SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549



Form
20-F



☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934



Or



☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For
the fiscal year ended December 31, 2014



Or



☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Or



☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Commission
File No. 001-36203



Can-Fite
BioPharma Ltd.

(Exact
name of Registrant as specified in its charter)



Can-FiteBioPharma
Ltd., an Israeli Limited Company

(Translation
of the Registrant’s name into English)



Israel

(Jurisdiction
of incorporation)



10
Bareket Street, KiryatMatalon, P.O. Box 7537, Petah-Tikva 4951778, Israel

(Address
of principal executive offices)



Motti
FarbsteinChief Operating and Financial OfficerTel: +972 (3) 924-1114

Fax:
+972 (3) 924-9378

motti@canfite.co.il

10
Bareket Street, KiryatMatalon, P.O. Box 7537, Petah-Tikva 4951778, Israel

(Name,
Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)



Securities
registered or to be registered pursuant to Section 12(b) of the Act:



American
Depositary Shares, each representing 2 Ordinary Shares, par value NIS 0.25 per share

(Title
of Class)



Ordinary
Shares, par value NIS 0.25 per share*

(Title
of Class)



Securities
registered or to be registered pursuant to Section 12(g) of the Act:



None



Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:



None



*
Not for trading, but only in connection with the registration of the American Depositary Shares.













Indicate
the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report (December 31, 2014): 21,316,577 are issued and outstanding, (excluding 446,827 ordinary shares held
as treasury shares).



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐     No ☒



If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐     No ☒



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such a shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐     No ☐



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition
of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated
filer ☐     Accelerated filer ☐      Non-accelerated
filer ☒



Indicate
by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:



|U.S.
    GAAP ☐ | International
    Financial Reporting Standards                  | Other
☐
|--------------- | ---------------------------------------------------------------- | -------
|                | as
    issued by the International Accounting Standards Board  ☒ |        



If
“Other” has been checked in response to the previous question, indicate by check mark which financial statement item
the Registrant has elected to follow: Item 17 ☐    Item 18 ☐



If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ☐     No ☒




















TABLE
OF CONTENTS



|PART I                                                                                |    
|------------------------------------------------------------------------------------- | ---
|ITEM 1. Identity of Directors, Senior Management and Advisers.                        | 1  
|ITEM 2. Offer Statistics and Expected Timetable.                                      | 1  
|ITEM 3. Key Information.                                                              | 1  
|ITEM 4. Information on the Company                                                    | 28 
|ITEM 4A. Unresolved Staff Comments                                                    | 70 
|ITEM 5. Operating and Financial Review and Prospects                                  | 71 
|ITEM 6. Directors, Senior Management and Employees                                    | 83 
|ITEM 7. Major Shareholders and Related Party Transactions                             | 103
|ITEM 8. Financial Information                                                         | 104
|ITEM 9. The Offer and Listing                                                         | 104
|ITEM 10. Additional Information                                                       | 107
|ITEM 11. Quantitative and Qualitative Disclosures About Market Risk                   | 123
|ITEM 12. Description of Securities Other Than Equity Securities                       | 123
|                                                                                      |    
|PART II                                                                               |    
|ITEM 13. Defaults, Dividend Arrearages and Delinquencies                              | 125
|ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds | 125
|ITEM 15. Controls and Procedures                                                      | 125
|ITEM 16. [RESERVED]                                                                   | 126
|ITEM 16A. Audit Committee Financial Expert                                            | 126
|ITEM 16B. Code of Ethics                                                              | 126
|ITEM 16C. Principal Accountant Fees and Services                                      | 127
|ITEM 16D. Exemptions from the Listing Standards for Audit Committees                  | 127
|ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers      | 127
|ITEM 16F. Change in Registrant’s Certifying Accountant                                | 127
|ITEM 16G. Corporate Governance                                                        | 127
|ITEM 16H. Mine Safety Disclosure                                                      | 128
|                                                                                      |    
|PART III                                                                              |    
|ITEM 17. Financial Statements                                                         | 128
|ITEM 18. Financial Statements                                                         | 128
|ITEM 19. Exhibits                                                                     | 128













