

Statement of Comprehensive Income (Loss)	3

Statement of Changes in Equity	4

Statement of Cash Flows	5 - 6

Notes to Condensed Consolidated Financial Statements	7 - 31

Appendix A - Translation of the Interim Financial Information into NIS	32 - 74

- - - - - - - - - - - -

- 1 -

XTL BIOPHARMACEUTICALS LTD.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	September 30,						December 31,
	2009			2008			2008
	Unaudited						Audited
	U.S. dollars in thousands
ASSETS

CURRENT ASSETS:
Cash and cash equivalents		640			4,076			2,924
Short-term deposits		-			2,207			-
Employee benefit assets		-			-			12
Accounts receivable		20			926			305
Income taxes receivable		49			-			49
Restricted deposits		40			-			71

		749			7,209			3,361
NON-CURRENT ASSETS:
Employee benefit assets		-			16			-
Restricted deposits		-			62			-
Fixed assets		29			77			41
Intangible assets		-			7,500			-
Other investments		95			-			-

		124			7,655			41

Total assets		873			14,864			3,402

LIABILITIES AND EQUITY

CURRENT LIABILITIES:
Trade payables		228			1,087			416
Other accounts payable		405			1,998			1,058
Employee benefit liabilities		-			-			447
Liability for share appreciation rights		-			1,993			7

		633			5,078			1,928
NON-CURRENT LIABILITIES:
Employee benefit liabilities		-			97			-

Total liabilities		633			5,175			1,928

EQUITY:
Share capital		1,445			1,445			1,445
Share premium		139,786			139,786			139,786
Accumulated deficit		(140,991	)		(131,542	)		(139,757	)

Total equity		240			9,689			1,474

Total liabilities and equity		873			14,864			3,402

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


Amit Yonay	David Grossman	Ronen Twito
Chairman of the Board	Director and CEO	CFO

Date of approval of the interim financial information by the Company's Board: November 30, 2009

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XTL BIOPHARMACEUTICALS LTD.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

	Nine months ended September 30,						Three months ended September 30,						Year ended December 31,
	2009			2008			2009			2008			2008
	Unaudited												Audited
	U.S. dollars in thousands (except per share data)

Revenues		-			5,940			-			2,000			5,940
Cost of revenues		-			1,841			-			-			1,841

Gross profit		-			4,099			-			2,000			4,099

Research and development costs		-			9,836			-			2,206			11,722
General and administrative expenses (income)		*) (2,729	)		4,715			130			1,153			3,937
Other expenses		-			-			-			-			7,500
Other income		(144	)		-			(144	)		-			-
Gain from sale of fixed assets		-			152			-			-			288
											-
Operating income (loss)		2,873			(10,300	)		14			(1,359	)		(18,772	)

Financial income		10			328			-			159			331
Financial expenses		8			14			5			3			17

Financial income (expenses), net		2			314			(5	)		156			314

Income (loss) before taxes on income		2,875			(9,986	)		9			(1,203	)		(18,458	)
Taxes on income (tax benefit)		-			61			-			48			(31	)

Comprehensive net income (loss) for the period		2,875			(10,047	)		9			(1,251	)		(18,427	)

Basic and diluted earnings (loss) per share (in U.S. dollars) **)		0.049			(0.172	)		0.000			(0.021	)		(0.315	)

Weighted average number of Ordinary shares outstanding used in computing earnings per shares		58,561,065			58,551,446			58,561,065			58,561,065			58,553,864

Weighted average number of Ordinary shares outstanding used in computing diluted earnings per shares		58,598,507			58,551,446			58,672,171			58,561,065			58,553,864

*)	Include reduced expenses which result from forfeiture of shares that were contingent on the performance of the outgoing chairman and CEO, see also Note 4(1).

**) After taking into account consolidation of shares effected on June 22, 2009, see Note 4(1).

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

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XTL BIOPHARMACEUTICALS LTD.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Nine months ended September 30, 2009
	Share capital		Share premium		Accumulated deficit			Total
	U.S. dollars in thousands

Balance at January 1, 2009 (audited)		1,445		139,786		(139,757	)		1,474

Comprehensive income		-		-		2,875			2,875
Share-based payment to employees and others		-		-		(4,235	)		(4,235	)
Transfer to equity for liability for share appreciation rights		-		-		126			126

Balance at September 30, 2009 (unaudited)		1,445		139,786		(140,991	)		240

	Nine months ended September 30, 2008
	Share capital		Share premium		Accumulated deficit			Total
	U.S. dollars in thousands

Balance at January 1, 2008 (audited)		1,444		139,577		(123,143	)		17,878

Comprehensive loss		-		-		(10,047	)		(10,047	)
Share-based payment to employees and others		-		-		1,648			1,648
Exercise of options		1		32		-			33
Refund of stamp duty on share issuance		-		177		-			177

Balance at September 30, 2008 (unaudited)		1,445		139,786		(131,542	)		9,689

	Three months ended September 30, 2009
	Share capital		Share premium		Accumulated deficit			Total
	U.S. dollars in thousands

