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XTL Biopharm Ltd (XTL)

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Thursday 04 September, 2003

XTL Biopharm Ltd

Interim Results


XTL Biopharmaceuticals Ltd

Interim Results for the Six Months Ended 30 June 2003

XTL Biopharmaceuticals Ltd (XTLbio) today announces interim financial results
for the six months ended 30 June 2003.

Summary:

  * Completed strategic review of the business which resulted in increasing the
    focus on the most advanced clinical development programs for liver
    transplant in hepatitis;
   
  * HepeX-C enrolment for the phase 2 study is progressing well with interim
    results expected towards the year end - as previously reported Hepex-C
    showed encouraging safety and biological activity in a phase 1 study;
   
  * HepeX-B showed encouraging pharmacokinetic results in a dose-ranging study
    - phase 2 trials are expected to start later this year;
   
  * HepeX-B was granted Orphan Drug Designation by the US Food and Drug
    Administration - an application is being submitted for similar status in
    Europe;
   
  * Exercised an option to develop and commercialise compounds developed by
    Korea-based B&C Biopharm aimed at inhibiting Hepatitis C virus replication
    - lead compounds are being selected and toxicology studies are proceeding;
    and
   
  * Cash balance of $28 million as of 30 June 2003 (31 December 2002: $36
    million).
   
Commenting on the results, Dr Martin Becker, Chief Executive Officer, said:

'In the first six months of 2003, we took significant steps to realign our
business to concentrate on those areas offering greatest potential value. We
have focused our resources on niche, hepatitis-related products with near-term
commercial opportunities and we have implemented a Company-wide cost-reduction
programme. With these changes in place and a strong cash position, we believe
that XTLbio is well-placed for future growth and success.'

Contacts:

XTLbio Tel: +972-8-930-4440

Dr. Martin Becker, President and CEO

Jonathan Burgin, Chief Financial Officer

Financial Dynamics Tel: +44 (0) 20 7831 3113

David Yates, Sarah MacLeod

Chief Executive Officer's Review

The past six months have presented a number of challenges for XTLbio, resulting
in a strategic review of the business to conserve cash and focus on products
offering near-term commercial potential. Since the Annual General Meeting in
June, we implemented a number of changes at the Company across all aspects of
the business, to further focus and extend the Company's cash resources until
2006.

The most significant change we made was to put on hold all early stage research
activities, which involved a reduction in headcount from 74 to 54. We decided
further to focus the Company's efforts on the development of our most advanced
clinical products in order to optimize the use of cash resources. With product
partnering our priority, we also set up a licensing committee of experienced
Non-Executive Directors to help management progress discussions on the most
advanced programs.

With the renewed focus now in place, we can concentrate on our core objective
of bringing to market revolutionary new treatments for viral hepatitis.

OPERATIONAL REVIEW

Considerable progress has been made in both the HepeX-C and HepeX-B clinical
programs for prevention of reinfection following liver transplant.

HepeX-C

Patient recruitment is proceeding well for the phase 2 HepeX-C trial in liver
transplant patients, with over half the patients (12 out of 19 patients) having
completed enrolment in the original study. Based on our initial observations,
we requested and received permission from the FDA to explore a variety of
different dosing regimens and further extend the study to 24 patients. We
expect to unveil interim results from this trial towards the end of the year.
We anticipate that Hepex C will ultimately be marketed as a combination of two
antibodies. Therefore we intend to add a second antibody to the current
antibody and commence an additional Phase I trial with the combined therapy
next year. Following that, we currently estimate that a Phase II/III trial for
the combined product for HCV LT will be required prior to regulatory approval
and commercialisation.

As there are currently no FDA-approved products for the prevention of recurrent
infection in these patients, we believe that if HepeX-C is capable of
preventing or delaying re-infection in patients undergoing liver transplant, it
could become a standard therapy.