USE
OF CERTAIN TERMS



In
this Annual Report on Form 20-F, unless the context otherwise requires:



| | ● | references
                                         to “ADSs” refer to the Registrant’s American Depositary Shares;
| | - | -------------------------------------------------------------------------------------------------------------------



| | ● | references
                                         to “A3AR” refer to the A3 adenosine receptor;
| | - | -------------------------------------------------------------------------------------------------



| | ● | references
                                         to the “Company,” “we,” “our” and “Can-fite”
                                         refer to Can-fiteBioPharma Ltd. (the “Registrant”) and its consolidated subsidiaries;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | references
                                         to the “Companies Law” or “Israeli Companies Law” are to Israel’s
                                         Companies Law, 5759-1999, as amended;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | references
                                         to “dollars,” “U.S. dollars” and “$” are to United
                                         States Dollars;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | references
                                         to “HCC” refer to hepatocellular carcinoma, also known as primary liver cancer;
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | ● | references
                                         to “HCV” refer to hepatitis C virus;
| | - | ----------------------------------------------------------------------------------------



| | ● | references
                                         to “ordinary shares,” “our shares” and similar expressions refer
                                         to the Registrant’s Ordinary Shares, NIS 0.25 nominal (par) value per share;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | references
                                         to “OA” refer to osteoarthritis;
| | - | ------------------------------------------------------------------------------------



| | ● | references
                                         to “PBMC” refer to peripheral blood mononuclear cells;
| | - | ----------------------------------------------------------------------------------------------------------



| | ● | references
                                         to “RA” refer to rheumatoid arthritis;
| | - | ------------------------------------------------------------------------------------------



| | ● | references
                                         to “Securities Law” or “Israeli Securities Law” are to Israel
                                         Securities Law, 5728-1968, as amended;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | references
                                         to “shekels” and “NIS” are to New Israeli Shekels, the Israeli
                                         currency; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | references
                                         to the “SEC” are to the United States Securities and Exchange Commission.
| | - | -----------------------------------------------------------------------------------------------------------------------------



FORWARD
LOOKING STATEMENTS



This
Annual Report on Form 20-F contains forward-looking statements, about our expectations, beliefs or intentions regarding, among
other things, our product development efforts, business, financial condition, results of operations, strategies or prospects.
In addition, from time to time, we or our representatives have made or may make forward-looking statements, orally or in writing.
Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,”
“intend,” “plan,” “may,” “should” or “anticipate” or their negatives
or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical
or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with
the U.S. Securities and Exchange Commission, or the SEC, press releases or oral statements made by or with the approval of one
of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends
or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these
statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any
future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results
to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to,
the factors summarized below.













This
Annual Report on Form 20-F identifies important factors which could cause our actual results to differ materially from those
indicated by the forward-looking statements, particularly those set forth under the heading “Risk Factors.” The
risk factors included in this Annual Report on Form 20-F are not necessarily all of the important factors that could cause
actual results to differ materially from those expressed in any of our forward-looking statements. Given these uncertainties,
readers are cautioned not to place undue reliance on such forward-looking statements. Factors that could cause our actual
results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited
to:



| | ● | the
                                         initiation, timing, progress and results of our preclinical studies, clinical trials
                                         and other product candidate development efforts;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | our
                                         ability to advance our product candidates into clinical trials or to successfully complete
                                         our preclinical studies or clinical trials;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | our
                                         receipt of regulatory approvals for our product candidates, and the timing of other regulatory
                                         filings and approvals;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         clinical development, commercialization and market acceptance of our product candidates;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | ● | our
                                         ability to establish and maintain corporate collaborations;
| | - | --------------------------------------------------------------------------------------------------------



| | ● | the
                                         implementation of our business model and strategic plans for our business and product
                                         candidates;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         scope of protection we are able to establish and maintain for intellectual property rights
                                         covering our product candidates and our ability to operate our business without infringing
                                         the intellectual property rights of others;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | estimates
                                         of our expenses, future revenues, capital requirements and our needs for additional financing;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | competitive
                                         companies, technologies and our industry; and
| | - | --------------------------------------------------------------------------------------------------



| | ● | statements
                                         as to the impact of the political and security situation in Israel on our business.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



All
forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this Annual Report
on Form 20-F and are expressly qualified in their entirety by the cautionary statements included in this Annual Report on Form
20-F. We undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise
after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should
consider these risks and uncertainties.