Balance at July 1, 2009 (unaudited)		1,445		139,786		(141,170	)		61

Comprehensive income		-		-		9			9
Share-based payment to employees and others		-		-		44			44
Transfer to equity for liability for share appreciation rights		-		-		126			126

Balance at September 30, 2009 (unaudited)		1,445		139,786		(140,991	)		240

	Three months ended September 30, 2008
	Share capital		Share premium		Accumulated deficit			Total
	U.S. dollars in thousands

Balance at July 1, 2008 (unaudited)		1,445		139,609		(130,781	)		10,273

Comprehensive loss		-		-		(1,251	)		(1,251	)
Share-based payment to employees and others		-		-		490			490
Exercise of options		-		-		-			-
Refund of stamp duty on share issuance		-		177		-			177

Balance at September 30, 2008 (unaudited)		1,445		139,786		(131,542	)		9,689

	Year ended December 31, 2008
	Share capital		Share premium		Accumulated deficit			Total
	U.S. dollars in thousands

Balance at January 1, 2008 (audited)		1,444		139,577		(123,143	)		17,878

Comprehensive loss		-		-		(18,427	)		(18,427	)
Share-based payment to employees and others		-		-		1,813			1,813
Exercise of options		1		32		-			33
Refund of stamp duty on share issuance		-		177		-			177

Balance at December 31, 2008 (audited)		1,445		139,786		(139,757	)		1,474

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

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XTL BIOPHARMACEUTICALS LTD.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

	Nine months ended September 30,						Three months ended September 30,						Year ended December 31,
	2009			2008			2009			2008			2008
	Unaudited												Audited
	U.S. dollars in thousands
Cash flows from operating activities:

Net income (loss) for the period		2,875			(10,047	)		9			(1,251	)		(18,427	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:		(5,135	)		3,162			(244	)		(753	)		7,849

Net cash used in operating activities		(2,260	)		(6,885	)		(235	)		(2,004	)		(10,578	)

Cash flows from investing activities:

Increase in restricted deposit		-			(1	)		-			-			(10	)
Decrease in short-term bank deposits		31			8,393			31			2,993			10,600
Purchase of fixed assets		-			(2	)		-			(1	)		(2	)
Proceeds from sale of fixed assets		-			161			-			-			327
Other investments		(55	)		-			(55	)		-			-

Net cash provided by (used in) investing activities		(24	)		8,551			(24	)		2,992			10,915

Cash flows from financing activities:

Refund of stamp duty paid in 2004 for share issuance		-			-			-			-			177
Exercise of options		-			33			-			-			33

Net cash provided by financing activities		-			33			-			-			210

Increase (decrease) in cash and cash equivalents		(2,284	)		1,699			(259	)		988			547
Cash and cash equivalents at the beginning of the period		2,924			2,377			899			3,088			2,377

Cash and cash equivalents at the end of the period		640			4,076			640			4,076			2,924

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

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XTL BIOPHARMACEUTICALS LTD.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

		Nine months ended September 30,						Three months ended September 30,						Year ended December 31,
		2009			2008			2009			2008			2008
		Unaudited												Audited
		U.S. dollars in thousands
(a)	Adjustments to reconcile net income (loss) to net cash used in operating activities:

	Income and expenses not involving cash flows:

	Depreciation and amortization		12			33			3			7			39
	Gain from sale of fixed assets		-			(152	)		-			-			288
	Share-based payment transactions		(4,235	)		1,648			44			490			1,813
	Loss of amounts relating to employee benefit plans		12			-			-			-			4
	Impairment of intangible assets		-			-			-			-			7,500
	Change in intangible assets		-			1,783			-			-			1,783
	Change in employee benefit liabilities		(447	)		(33	)		-			-			316
	Change in liability for share appreciation rights		119			433			(52	)		(255	)		(1,553	)

			(4,539	)		3,712			(5	)		242			9,614
	Changes in operating asset and liability items:

	Decrease in trade and other receivables (including long-term receivables)		285			175			114			158			570
	Decrease in trade and other payables		(881	)		(725	)		(353	)		(1,153	)		(2,335	)

			(596	)		(550	)		(239	)		(995	)		(1,765	)

			(5,135	)		3,162			(244	)		(753	)		7,849

(b)	Additional information on cash flows from operating activities:

	Interest received		4			225			-			155			249

	Interest paid		2			3			-			1			3

	Payments (refund) of taxes on income		-			260			-			258			260

(c)	Non-cash investing activities for the period of the nine and three months ended on September 30, 2009, totaled approximately US $ 40 thousand.

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

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XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:- GENERAL

XTL Biopharmaceuticals Ltd. ("the Company") is engaged in the acquisition and development of therapeutics, among others, for the treatment of unmet medical needs. The Company was incorporated under the Israel Companies Ordinance on March 9, 1993. The Company owns 100% of a U.S. company, XTL Biopharmaceuticals Inc. ("XTL Inc."), which was incorporated in 1999 under the laws of the State of Delaware.

XTL Inc. is engaged in development of therapeutics and business development in the medical realm. XTL Inc. has a wholly-owned subsidiary, XTL Development Inc. ("XTL Development"), which was incorporated in 2007 under the laws of the State of Delaware and is engaged in development of therapeutics for the treatment of diabetic neuropathic pain ("Bicifadine").