HepeX-B

HepeX-B continues to demonstrate excellent safety data and strong anti-viral
activity in clinical studies. To accelerate the program with liver transplant
patients, we completed a clinical study in healthy volunteers to determine
optimum dosing. Confirming the pre-clinical activity seen in XTLbio's
proprietary Trimera model, it was determined from these studies that as little
as one thousandth of the dose of HepeX-B may be required compared to the
current standard of care. This could mean fewer side effects and simpler modes
of administration. Phase 2 trials with HepeX-B are planned to start later this
year.

Lending credence to this development program, HepeX-B was granted Orphan Drug
Designation from the US Food and Drug Administration (FDA) in July for liver
transplant patients. The grant of Orphan Drug Designation entitles the product
to exclusive marketing rights in the United States for seven years following
marketing approval. Other benefits include the Company being eligible to apply
for certain grants from the FDA to provide funding for development. There is
also a fee waiver when XTLbio submits its Biological License Application (BLA)
to the FDA for approval to market the product. The Company is submitting
documentation for Orphan Drug Designation in Europe through the European
Medicines Evaluation Agency (EMEA).

Pre-clinical Hepatitis C Program

In February, we exercised an option to develop and commercialize a series of
compounds developed by Korea-based B&C Biopharm for treating chronic hepatitis
C patients. Several clinical candidates have been designated and pre-clinical
toxicology studies are proceeding. Assuming continuing success in pre-clinical
development, XTLbio plans to submit an Investigational New Drug (IND) for
clinical testing with one candidate in the second half of 2004.

Partnering Strategy

With our programs with liver transplant patients now well-defined and clinical
trials underway, we are increasing our efforts to seek alliance partners for
our products. With regard to HepeX-B, where proof-of-principle data is now
becoming available, XTLbio is in active licensing discussions with a number of
parties. In addition, XTLbio expects to have data on HepeX-C by the end of the
year, which will be helpful to promote alliances.

FINANCIAL REVIEW

As of 30 June 2003 the Company's cash, short- and long-term investments were
$28 million (31 December 2002: $36 million). R&D expenses remained stable at
$6.6 million compared to $6.5 million for the equivalent period last year. G&A
costs for the period ending 30 June 2003 decreased to $2.2 million from $2.7
million for the first half of 2002. Going forward, in order to ensure that
XTLbio has the cash reserves to accomplish critical goals, the Company has
further reduced its net cash outflow. This further reduction in cash outflow,
which is substantial, is not reflected in these financial statements and the
full impact of all these cash conservation measures taken will be reflected in
the annual report for 2003.

SUMMARY

It is our belief that with our current strategy and strong cash balance, XTLbio
has all the building blocks in place to provide the best chances of success for
our products and to offer considerable upside for shareholders. I would like to
take this opportunity to thank our shareholders for their continued support,
and look forward to updating you on our progress in the coming months.

Martin Becker, PhD

President and Chief Executive Officer

Products in development - update

Product          Indication         Active ingredient  Status                  
                                                                               
HepeX-B          Liver transplant   2 antibodies       Start H2 2003 phase II  
                                                                               
HepeX-C          Liver transplant   1 antibody         Phase II ongoing        
                                                                               
HepeX-C          Liver transplant   2 antibodies       Phase I to commence H1  
                                    (existing & new)   2004                    
                                                                               
HepeX-C SM       Chronic hepatitis  Small molecule     Phase I to commence H2  
                 C                                     2004                    

About XTLbio

XTL Biopharmaceuticals Ltd. (XTLbio) is a biopharmaceutical company developing
drugs against hepatitis. XTLbio's HepeX™ product line - now in clinical trials
- has the potential to introduce revolutionary therapies for viral hepatitis,
including prevention of re-infection in transplanted livers, the Company's
primary focus, and a longer-term cocktail approach in treating chronic illness.
XTLbio believes its primary competitive advantage lies in its patented Trimera™
technology, which enables the development of fully human monoclonal antibodies
and models of human disease for pre-clinical drug validation. Established in
1993, XTLbio became a public company in 2000 with shares traded on the London
Stock Exchange under the symbol XTL.Auditor's Report

The Board of Directors of

XTL Biopharmaceuticals Ltd.