EXPLANATORY
NOTE



Market
data and certain industry data and forecasts used throughout this Annual Report on Form 20-F were obtained from internal company
surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications
and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein
has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed.
We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions
relied upon therein. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based
upon our management’s knowledge of the industry, have not been independently verified. Forecasts are particularly likely
to be inaccurate, especially over long periods of time. In addition, we do not necessarily know what assumptions regarding general
economic growth were used in preparing the forecasts we cite. Statements as to our market position are based on the most currently
available data. While we are not aware of any misstatements regarding the industry data presented in this Annual Report on Form
20-F, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed
under the heading “Risk Factors” in this Annual Report on Form 20-F.



We
effected a 1-for-25 reverse share split with respect to our ordinary shares, options and warrants on May 12, 2013. Unless indicated
otherwise by the context, all ordinary share, option, warrant and per share amounts as well as stock prices appearing in this
annual report have been adjusted to give retroactive effect to the share split for all periods presented.













PART
I



ITEM
1. Identity of Directors, Senior Management and Advisers.



Not
applicable.



ITEM
2. Offer Statistics and Expected Timetable.



Not
applicable.



ITEM
3. Key Information.



A. Selected
Financial Data.



The
following table sets forth our selected consolidated financial data for the periods ended and as of the dates indicated. The following
selected consolidated financial data for our company should be read in conjunction with the financial information, “Item
5. Operational and Financial Review and Prospects” and other information provided elsewhere in this Annual Report on Form
20-F and our consolidated financial statements and related notes. The selected consolidated financial data in this section is
not intended to replace the consolidated financial statements and is qualified in its entirety thereby.



The
selected consolidated statements of operations data for the years ended December 31, 2014, 2013 and 2012, and the selected consolidated
balance sheet data as of December 31, 2014 and 2013, have been derived from our audited consolidated financial statements set
forth elsewhere in this Annual Report on Form 20-F. The selected consolidated statements of operations data for the years ended
December 31, 2011 and 2010, and the selected consolidated balance sheet data as of December 31, 2012, 2011 and 2010, have been
derived from our audited consolidated financial statements not included in this Form 20-F.



Our
consolidated financial statements included in this Annual Report on Form 20-F were prepared in accordance with International Financial
Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, and reported in Israeli New Shekels,
or NIS.



|Consolidated Statements Of                                                      |  | Year Ended December 31,                          |          
|------------------------------------------------------------------------------- |  | ------------------------------------------------ | ---------
|Operations Data:                                                                |  | 2010                                             |          
|                                                                                |  | (in thousands,  except share and per share data) |          
|                                                                                |  | NIS                                              |          
|                                                                                |  |                                                  |          
|Revenues                                                                        |  |                                                  | 2,644    
|Operating expenses:                                                             |  |                                                  |          
|Research and development, expenses net                                          |  |                                                  | 9,993    
|General and administrative expenses                                             |  |                                                  | 6,005    
|                                                                                |  |                                                  |          
|Operating loss                                                                  |  |                                                  | 13,354   
|Other expense – due to M&A                                                      |  |                                                  | -        
|Financial expenses                                                              |  |                                                  | 356      
|Financial income                                                                |  |                                                  | (897     
|Taxes on income                                                                 |  |                                                  | 235      
|Net loss                                                                        |  |                                                  | 13,048   
|Adjustments arising from translating financial statements of foreign operations |  |                                                  | -        
|Remeasurments of defined benefit plan                                           |  |                                                  | -        
|Comprehensive loss                                                              |  |                                                  | 13,048   
|Net loss per ordinary share                                                     |  |                                                  | 1.50     
|Number of ordinary shares used in computing loss per ordinary share             |  |                                                  | 8,687,311