On November 18, 2008, the Company announced that the Phase 2b clinical trial of Bicifadine (which was acquired in 2007 from DOV Pharmaceutical Inc.) failed to meet its endpoints and, as a result, the Company ceased its development.

In December 2008, the Company implemented a restructuring plan which included, among others, terminating most of its employees following the failure of the lead clinical compound, Bicifadine, in the clinical trial. As of the date of the financial statements, the Company is seeking to complete the Bio-Gal transaction (see Note 4(1) and (5)), cooperation and acquisition of holdings mainly in companies engaged in applied research in the life science and in the research and development of clinical (biotechnology and pharmaceuticals). Further, the Company has certain milestone rights in the development of treatment for hepatitis C ("DOS") from Presidio Pharmaceuticals Inc. ("Presidio"), a U.S. privately-held biotechnology company, and patent rights to Bicifadine.

In furtherance to the restructuring plan, in March 2009, the Company entered into an asset purchase agreement with Bio-Gal Ltd. for the rights to use a patent on Recombinant Erythropoietin for the prolongation of multiple myeloma patients' survival and improvement of their quality of life. The transaction is subject to various conditions, as well as financing terms (see also Note 4(1) and (5)).

In 2005, the Company acquired patent rights and other assets of VivoQuest Inc., covering a compound library, which includes certain compounds for the development of the DOS. Part of these rights were sold during 2008 to Presidio.

The Company is a public company traded on the Tel-Aviv Stock Exchange and in the regulatory framework of the Pink Sheets in the U.S. through the Company's ADRs (American Depositary Receipt), see Notes 3(1) and 4(1).

As of the balance sheet date, the Company has accumulated losses in the amount of $ 140.9 million and shareholders' equity in the amount of $ 240 thousand. The Company is able to finance its activity from the cash reserves it has in the coming months. Continuation of the Company's operations after using such reserves is dependent upon the generation of additional financial resources either through agreements for the sale/license of its remaining licensed programs or through external financing. The Company is negotiating with Bio-Gal and potential investors to complete Bio-Gal transaction and to raise capital in connection with the development of new products (details regarding Bio-Gal transaction are given in Note 4(1) and (5)). The Company estimates that such transaction may be completed within a reasonable period of time and will enable the Company to continue its activity. However, raising capital is subject to uncertainty.

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XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:- GENERAL (Cont.)

If the Company is not able to close the transaction and raise capital, there are substantial doubts about the Company's ability to continue as a going concern. The condensed financial statements do not include any adjustments relating to the carrying amounts and classification of assets and liabilities that might result, if any.

On April 16, 2009, the NASDAQ's listing qualification department informed the Company that its ADRs will be delisted from NASDAQ on April 17, 2009 since the Company did not meet the minimum listing requirements for trading on the stock exchange. Effective this date, the Company is subject to the regulatory framework for thinly traded companies in the U.S. (Pink Sheets). As a result of the above, the Company can not enjoy the relives under the Securities Regulations (Periodic and Immediate Reports of Foreign Corporation), 2000 and it is required to publish reports in accordance with Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970.

First-time adoption of IFRS

Until December 31, 2008, the consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP.

The Company adopted International Financial Reporting Standards ("IFRS") in the three months ended March 31, 2009. The IFRS are standards and interpretations adopted by the International Accounting Standards Board. They comprise:

International Financial Reporting Standards (IFRS),

International Accounting Standards (IAS), and

Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC).

The interim financial information is in the scope of IFRS 1, "First-time Adoption of International Financial Reporting Standards" ("IFRS 1") because it comprises part of the period covered in the first IFRS annual financial statements of the Group for the year ended December 31, 2009. The interim financial information was prepared in accordance with IFRS that were published and became effective when the interim financial information was prepared. The IFRS that will be in effect on December 31, 2009, including those that may be applied on an optional basis, were not certainly known at the date when the interim financial information was prepared.

The Company's date of transition to IFRS is January 1, 2007 ("the date of transition"). Comparative figures of the interim financial information were restated in order to retroactively reflect the adoption of IFRS from the date of transition. As for the effect of the transition from reporting pursuant to U.S. GAAP to reporting pursuant to IFRS on comparative figures in the interim financial information and as for the exemptions that the Company elected pursuant to IFRS 1, see Note 6.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation of the interim consolidated financial statements:

The interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for the preparation of financial statements for interim periods, as prescribed in IAS 34, "Interim Financial Reporting" ("IAS 34"), and in accordance with the disclosure requirements of the Securities Regulations (Periodic and Immediate Reports), 1970.

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XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The preparation of financial statements pursuant to IAS 34 requires to apply certain material accounting estimates. Further, it requires the Company's management to make judgments in the process of applying the Company's accounting policy. In b below there is a disclosure of realms which involve judgment to a large extent or complexity or realms where assumptions and estimates have a material effect on interim financial information. Actual results could materially differ from the estimates and assumptions applied by the Company's management.