Re:   Review of condensed consolidated unaudited interim financial 
      statements                                                   
                                                                   
      for the period ended 30 June 2003                            

At your request, we have reviewed the condensed consolidated balance sheet of
XTL Biopharmaceuticals Ltd. (hereafter - the Company) and its subsidiary at 30
June 2003 and the condensed consolidated statements of operations, changes in
shareholders' equity and cash flows for the six months period then ended. We
have also reviewed the consolidated statements of operations and cash flows for
the period from 9 March 1993 (incorporation date) to 30 June 2003 (the amounts
included therein, which relate to the period through 31 December 2000, are
based on the financial statements for 2000, which were audited by another
accounting firm).

Our review was performed in accordance with auditing standards generally
accepted in Israel and in the United States including those prescribed by the
Institute of Certified Public Accountants in Israel. Inter alia, these
procedures include: reading of the financial statements referred to above,
reading of minutes of meetings of shareholders, 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, we do not
express an opinion on the condensed consolidated interim financial statements.

During our review, nothing came to our attention that indicated that
significant adjustments should be made in the said interim condensed
consolidated financial statements 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

Tel Aviv, Israel

3 September 2003

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

BALANCE SHEET

AT 30 JUNE 2003

EXPRESSED IN US DOLLARS

                                            30 June       30 June   31 December
                                                                               
                                               2003          2002          2002
                                                                               
                                             ______        ______        ______
                                                                               
                                        (Unaudited)   (Unaudited)     (Audited)
                                                                               
                                               $000          $000          $000
                                                                               
                                             ______        ______        ______
                                                                               
A s s e t s                                                                    
                                                                               
CURRENT ASSETS:                                                                
                                                                               
Cash and cash equivalents                     9,854        23,715         2,016
                                                                               
Short-term deposits                          17,187        19,071        32,053
                                                                               
Marketable securities                           836         1,089         1,637
                                                                               
Accounts receivable                           2,167           684           266
                                                                               
                                             ______        ______        ______
                                                                               
T o t a l current assets                     30,044        44,559        35,972
                                                                               
                                             ______        ______        ______
                                                                               
ASSET HELD FOR SALE                             354                            
                                                                               
LONG-TERM DEPOSITS                              157           134           139
                                                                               
PROPERTY AND EQUIPMENT, net                   1,226         1,495         1,770
                                                                               
                                             ______        ______        ______
                                                                               
                                             31,781        46,188        37,881
                                                                               
                                             ======        ======        ======
                                                                               
Liabilities and shareholders' equity                                           
                                                                               
CURRENT LIABILITIES -                                                          
                                                                               
accounts payable and accruals:                                                 
                                                                               
Trade                                           805         1,429           799
                                                                               
Other                                         2,028         1,672         1,777
                                                                               
                                             ______        ______        ______
                                                                               
T o t a l current liabilities                 2,833         3,101         2,576
                                                                               
                                             ______        ______        ______
                                                                               
LIABILITY FOR EMPLOYEE RIGHTS UPON              579           303           475
RETIREMENT                                                                     
                                             ______        ______        ______
                                                                               
T o t a l liabilities                         3,412         3,404         3,051
                                                                               
                                             ______        ______        ______
                                                                               
SHAREHOLDERS' EQUITY:                                                          
                                                                               
Share capital                                   594           590           590
                                                                               
Additional paid in capital                   88,966        88,966        88,966
                                                                               
Other capital surplus                           337           337           337
                                                                               
Accumulated other comprehensive                  29         (130)          (48)
income (loss)                                                                  
                                                                               
Deficit accumulated during the             (61,557)      (46,979)      (55,015)
development stage                                                              
                                             ______        ______        ______
                                                                               
T o t a l shareholders' equity               28,369        42,784        34,830
                                                                               
                                             ______        ______        ______
                                                                               
                                             31,781        46,188        37,881
                                                                               
                                             ======        ======        ======

Date of approval of the interim financial statements: 3 September 2003

Geoffrey Vernon - Chairman                           Martin Becker - CEO   
                                                                           
of the Board of Directors                               and President      

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

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

STATEMENTS OF OPERATIONS

FOR THE PERIODS ENDED 30 JUNE 2003

EXPRESSED IN US DOLLARS

                               Six months     Six months  Year ended Period from
                                                                                
                                    ended          ended 31 December     9 March
                                                                                
                                  30 June        30 June        2002    1993* to
                                                                                
                                     2003           2002      ______     30 June
                                                                            2003
                                   ______         ______                        
                                                                          ______
                                                                                