1









|Consolidated Balance                |  | As of December 31, |       
|----------------------------------- |  | ------------------ | ------
|Sheet Data:                         |  | 2010               |       
|                                    |  | (in thousands NIS) |       
|Cash and cash equivalents           |  |                    | 17,506
|Other receivables and lease deposit |  |                    | 550   
|Fixed assets                        |  |                    | 490   
|Total assets                        |  |                    | 18,546
|Total liabilities                   |  |                    | 5,474 
|Total shareholders’ equity          |  |                    | 13,072



We report our financial
statements in NIS. This Annual Report on Form 20-F contains conversions of NIS amounts into U.S. dollars at specific rates solely
for the convenience of the reader. Unless otherwise noted, for the purposes of annual financial data, all conversions from NIS
to U.S. dollars and from U.S. dollars to NIS were made at a rate of NIS 3.889 to $1.00 U.S. dollar, the daily representative rates
in effect as of December 31, 2014. No representation is made that the NIS amounts referred to in this Annual Report on Form 20-F
could have been or could be converted into U.S. dollars at any particular rate or at all.





The
following table sets forth information regarding the exchange rates of U.S. dollars per NIS for the periods indicated. Average
rates are calculated by using the daily representative rates as reported by the Bank of Israel on the last day of each month during
the periods presented.



|                        |  | NIS per U.S. $ |      
|----------------------- |  | -------------- | -----
|Year Ended December 31, |  | High           |      
|2014                    |  |                | 3.994
|2013                    |  |                | 3.791
|2012                    |  |                | 4.084
|2011                    |  |                | 3.821
|2010                    |  |                | 3.894



The
following table sets forth the high and low daily representative rates for the NIS as reported by the Bank of Israel for each
of the prior six months.



|                                    |  | NIS per U.S. $ |      
|----------------------------------- |  | -------------- | -----
|Month Ended                         |  | High           |      
|March 2015 (through March 23, 2015) |  |                | 4.053
|February 2015                       |  |                | 3.966
|January 2015                        |  |                | 3.998
|December 2014                       |  |                | 3.994
|November 2014                       |  |                | 3.889
|October 2014                        |  |                | 3.793
|September 2014                      |  |                | 3.695



On
March 23, 2015, the closing representative rate was $1.00 to NIS 4.018, as reported by the Bank of Israel.





2







B. Capitalization
and Indebtedness.



Not
applicable.



C. Reasons
for the Offer and Use of Proceeds.



Not
applicable.



D. Risk
Factors



You
should carefully consider the risks we describe below, in addition to the other information set forth elsewhere in this Annual
Report on Form 20-F, including our consolidated financial statements and the related notes beginning on page F-1, before deciding
to invest in our ordinary shares and ADSs.  These material risks could adversely impact our results of operations, possibly
causing the trading price of our ordinary shares and ADSs to decline, and you could lose all or part of your investment.



Risks
Related to Our Financial Position and Capital Requirements



We
have incurred operating losses since our inception and anticipate that we will continue to incur substantial operating losses
for the foreseeable future.



We
are a clinical stage biopharmaceutical company that develops orally bioavailable small molecule therapeutic products for the
treatment of autoimmune-inflammatory, oncological and ophthalmic diseases. Since our incorporation in 1994, we have been
focused on research and development activities with a view to developing our product candidates, CF101, CF102 and CF602. We
have financed our operations primarily through the sale of equity securities (both in private placements and in public
offerings on the Tel Aviv Stock Exchange, or TASE and NYSE MKT) and payments received under out- licensing agreements and
have incurred losses in each year since our inception in 1994. We have historically incurred substantial net losses,
including net losses of approximately NIS 24 million in 2014, NIS 31 million in 2013 and NIS 22 million in 2012. At December
31, 2014, we had an accumulated deficit of approximately NIS 304 million. We do not know whether or when we will become
profitable. To date, we have not commercialized any products or generated any revenues from product sales and accordingly we
do not have a revenue stream to support our cost structure. Our losses have resulted principally from costs incurred in
development and discovery activities. We expect to continue to incur losses for the foreseeable future, and these losses will
likely increase as we:



| | ● | initiate
                                         and manage pre-clinical development and clinical trials for our current and new product
                                         candidates;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | seek
                                         regulatory approvals for our product candidates;
| | - | ----------------------------------------------------------------------------------------------



| | ● | implement
                                         internal systems and infrastructures;
| | - | ----------------------------------------------------------------------------------------



| | ● | seek
                                         to license additional technologies to develop;
| | - | --------------------------------------------------------------------------------------------



| | ● | hire
                                         management and other personnel; and
| | - | ---------------------------------------------------------------------------------



| | ● | move
                                         towards commercialization.
| | - | ------------------------------------------------------------------------