Costs incurred unevenly during the year are anticipated or deferred for interim financial purposes if and only if it is appropriate to anticipate or defer that type of cost at the end of the financial year.

Taxes on income for interim periods are recognized based on the best estimate of the average annual tax rate expected for the full year.

Significant accounting estimates and assumptions:

Estimates and judgments are reviewed regularly and are based on past experience and other factors including expectations of future events which are considered reasonable under the existing circumstances.

The Company forms estimates and assumptions concerning the future. By their nature, it is rare that the accounting results would be similar to the actual results. The estimates and assumption that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are detailed below:

Share-based payments, including liability for share appreciation rights (see Note 2j(3) regarding the classification of this liability to equity starting September 30, 2009) - in measuring the fair value and the recognition criteria of share-based payment, the Company's management is required to estimate, among others, different parameters that are part of the computation of the fair value of the option and the Company's results and the number of vested options. Actual results and estimates that will be performed in the future could materially differ from current measurement.

Intangible assets - in reviewing the impairment of intangible assets of research and development, the Company's management is required to make significant judgment and to estimate, among others, the expected results of trials that the Company conducts, the commercial technical feasibility of the development and the related economic benefits. Actual results and estimates that will be performed in the future could materially differ from current measurement.

Basis of presentation of the financial statements:

The Company's financial statements have been prepared on a cost basis, except for employee liabilities (assets), net and liability for share appreciation rights (see Note 2j(3) regarding the classification of this liability to equity starting September 30, 2009).

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XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Consolidated financial statements:

The consolidated financial statements include the accounts of companies that are controlled by the Company (subsidiaries). The Company wholly owns all its subsidiaries. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity under a statute. The consolidation of the financial statements commences on the date on which control is obtained until the date that such control ceases.

Significant intragroup balances and transactions and gains or losses resulting from transactions between the Company and subsidiaries are eliminated in full in the consolidated financial statements.

The financial statements of the Company and of the subsidiaries are prepared as of the same dates and periods. The accounting policy in the financial statements of the subsidiaries was applied consistently and uniformly with the policy applied in the financial statements of the Company.

Functional and presentation currencies:

Items included in the financial statements of each of the Group companies are measured at the primary economic environment in which an entity operates ("functional currency"). The consolidated financial statements are presented in U.S. dollars which is the functional currency of all Group members and the Company's presentation currency.

According to the guidance of the Israeli Securities Regulations (Preparation of Annual Financial Statements), 1993, a company which presents its financial statements in a currency other than the NIS, attaches financial statements in NIS terms. The translation of these financial statements into NIS is made in accordance with the guidance of IAS 21, "The Effects of Changes in Foreign Exchange Rates".

Below are the changes in the exchange rate of the U.S. dollar ("the dollar") in the reporting periods:

	Exchange rate of $ 1
	%
Nine months ended:
September 30, 2009		(1.16	)
September 30, 2008		(11.05	)

Three months ended:
September 30, 2009		(4.11	)
September 30, 2008		2.06

Year ended December 31, 2008		(1.14	)

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XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Transactions in a currency other than the functional currency ("foreign currency") are recorded on initial recognition at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currency are translated into the functional currency at the exchange rate at that date. Exchange rate differences are recognized in the statement of income in financial expenses (income). Non-monetary assets and liabilities are translated into the functional currency at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date when the fair value was determined.

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XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Financial instruments:

Non-derivative financial instruments:

Non-derivative financial instruments comprise cash and cash equivalents, deposits, other receivables, suppliers' credit and other payables.

The initial recognition of non-derivative financial instruments is at fair value plus, for instruments that are not presented at fair value through profit or loss, all directly attributable transaction costs. After initial recognition, non-derivative financial instruments are measured as detailed below.

A financial instrument is recognized when the Company becomes a party to the contractual provision of the instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire or when the Company transfers to others the financial assets without retaining control of the asset or transfers substantially all the risks and rewards associated with the asset. Financial liabilities are derecognized when the Company's obligations specified in the contract is discharged or cancelled or expired.

Cash and cash equivalents:

Cash comprises cash balances that are ready for use and call deposits. Cash equivalents comprise highly liquid short-term investments which are readily convertible into known amounts of cash and which are exposed to immaterial risk of changes in value.

Loans and receivables:

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, loans and receivables are measured at amortized cost using the effective interest method taking into account transaction costs and less any allowance for impairment.

f. Fixed assets:

Items of fixed assets are measured at cost with the addition of direct acquisition costs, less accumulated depreciation, less accumulated impairment losses and excluding day-to-day servicing expenses.

Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates as follows:

	%

Laboratory equipment		10 - 20
Computers		33
Office furniture and equipment		6 - 16

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XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease term and the expected life of the assets.

The residual value and useful life of an asset are reviewed at least each year-end and the changes are accounted for as a prospective change in accounting estimate.

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XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized. An asset is derecognized on disposal or when no further economic benefits are expected from its use. The gain or loss arising from the derecognition of the asset (determined as the difference between the net disposal proceeds and the carrying amount in the financial statements) is included in the statement of income when the asset is derecognized.