                              (Unaudited)    (Unaudited)   (Audited) (Unaudited)
                                                                                
                                     $000           $000        $000        $000
                                                                                
                                   ______         ______      ______      ______
                                                                                
RESEARCH AND DEVELOPMENT            6,451        **6,572    **13,096    **56,290
COSTS                                                                           
                                                                                
LESS - PARTICIPATIONS               1,886         ______          75       9,607
                                                                                
                                   ______                     ______      ______
                                                                                
                                    4,565          6,572      13,021      46,683
                                                                                
GENERAL AND ADMINISTRATIVE          2,169        **2,669     **4,716    **21,064
EXPENSES                                                                        
                                   ______         ______      ______      ______
                                                                                
OPERATING LOSS                      6,734          9,241      17,737      67,747
                                                                                
FINANCIAL INCOME , net                192            137         597       6,190
                                                                                
                                   ______         ______      ______      ______
                                                                                
NET LOSS FOR THE PERIOD             6,542          9,104      17,140      61,557
                                                                                
                                   ======         ======      ======      ======
                                                                                
                                        $              $           $            
                                                                                
                                   ______         ______      ______            
                                                                                
BASIC AND DILUTED PER SHARE                                                     
DATA:                                                                           
                                                                                
Loss per ordinary share              0.06           0.08        0.15            
                                                                                
                                   ======         ======      ======            
                                                                                
Weighted average number of    111,212,003    111,132,987 111,149,292            
ordinary shares used to                                                         
compute loss per ordinary          ======         ======      ======            
share                                                                           

* Incorporation date see note 1(a)

** Reclassified

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

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2003

EXPRESSED IN US DOLLARS

                                              Number       Share     Additional
                                                                               
                                           of shares     Capital        paid-in
                                                                        capital
                                               _____       _____               
                                                                          _____
                                                                               
                                                            $000           $000
                                                                               
                                                          ______         ______
                                                                               
BALANCE AT 1 JANUARY 2003 (audited)      111,165,364         590         88,966
                                                                               
CHANGES DURING THE SIX MONTHS ENDED 30                                         
JUNE 2003 (unaudited):                                                         
                                                                               
Loss                                                                           
                                                                               
Net unrealized gain                                                            
                                                                               
Comprehensive loss                                                             
                                                                               
Exercise of employee stock options           849,550           4         ______
                                                                               
                                              ______      ______               
                                                                               
BALANCE AT 30 JUNE 2003 (unaudited)      112,014,914         594         88,966
                                                                               
                                              ======      ======         ======
                                                                               
BALANCE AT 1 JANUARY 2002 (audited)      111,127,038         590         88,946
                                                                               
CHANGES DURING THE SIX MONTHS ENDED 30                                         
JUNE 2002 (unaudited):                                                         
                                                                               
Loss                                                                           
                                                                               
Net unrealized loss                                                            
                                                                               
Comprehensive loss                                                             
                                                                               
Exercise of employee stock options            38,326           *             20
                                                                               
                                              ______      ______         ______
                                                                               
BALANCE AT 30 JUNE 2002 (unaudited)      111,165,364         590         88,966
                                                                               
                                              ======      ======         ======
                                                                               
BALANCE AT 1 JANUARY 2002 (audited)      111,127,038         590         88,946
                                                                               
CHANGES DURING THE YEAR ENDED                                                  
31 DECEMBER 2002 (audited):                                                    
                                                                               
Loss                                                                           
                                                                               
Net unrealized loss                                                            
                                                                               
Comprehensive loss                                                             
                                                                               
Exercise of employee stock options            38,326           *             20
                                                                               
                                              ______      ______         ______
                                                                               
BALANCE AT 31 DECEMBER 2002 (audited)    111,165,364         590         88,966
                                                                               
                                              ======      ======         ======

* Represents an amount less than $1,000

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2003

EXPRESSED IN US DOLLARS

(Continued)