If
our product candidates fail in clinical trials or do not gain regulatory clearance or approval, or if our product candidates do
not achieve market acceptance, we may never become profitable. Even if we do achieve profitability, we may not be able to sustain
or increase profitability on a quarterly or annual basis. Our inability to achieve and then maintain profitability would negatively
affect our business, financial condition, results of operations and cash flows. Moreover, our prospects must be considered in
light of the risks and uncertainties encountered by an early-stage company and in highly regulated and competitive markets, such
as the biopharmaceutical market, where regulatory approval and market acceptance of our products are uncertain. There can be no
assurance that our efforts will ultimately be successful or result in revenues or profits.





3







We
will need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly
or difficult to obtain and will dilute current shareholders’ ownership interests.



As
of December 31, 2014, we had cash and cash equivalents of approximately $9.3 million. In March 2014, we closed a private placement
for gross proceeds of approximately $5 million and in December 2014, we closed an $8 million at-the-market registered direct offering.
We believe that our existing financial resources will be sufficient to meet our requirements for the next twelve months. We have
expended and believe that we will continue to expend substantial resources for the foreseeable future developing our product candidates.
These expenditures will include costs associated with research and development, manufacturing, conducting preclinical experiments
and clinical trials and obtaining regulatory approvals, as well as commercializing any products approved for sale. In addition,
we have agreed to provide certain financial support to our subsidiary, OphthaliX Inc., or OphthaliX, for the foreseeable future.
Because the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual
amounts necessary to successfully complete the development and commercialization of our product candidates. In addition, other
unanticipated costs may arise. As a result of these and other factors currently unknown to us, we will require additional funds,
through public or private equity or debt financings or other sources, such as strategic partnerships and alliances and licensing
arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even
if we believe we have sufficient funds for our current or future operating plans.



Our
future capital requirements will depend on many factors, including the progress and results of our clinical trials, the duration
and cost of discovery and preclinical development, and laboratory testing and clinical trials for our product candidates, the
timing and outcome of regulatory review of our product candidates, the number and development requirements of other product candidates
that we pursue, and the costs of activities, such as product marketing, sales, and distribution. Because of the numerous risks
and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the
amounts of increased capital outlays and operating expenditures associated with our anticipated clinical trials.



Our
future capital requirements depend on many factors, including:



| | ● | the
                                         failure to obtain regulatory approval or achieve commercial success of our product candidates,
                                         including CF101, CF102 and CF602;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         results of our preclinical studies and clinical trials for our earlier stage product
                                         candidates, and any decisions to initiate clinical trials if supported by the preclinical
                                         results;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         costs, timing and outcome of regulatory review of our product candidates that progress
                                         to clinical trials;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         costs of preparing, filing and prosecuting patent applications, maintaining and enforcing
                                         our issued patents and defending intellectual property-related claims;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         cost of commercialization activities if any of our product candidates are approved for
                                         sale, including marketing, sales and distribution costs;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         cost of manufacturing our product candidates and any products we successfully commercialize;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         timing, receipt and amount of sales of, or royalties on, our future products, if any;
| | - | ----------------------------------------------------------------------------------------------------------------------------------





4







| | ● | the
                                         expenses needed to attract and retain skilled personnel;
| | - | -----------------------------------------------------------------------------------------------------



| | ● | any
                                         product liability or other lawsuits related to our products;
| | - | ---------------------------------------------------------------------------------------------------------



| | ● | the
                                         extent to which we acquire or invest in businesses, products or technologies and other
                                         strategic relationships; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         costs of financing unanticipated working capital requirements and responding to competitive
                                         pressures.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Additional
funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available
to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other
research and development activities for one or more of our product candidates or delay, limit, reduce or terminate our establishment
of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates.