Intangible assets:

Research and development:

Expenditure on research is recognized as an expense when it is incurred. Costs arising from development projects are recognized as intangible assets when the following criteria are met:

there is technical feasibility of completing the intangible asset so that it will be available for use;

the Company's intention to complete the intangible asset and use or sell it;

the Company's ability to use or sell the intangible asset;

the way the intangible asset will generate probable future economic benefits may be demonstrated;

the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

the ability to measure reliably the expenditure attributable to the intangible asset during its development.

Other expenses relating to development that do not qualify these criteria are recognized as an expense when incurred. The Company did not capitalize development costs to intangible assets.

The Company recognized intangible asset arising from research and development expenditures which was acquired from third parties at fair value.

Acquired development assets are tested for impairment at each year in accordance with the guidance of IAS 36, "Impairment of Assets", see h below.

Government grants for the development of approved projects were deducted from the relevant expense.

Impairment of non-financial assets:

Intangible assets with indefinite useful lives are not amortized and are tested for impairment annually.

Impairment of depreciable assets is evaluated whenever events or changes in circumstances indicate that the carrying amount is not recoverable. The loss recognized on impairment is equivalent to the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of the net selling price and value in use. In testing for impairment, the assets are identified by the lowest aggregation of assets that generate independent identifiable cash flows (cash-generating units). Impaired non-monetary assets are assessed in each balance sheet date whether there is any indication that the impairment loss recognized may be reversed.

- 14 -

XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Taxes on income:

Taxes on income in the statement of income comprise current and deferred taxes. The tax results in respect of current taxes are carried to the statement of income.

Income taxes:

The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date as well as adjustments required in connection with the tax liability in respect of previous years.

Deferred taxes:

Deferred taxes are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax purposes, except in a limited number of exceptions.

Deferred tax balances are measured at the tax rates that are expected to apply to the period when the taxes are taken to the statement of income, based on tax laws that have been enacted or substantively enacted by the balance sheet date. The amount for deferred taxes in the statement of income represents the changes in said balances during the reported period.

Taxes that would apply in the event of the sale of investments in investees have not been taken into account in computing the deferred taxes, as long as the sale of the investments in investees is not expected in the foreseeable future. Also, deferred taxes that would apply in the event of distribution of earnings by investees as dividends have not been taken into account in computing the deferred taxes, since the distribution of dividends does not involve an additional tax liability or since it is the Company's policy not to initiate distribution of dividends that triggers an additional tax liability.

Deferred tax assets and deferred tax liabilities are offset if there is a legally enforceable right to set off a current tax asset against a current tax liability and the deferred taxes relate to the same taxpayer and the same taxation authority. As it is not probable that future taxable income will be available, deferred tax asset is not recognized in the Company's financial statements.

In July 2009, the "Knesset" (Israeli Parliament) passed amended legislation for implementing the economic plan for 2009 and 2010 in the framework of the Law for Economic Efficiency, which prescribes, among others, a gradual reduction in the rates of the Israeli corporate tax rate starting 2011 to the following tax rates: 2011 - 24%, 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and thereafter - 18%. In this respect it is stated that the Israeli corporate tax for 2009 and 2010 remained in tact.

Employee benefit liabilities:

Post-employment benefits:

According to the labor laws and employment contracts in Israel and the Company's practice, the Company is required to pay compensation to employees upon dismissal or retirement under certain circumstances. The Company's liability for payment of compensation is accounted for as a defined benefit plan and, for part of the employees, it is accounted for as a defined contribution plan.

- 15 -

XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company's liability to employees that are entitled to compensation upon retirement under a defined benefit plan is determined by reference to the number of years of service and last salary.

The Company has a liability to other employees in the framework of a defined contribution plan under which it pays fixed contributions into separate and independent entity and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient amounts to pay all employee benefits relating to employee service in the current and prior periods.

The liability for compensation presented in the balance sheet is the present value of the defined benefit obligation as of the balance sheet date minus the fair value of the plan assets. The liability for defined benefit plan is measured on an annual basis by independent appraisers on the basis of the projected unit credit method.

The present value of the liability is measured by discounting the expected future cash flows (after taking into account estimated salary increases) by reference to interest rates on Government bonds which are denominated in the currency in which the benefits will be paid and whose period to maturity approximates the term of the obligations.

According to IAS 19, "Employee Benefits" ("IAS 19"), the rate used to discount the actuarial obligation will be determined by reference to market yields at the balance sheet date on high quality corporate bonds. However, IAS 19 indicates that in countries where there is no deep market in such bonds, the market yields at the balance sheet date on Government bonds shall be used.

As mentioned above, the interest rate used by the Company in discounting the expected future cash flows for the computation of the actuarial obligation was determined by reference to interest rates on high quality NIS Government bonds since the Company's management believes that there is no deep market in corporate bonds in Israel.

To the Company's management best knowledge, the issue of whether in Israel there is deep market in corporate bonds is being examined by the Israel Accounting Standards Board and the Securities Authority with the assistance of the Bank of Israel. If, in the future, these entities accept a decision that differs from the Company's decision, as above, the Company may be required to correct the results it reported on in these financial statements.