                                       Other   Accumulated     Deficit    Total
                                                                               
                                     Capital         other accumulated   ______
                                                                               
                                     Surplus comprehensive  during the         
                                                                               
                                      ______        income development         
                                                                               
                                                    ______       stage         
                                                                               
                                                                ______         
                                                                               
                                        $000          $000        $000     $000
                                                                               
                                      ______        ______      ______   ______
                                                                               
BALANCE AT 1 JANUARY 2003 (audited)      337          (48)    (55,015)   34,830
                                                                               
CHANGES DURING THE SIX MONTHS ENDED                                            
30 JUNE 2003 (unaudited):                                                      
                                                                               
Loss                                                           (6,542)  (6,542)
                                                                               
Net unrealized gain                                     77                   77
                                                                               
                                                                         ______
                                                                               
Comprehensive loss                                                      (6,465)
                                                                               
Exercise of employee stock options    ______        ______      ______        4
                                                                               
                                                                         ______
                                                                               
BALANCE AT 30 JUNE 2003 (unaudited)      337            29    (61,557)   28,369
                                                                               
                                      ======        ======      ======    =====
                                                                               
BALANCE AT 1 JANUARY 2002 (audited)      337          (45)    (37,875)   51,953
                                                                               
CHANGES DURING THE SIX MONTHS ENDED                                            
30 JUNE 2002 (unaudited):                                                      
                                                                               
Loss                                                           (9,104)  (9,104)
                                                                               
Net unrealized loss                                   (85)                 (85)
                                                                               
                                                                         ______
                                                                               
Comprehensive loss                                                      (9,189)
                                                                               
Exercise of employee stock options    ______        ______      ______       20
                                                                               
                                                                         ______
                                                                               
BALANCE AT 30 JUNE 2002 (unaudited)      337         (130)    (46,979)   42,784
                                                                               
                                      ======        ======      ======    =====
                                                                               
BALANCE AT 1 JANUARY 2002 (audited)      337          (45)    (37,875)   51,953
                                                                               
CHANGES DURING THE YEAR ENDED 31                                               
DECEMBER 2002 (audited):                                                       
                                                                               
Loss                                                          (17,140) (17,140)
                                                                               
Net unrealized loss                                    (3)                  (3)
                                                                               
                                                                         ______
                                                                               
Comprehensive loss                                                     (17,143)
                                                                               
                                                                         ______
                                                                               
Exercise of employee stock options    ______        ______      ______       20
                                                                               
                                                                         ______
                                                                               
BALANCE AT 31 DECEMBER 2002              337          (48)    (55,015)   34,830
(audited)                                                                      
                                      ======        ======      ======    =====

* Represents an amount less than $1,000

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

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2003
EXPRESSED IN US DOLLARS

                                      Six months  Six months      Year Period from
                                                                 ended            
                                           ended       ended               9 March
                                                                    31            
                                         30 June     30 June  December    1993* to
                                                                                  
                                            2003        2002      2002     30 June
                                                                              2003
                                          ______      ______    ______            
                                                                            ______
                                                                                  
                                     (Unaudited) (Unaudited) (Audited) (Unaudited)
                                                                                  
                                            $000        $000      $000        $000
                                                                                  
                                          ______      ______    ______      ______
                                                                                  
CASH FLOWS FROM OPERATING                                                         
ACTIVITIES:                                                                       
                                                                                  
Loss for the period                      (6,542)     (9,104)  (17,140)    (61,557)
                                                                                  
Adjustments to reconcile loss to net                                              
cash used in operating activities:                                                
                                                                                  
Depreciation                                 243         221       470       2,071
                                                                                  
Capital (gain) loss on property and                      (1)       (1)           9
equipment                                                                         
                                                                                  
Liability for employee rights upon           177         219       323       1,310
retirement                                                                        
                                                                                  
Loss (gain) on marketable securities         (7)          23        41       (403)
                                                                                  