We
may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees,
securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash
expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our
financial condition.



Raising
additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights
to our technologies or product candidates.



We
may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships
and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible
debt securities, the ownership interests of existing shareholders will be diluted, and the terms may include liquidation or other
preferences that adversely affect shareholder rights. Debt financing, if available, may involve agreements that include covenants
limiting or restricting our ability to take certain actions, such as incurring debt, making capital expenditures or declaring
dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties,
we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable
to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit,
reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates
that we would otherwise prefer to develop and market ourselves.



If
we fail to obtain necessary funds for our operations, we will be unable to maintain and improve our patented or licensed technology,
and we will be unable to develop and commercialize our products and technologies.



Our
present and future capital requirements depend on many factors, including:



| | ● | the
                                         level of research and development investment required to develop our product candidates,
                                         and maintain and improve our patented or licensed technology position;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         costs of obtaining or manufacturing product candidates for research and development and
                                         testing;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         results of preclinical and clinical testing, which can be unpredictable in product candidate
                                         development;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | changes
                                         in product candidate development plans needed to address any difficulties that may arise
                                         in manufacturing, preclinical activities or clinical studies;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





5







| | ● | our
                                         ability and willingness to enter into new agreements with strategic partners and the
                                         terms of these agreements;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | our
                                         success rate in preclinical and clinical efforts associated with milestones and royalties;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         costs of investigating patents that might block us from developing potential product
                                         candidates;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         costs of recruiting and retaining qualified personnel;
| | - | ---------------------------------------------------------------------------------------------------



| | ● | the
                                         time and costs involved in obtaining regulatory approvals;
| | - | -------------------------------------------------------------------------------------------------------



| | ● | the
                                         number of product candidates we pursue;
| | - | ------------------------------------------------------------------------------------



| | ● | our
                                         revenues, if any;
| | - | --------------------------------------------------------------



| | ● | the
                                         costs of filing, prosecuting, defending and enforcing patent claims and other intellectual
                                         property rights; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | our
                                         need or decision to acquire or license complementary technologies or new platform or
                                         product candidate targets.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If
we are unable to obtain the funds necessary for our operations, we will be unable to maintain and improve our patented technology,
and we will be unable to develop and commercialize our products and technologies, which would materially and adversely affect
our business, liquidity and results of operations.



Risks
Related to our Business and Regulatory Matters



We
have not yet commercialized any products or technologies, and we may never become profitable.



We
have not yet commercialized any products or technologies, and we may never be able to do so. We do not know when or if we will
complete any of our product development efforts, obtain regulatory approval for any product candidates incorporating our technologies
or successfully commercialize any approved products. Even if we are successful in developing products that are approved for marketing,
we will not be successful unless these products gain market acceptance for appropriate indications at favorable reimbursement
rates. The degree of market acceptance of these products will depend on a number of factors, including:



| | ● | the
                                         timing of regulatory approvals in the countries, and for the uses, we seek;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         competitive environment;
| | - | ---------------------------------------------------------------------



| | ● | the
                                         establishment and demonstration in the medical community of the safety and clinical efficacy
                                         of our products and their potential advantages over existing therapeutic products;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | our
                                         ability to enter into strategic agreements with pharmaceutical and biotechnology companies
                                         with strong marketing and sales capabilities;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         adequacy and success of distribution, sales and marketing efforts; and
| | - | -------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         pricing and reimbursement policies of government and third-party payors, such as insurance
                                         companies, health maintenance organizations and other plan administrators.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





6







Physicians,
patients, thirty-party payors or the medical community in general may be unwilling to accept, utilize or recommend, and in the
case of third-party payors, cover any of our products or products incorporating our technologies. As a result, we are unable to
predict the extent of future losses or the time required to achieve profitability, if at all. Even if we successfully develop
one or more products that incorporate our technologies, we may not become profitable.



Our
product candidates are at various stages of clinical and preclinical development and may never be commercialized.