The Company recognizes actuarial gains or losses on changes in actuarial estimates and as an outcome of the differences between assumptions made in the past and actual results in the statement of income in the period in which they occur.

The liabilities for compensation is measured at fair value.

The above liabilities also comprise "plan assets" as defined in IAS 19 and, accordingly, they were offset from the balance of employee liabilities for the balance sheet presentation.

- 16 -

XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

As stated above, in defined contribution plan the Company buys insurance policies and pays contributions in pension and compensation funds against its liability to pay pension and retirement. After it pays the contribution, it will have no obligation to pay further contributions. The contributions are recognized as employee benefit expenses when they are paid. Prepaid contributions are recognized as an asset to the extent that the prepayment will lead to a reduction in future payments or cash refund.

2. Paid annual leave and sick leave:

According to the Law, an employee is entitled to paid annual leave and sick leave on an annul basis. The entitlement is based on the number of years of service. The Company recognizes a liability and expense for paid annual leave and sick leave based on the benefit accumulated for each employee.

3. Share-based payment transactions:

The Company administers several share-based payment plans to employees and to other service providers who render services that are similar to employees' services that are settled with the Company's equity instruments. In this framework, the Company grants employees, from time to time, and, at its election, options to purchase Company's shares. The fair value of services received from employees in consideration of the grant of options is recognized as an expense in the statement of income and correspondingly carried to equity. The total amount recognized as an expense over the vesting term of the options (the term in which all pre-established vesting conditions are expected to be satisfied) is determined by reference to the fair value of the options granted at grant date, except the effect of any non-market vesting conditions. Non-market vesting conditions are included among the assumptions used in estimating the number of options that are expected to vest.

In each balance sheet date, the Company updates its estimates of the number of options expected to vest based on non-market vesting conditions and recognizes the effect of change in comparison with original estimates, if exist, in the statement of income and a corresponding adjustment in equity.

The exercise price received when the options are exercised into shares less directly attributable transaction costs is carried to share capital (par value) and share premium, when the options are exercised.

Share-based payments that were granted before November 7, 2002 or that vested before January 1, 2007 are not accounted for retroactively pursuant to IFRS 2, as under the exemption of IFRS 1.

Share-based payments with share appreciation rights which were granted to other service providers are recognized at fair value of the plan at reporting date against a liability in other current liabilities. The Company reassessed the fair value of the plan in each reporting date. On September 30, 2009, pursuant to IFRS 2 and after the Company's management examined the issue taking into consideration the Company's financial position, the instrument for share appreciation rights is carried to equity, see also Note 1(2).

- 17 -

XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

k. Revenue recognition:

Revenues are recognized in the statement of income when the revenues can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenues are measured at the fair value of the consideration received.

The following specific recognition criteria must also be met before revenue is recognized:

Revenues from transfer of rights to use development which include the Company's involvement during the development period, are recognized on a straight-line basis over the expected term of the agreement.

Revenues from royalties that are subject to milestones are recognized in the statement of income when earned after achievement of milestones.

Revenues from sale of DOS development rights to Presidio and rendering of ongoing services by the Company are recognized as follows:

The fair value of labor services by the Company's employees is recognized over the service term.

The difference between the sale consideration and the fair value of labor services is recognized at the date of transaction as revenues from sale of DOS development rights.

l. Earnings (loss) per share:

Basic earnings per share is calculated by dividing income or loss attributable to equity holders of the Company by the weighted average number of Ordinary shares outstanding during the period.

For the purpose of calculating diluted earnings or loss per share, the number of Ordinary shares shall be the average Ordinary shares calculated in basic earnings per share plus the weighted average number of shares that would be issued on the conversion of all the dilutive potential shares into shares. Potential Ordinary shares are taken into account as above only when their conversion is dilutive.

Amendments to existing standards which are not yet effective and the Group did not elect to early adopt them:

As part of the annual improvements project of the IASB which was issued in April 2009, several additional amendments to the following standards were made: IFRS 2, "Share-based Payment", IFRS 5, "Non-current Assets Held for Sale and Discontinued Operations", IFRS 8, "Operating Segments" IAS 7, "Statement of Cash Flows", IAS 18, "Revenue", IAS 36, "Impairment of Assets", IAS 38, "Intangible Assets" and IAS 39, "Financial Instruments: Recognition and Measurement" and IFRIC 9, "Reassessment of Embedded Derivatives" and IFRIC 16, "Hedges of a Net Investment in a Foreign Operation". These amendments are not expected to have a material effect on the Company's financial statements.

- 18 -

XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

IFRS 3 (Revised), "Business Combinations" ("IFRS 3 (R)") (effective for annual periods beginning on or after July 1, 2009). The revised standard continues to use the acquisition method when accounting for business combinations but with several significant changes. For instance, all costs incurred in an acquisition of an entity are measured using fair value at the acquisition date and contingent consideration is classified as liabilities that are subsequently remeasured through profit or loss. There is an option, available on a transaction-by-transaction basis, to measure any minority interests in the entity acquired either at fair value or at the minority interest's proportionate share of the net assets of the entity acquired. All acquisition-related costs shall be recognized in the statement of income. The Group will adopt IFRS 3 (R) prospectively for all business combination starting January 1, 2010. The Group's management is evaluating the possible impact of the adoption of IFRS 3 (R) on its financial statements in future periods.