Stock based compensation expenses                                              478
                                                                                  
Changes in operating asset and                                                    
liability items:                                                                  
                                                                                  
Decrease (increase) in accounts          (1,901)         188       606     (2,120)
receivable                                                                        
                                                                                  
Increase (decrease) in accounts              331         388      (20)       2,786
payable and accruals                                                              
                                         _______     _______   _______     _______
                                                                                  
Net cash used in operating               (7,699)     (8,066)  (15,721)    (57,426)
activities (*)                                                                    
                                         _______     _______   _______     _______
                                                                                  
CASH FLOWS FROM INVESTING                                                         
ACTIVITIES:                                                                       
                                                                                  
Short-term deposits, net                  14,866      14,040     1,058    (17,187)
                                                                                  
Long-term deposits                          (18)           7         2       (157)
                                                                                  
Investment in available for sale            (11)       (337)   (1,219)     (3,303)
securities                                                                        
                                                                                  
Proceeds from sales of available for         896         318       716       2,899
sale securities                                                                   
                                                                                  
Severance pay funded                       (147)        (39)      (88)       (731)
                                                                                  
Purchase of property and equipment          (53)       (135)     (659)     (3,775)
                                                                                  
Proceeds from sale of property and       _______           8         8         115
equipment                                                                         
                                                     _______   _______     _______
                                                                                  
Net cash provided by (used in)            15,533      13,862     (182)    (22,139)
investing activities                                                              
                                         _______     _______   _______     _______
                                                                                  
CASH FLOWS FROM FINANCING                                                         
ACTIVITIES:                                                                       
                                                                                  
Issuance of share capital, net of              4          20        20      89,419
share issue expenses                                                              
                                                                                  
Proceeds from long-term debt                                                   399
                                                                                  
Proceeds from short-term debt                                                   50
                                                                                  
Payments relating to long-term debt                                          (399)
                                                                                  
Payments relating to short-term debt     _______     _______   _______        (50)
                                                                                  
                                                                           _______
                                                                                  
Net cash provided by financing                 4          20        20      89,419
activities                                                                        
                                         _______     _______   _______     _______

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2003

EXPRESSED IN US DOLLARS

(Continued)

                                      Six months  Six months      Year Period from
                                                                 ended            
                                           ended       ended               9 March
                                                                    31            
                                         30 June     30 June  December    1993* to
                                                                                  
                                            2003        2002      2002     30 June
                                                                              2003
                                          ______      ______    ______            
                                                                            ______
                                                                                  
                                     (Unaudited) (Unaudited) (Audited) (Unaudited)
                                                                                  
                                            $000        $000      $000        $000
                                                                                  
                                          ______      ______    ______      ______
                                                                                  
NET INCREASE IN CASH AND CASH              7,838    5,816     (15,883)       9,854
EQUIVALENTS                                                                       
                                                                                  
BALANCE OF CASH AND CASH EQUIVALENTS       2,016   17,899       17,899     _______
                                                                                  
AT BEGINNING OF PERIOD                   _______  _______      _______            
                                                                                  
BALANCE OF CASH AND CASH EQUIVALENTS       9,854   23,715        2,016       9,854
                                                                                  
AT END OF PERIOD                          ======   ======       ======      ======
                                                                                  
Supplementary information on                                                 1,700
financing activities not                                                          
                                                                            ======
involving cash flows -                                                            
                                                                                  
conversion of convertible                                                         
subordinated debenture into shares                                                
                                                                                  
Supplemental disclosures:                                                         
                                                                                  
Income taxes paid                            109       85           79          57
                                                                                  
                                          ======   ======       ======      ======
                                                                                  
Interest paid                                                                  350
                                                                                  
                                                                            ======
                                                                                  
(*) Including effect of changes in                  (749)        (709)       1,811
the exchange rate on cash                                                         
                                                  _______      _______     _______

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

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

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2003

1. General:

a. XTL Biopharmaceutical Ltd. ('the Company') was incorporated under the Israel
Companies Ordinance on March 9, 1993. The Company is a development stage
company in accordance with Financial Accounting Standard 7 ('FAS') 'Accounting
and Reporting by Development Stage Enterprises'.