IAS 27 (Revised), "Consolidated and Separate Financial Statements" ("IAS 27 (R)") (effective for annual periods beginning on or after July 1, 2009). IAS 27 (R) requires to present in equity the effect of all transactions with the minority shareholders that do not result in a change of control and, accordingly, no gain or loss and goodwill are recognized on such transactions. IAS 27 (R) also deals with the accounting treatment of loss of control of an investee. When control is lost, the value of any retained interest in the entity is remeasured to fair value and the resulting gain or loss is recognized in the statement of income. The Group will adopt IAS 27 (R) prospectively for all transactions with minority interests starting January 1, 2010. The Group's management is evaluating the possible impact of the adoption of IAS 27 (R) on its financial statements in future periods.

NOTE 3:-

INTANGIBLE ASSETS

On November 18, 2008, the Company received the results of Phase 2b clinical trial of Bicifadine for diabetic neuropathic pain which testified that the therapeutic did not meet its endpoints and, therefore, the development activity was ceased. On this date, an intangible asset of $ 7.5 million representing the acquired development rights was recorded in other expenses, see also Note 6d(4).

In the first quarter of 2008, the Company sold the asset associated with the DOS development rights with carrying amount of $ 1,783 thousand in consideration of $ 3.94 million, in cash, and other payments that are subject to the achievement of milestones. In 2008, the above agreement was revised and the overall cash payment totals $ 5.94 million and other payments that are subject to the achievement of milestones.

NOTE 4:

EVENTS DURING THE PERIOD

In March 2009, the Company entered into an asset purchase agreement with Bio-Gal Ltd. ("Bio-Gal") for the rights to use a use patent on Recombinant Erythropoietin for the prolongation of multiple myeloma, blood cancer, patients' survival and improvement of their quality of life. In accordance with agreement, the Company will issue Bio-Gal Ordinary shares representing just under 50% of the issued share capital of the Company at closing date. In addition, the Company will make milestone payments of $ 10 million in cash upon the successful completion of a Phase 2 clinical trial. The Company's Board may, in its sole discretion, issue additional shares to Bio-Gal in lieu of such cash payment.

- 19 -

XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4:

EVENTS DURING THE PERIOD (Cont.)

The Company is also obligated to pay 1% royalties on net sales of the product. The closing of the transaction is subject to certain conditions including, among others, the approval of the Boards and the shareholders of the companies as well as financing issues. Closing is expected to take place in the fourth quarter of 2009 or in the first quarter of 2010. As of the date of the approval of this report, the Company is in advance stages of closing the transaction (see also Note 4(5)).

On March 18, 2009, at an extraordinary general meeting of shareholders, new Board members were elected to the Company and the former Board members resigned. As a result of the above, 1,532,214 unvested options that were granted to the former directors in 2008 were forfeited. The remaining 3,296,120 vested options expired. Similarly, with the resignation of the Chairman on March 18, 2009, 3,083,333 options that were granted to him in December 2007 at an exercise price of $ 0.36 per option expired. The remaining 6,166,666 unvested options granted to him in December 2007 at an exercise price of $ 0.36 per option were forfeited. The effect of the forfeiture of these options for the first quarter of 2009 and for the nine months ended September 30, 2009 totaled approximately $ 2.65 million and it is included as a deduction of general and administrative expenses in the statement of income.

In addition, 4,666,666 options (with performance-related conditions) of the Company's former CEO that resigned in April 2009 were forfeited. The effect of the forfeiture of these options for the second quarter of 2009 and for the nine months ended September 30, 2009 totaled approximately $ 1.45 million and it is included as a deduction of general and administrative expenses in the statement of income. Further, 2,333,334 options that were granted to him in March 2006 at an exercise price of $ 0.77 per option expired.

In addition, the shareholders' meeting approved the following:

that the share capital of the Company be consolidated so that each 5 shares of NIS 0.02 par value shall be consolidated into one (1) share of NIS 0.1 par value.

that the authorized share capital of the Company be increased from NIS 10,000,000 par value divided into 100,000,000 Ordinary shares of NIS 0.1 par value to NIS 70,000,000 divided into 700,000,000 Ordinary shares of NIS 0.1 par value.

that the ADR ratio be amended from one (1) ADR representing two (2) Ordinary shares of NIS 0.1 par value to one (1) ADR representing twenty (20) Ordinary shares of NIS 0.1 par value.

On June 22, 2009, the share capital was consolidated and the authorized share capital of the Company was increased, as stated above. The change in the conversion ratio of ADR was not effected because the Board accepted a decision that such change in not required.

All relevant figures in the financial statements reflect this change.

On July 10, 2009, the SEC informed that the Company's ADRs were delisted from NASDAQ. The Company's ADRs continue to be traded in the Pink Sheets.

- 20 -

XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4:

EVENTS DURING THE PERIOD (Cont.)

On April 6, 2009, a subsidiary, XTL Inc. informed Suga Development Inc. ("Suga") on the termination of the agreement with respect to the lease of premises that they had signed. Similarly, XTL Inc. addressed Suga with a request to use their best efforts to re-rent the premises and to mitigate any damage. On September 23, 2009, after discussions, the parties agreed to cancel the agreement in consideration of a one-time compensation of $ 36 thousand relating to the termination of the lease agreement. The payment to the supplier was made at the beginning of October 2009.

In July 2009, the Company's Board granted 1,400,000 stock options (unlisted) to an executive director in the Company. The stock options are exercisable into 1,400,000 Ordinary shares of NIS 0.1 par value each at an exercise price of NIS 0.075 per stock option. Based on the Black & Scholes model, the fair value of stock options on the date the Board accepted its decision was NIS 0.42079 per each stock option; a total of NIS 589,106 for all stock options. The options are exercisable for a maximal period of 120 months from the date of issuance in such a manner that 33.33% of the stock options are exercisable immediately upon receipt provided that five months have passed from the grant date and the remaining 66.67% stock options are exercisable in equal portions in each month thereafter for the following three years.

The Company is committed to supplement the difference between the par value of the share and the exercise price in this plan on the actual exercise date by allocating amounts from share premium to share capital. The approval of the Stock Exchange to listing the underlying shares was received.

According to the track that the Company elected and pursuant to these principles, expenses arising from employee remuneration are not deductible and so are the expenses that the Company recognizes in its accounts for salary benefits in respect of options received by employees under the plan, except the yield component, if any, that arises on the date of issuance.

In an arbitration procedure, the Company reached a compromise settlement with a service provider of its wholly-owned sub-subsidiary who demanded $ 37 thousand from the sub-subsidiary in return for removing his arguments and compensation of $ 9 thousand.

On September 30, 2009, the Company and Bio-Gal signed a revised agreement ("the revision") whose principle is to extend the date set to fulfill the conditions to the closing to November 30, 2009 ("the new date") (in a way that all the pre-established closing conditions apply to the new date). The other provisions of the agreement remain in tact. The Company is seeking to fulfill the conditions for the completion of the agreement as soon as possible (see Note 5).

NOTE 5:

EVENTS AFTER BALANCE SHEET DATE

On November 30, 2009, the Company and Bio-Gal signed a second revised agreement ("the second revision") whose principle is to extend the date set to fulfill the conditions to the closing to February 28, 2010 ("the second new date") (in a way that all the pre-established closing conditions apply to the new date). The other provisions of the agreement remain in tact. The Company is seeking to fulfill the conditions for the completion of the agreement as soon as possible.

- 21 -

XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6:-

RECONCILIATION BETWEEN U.S. GAAP AND IFRS

The following reconciliations present the effect of the transition to IFRS and explanations of these reconciliations and the exemption elected by the Company upon the transfer to IFRS. The reconciliations are presented below:

Reconciliations of the consolidated balance sheets as of January 1, 2007 ("opening balance sheet"), September 30, 2008 and December 31, 2008.

Reconciliations of the consolidated statements of income for the nine and three months ended September 30, 2008 and for the year ended December 31, 2008.

Reconciliations of certain equity items as of as of January 1, 2007, September 30, 2008 and December 31, 2008.

Giving explanations of the reconciliations carried out, as above, including a description of the exemptions elected by the Company in the transition to IFRS, in accordance with IFRS 1.

- 22 -

XTL BIOPHARMACEUTICALS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6:-

RECONCILIATION BETWEEN U.S. GAAP AND IFRS (Cont.)

The effect of the transition on the consolidated statements of financial position:

			January 1, 2008							September 30, 2008							December 31, 2008
			US GAAP		Effect of transition to IFRS			IFRS		US GAAP		Effect of transition to IFRS			IFRS		US GAAP		Effect of transition to IFRS			IFRS
			Audited							Unaudited							Audited
	Item		U.S. dollars in thousands
ASSETS

CURRENT ASSETS:
Cash and cash equivalents				4,400		-			4,400		4,076		-			4,076		2,924		-			2,924
Short-term deposits				20,845		-			20,845		2,207		-			2,207		-		-			-
Employee benefit assets		1		-		-			-		-		-			-		40		(28	)		12
Financial assets at fair value through profit or loss				102		-			102		-		-			-		-		-			-
Assets classified as held for sale				18		-			18		-		-			-		-		-			-
Accounts receivable		1,9		702		(93	)		609		926		-			926		354		(49	)		305
Income taxes receivable		9		-		-			-		-		-			-		-		49			49
Deferred taxes		8		29		(29	)		-		-		-			-		-		-			-
Restricted deposits				-		-			-		-		-			-		71		-			71

				26,096		(122	)		25,974		7,209		-			7,209		3,389		(28	)		3,361

NON-CURRENT ASSETS:
Employee benefit assets		1		98		(98	)		-		44		(28	)		16		-		-			-
Restricted deposits				172		-			172		62		-			62		-		-			-
Fixed assets				490		-			490		77		-			77		41		-			41
Intangible assets		4,5		25		1,783			1,808		-		7,500			7,500		-		-			-