The principal activity of the Company is the development of therapeutic
pipeline for the treatment of infectious diseases.

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
business development and clinical activities.

b. Through June 30, 2003, the Company has incurred losses in an aggregate
amount of US$ 62,260,000. Such losses have resulted primarily from the
Company's activities as a development stage company. The Company does not
foresee any cash limitations to finance its operations for the coming year.

c. The interim financial statements at June 30, 2003 ('the interim statements')
were drawn up in condensed form, in accordance with accounting principles
generally accepted 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.

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 research and development expenses are incurred in dollars.
Significant part of the Company's capital expenditures and substantially all of
its financing is in dollars. Thus, the functional currency of the Company is
dollar.

Transactions and balances originally denominated in dollars are presented at
their original amounts. Balances in non-dollar currencies are translated into
dollars using historical and current exchange rates for non-monetary and
monetary balances, respectively. For non-dollar transactions and other items
reflected in the statements of operations, the following exchange rates are
used: (i) for transactions - exchange rates at transaction dates or average
rates and (ii) for other items (derived from non-monetary balance sheet items)
- historical exchange rates. The resulting currency transaction gains or losses
are carried to financial income or expenses, as appropriate.

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2003

2. Functional currency (continued):

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

                                          Six months    Six months  Year ended
                                               ended         ended 31 December
                                             30 June       30 June        2002
                                                2003          2002            
                                                                   ___________
                                         ___________     _________            
                                                                              
                                                   %             %           %
                                                                              
Rate of change of the Israeli currency                                        
                                                                              
against the dollar                             (8.9)           8.0         7.3
                                                                              
Changes in the Israeli CPI                     (0.5)           6.3         6.5
                                                                              
Exchange rate of one dollar (at end of     NIS 4.312     NIS 4.769   NIS 4.737
period)                                                                       

3. Employee Stock Based Compensation

The Company accounts for employee stock based compensation in accordance with
Accounting Principles Board Opinion No. 25 'Accounting for Stock Issued to
Employees' ('APB 25') and related interpretations. In accordance with FAS 123 -
'Accounting for Stock-Based Compensation' the Company discloses pro-forma data
assuming the Company had accounted for employee stock options grants using the
fair value-based method defined in FAS 123.

XTL BIOPHARMACEUTICALS LTD.

(A Development Stage Company)

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2003

3. Employee Stock Based Compensation (continued):

The following table illustrates the effect on net income and earning per share
assuming the Company had applied the fair value recognition provisions of FAS
123 to its stock-based employee compensation:

                                Six months  Six months   Year ended Period from
                                     ended       ended  31 December     9 March
                                   30 June     30 June         2002       1993*
                                      2003        2002                         
                                                       ____________  to 30 June
                                                                               
                                                                           2003
                                                                               
                                                                     __________
                                                                               
                               (Unaudited) (Unaudited)    (Audited) (Unaudited)
                                                                               
                                      $000        $000         $000        $000
                                                                               
Loss for the period, as              6,542       9,104       17,140      61,557
reported                                                                       
                                                                               
Deduct: stock based employee                                                   
                                                                               
compensation expense, included                                                 
                                                                               
in reported statement of                                                       
operations,                                                                    
                                                                               
net of related tax effect                                                 (482)
                                                                               
Add: stock based employee                                                      
                                                                               
compensation expense                                                           
                                                                               
determined under fair value                                                    
                                                                               
method for all awards                  514         817        1,297       5,809
                                                                               
                                  ________    ________     ________    ________
                                                                               
Pro forma- loss                      7,056       9,921       18,437      66,884
                                                                               
                                   =======     =======      =======     =======
                                                                               
Basic and diluted loss per                                                     
share:                                                                         
                                                                               
As reported                         $ 0.06      $ 0.08        $0.15            
                                                                               
                                   =======     =======      =======            
                                                                               
Pro-forma                           $ 0.06      $ 0.09        $0.17            
                                                                               
                                   =======     =======      =======            

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

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