Our
product candidates are at various stages of clinical development and may never be commercialized. The progress and results of
any future pre-clinical testing or future clinical trials are uncertain, and the failure of our product candidates to receive
regulatory approvals will have a material adverse effect on our business, operating results and financial condition to the extent
we are unable to commercialize any products. None of our product candidates has received regulatory approval for commercial sale.
In addition, we face the risks of failure inherent in developing therapeutic products. Our product candidates are not expected
to be commercially available for several years, if at all.



In
addition, our product candidates must satisfy rigorous standards of safety and efficacy before they can be approved by the U.S.
Food and Drug Administration, or the FDA, and foreign regulatory authorities for commercial use. The FDA and foreign regulatory
authorities have full discretion over this approval process. We will need to conduct significant additional research, involving
testing in animals and in humans, before we can file applications for product approval. Typically, in the pharmaceutical industry,
there is a high rate of attrition for product candidates in pre-clinical testing and clinical trials. Also, satisfying regulatory
requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure
of substantial resources. In addition, delays or rejections may be encountered based upon additional government regulation, including
any changes in FDA policy, during the process of product development, clinical trials and regulatory reviews.



In
order to receive FDA approval or approval from foreign regulatory authorities to market a product candidate or to distribute our
products, we must demonstrate thorough pre-clinical testing and thorough human clinical trials that the product candidate is safe
and effective for its intended uses (e.g., treatment of a specific condition in a specific way subject to contradictions
and other limitations). Even if we comply with all FDA requests, the FDA may ultimately reject one or more of our new drug applications,
or NDA, or grant approval for a narrowly intended use that is not commercially feasible.  We might not obtain regulatory
approval for our drug candidates in a timely manner, if at all.  Failure to obtain FDA approval of any of our drug candidates
in a timely manner or at all will severely undermine our business by reducing the number of salable products and, therefore, corresponding
product revenues.



Results
of earlier clinical trials may not be predictive of the results of later-stage clinical trials.



The
results of preclinical studies and early clinical trials of product candidates may not be predictive of the results of later-stage
clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy results
despite having progressed through preclinical studies and initial clinical trials. For example, in December 2013, Ophthalix, our
subsidiary, announced top-line results of a Phase III study with CF 101 for dry-eye syndrome in which CF101 did not meet the primary
efficacy endpoint of complete clearing of corneal staining, nor the secondary efficacy endpoints. In addition, two Phase IIb studies
in rheumatoid arthritis, or RA, utilizing CF101 in combination with methotrexate, a generic drug commonly used for treating RA
patients, or MTX, failed to reach their primary endpoints. Many companies in the pharmaceutical industry have suffered significant
setbacks in advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in
earlier studies.Any delay in, or termination or suspension of, our clinical trials will delay the requisite filings with the FDA
and, ultimately, our ability to commercialize our product candidates and generate product revenues.  If the clinical trials
do not support our product claims, the completion of development of such product candidates may be significantly delayed or abandoned,
which will significantly impair our ability to generate product revenues and will materially adversely affect our results of operations.





7







This
drug candidate development risk is heightened by any changes in the planned clinical trials compared to the completed clinical
trials. As product candidates are developed from preclinical through early to late stage clinical trials towards approval and
commercialization, it is customary that various aspects of the development program, such as manufacturing and methods of administration,
are altered along the way in an effort to optimize processes and results. While these types of changes are common and are intended
to optimize the product candidates for late stage clinical trials, approval and commercialization, such changes do carry the risk
that they will not achieve these intended objectives.



Changes
in our planned clinical trials or future clinical trials could cause our product candidates to perform differently, including
causing toxicities, which could delay completion of our clinical trials, delay approval of our product candidates, and/or jeopardize
our ability to commence product sales and generate revenues.



We
might be unable to develop product candidates that will achieve commercial success in a timely and cost-effective manner, or ever.



Even
if regulatory authorities approve our product candidates, they may not be commercially successful. Our product candidates may
not be commercially successful because government agencies and other third-party payors may not cover the product or the coverage
may be too limited to be commercially successful; physicians and others may not use or recommend our products, even following
regulatory approval. A product approval, assuming one issues, may limit the uses for which the product may be distributed thereby
adversely affecting the commercial viability of the product. Third parties may develop superior products or have proprietary rights
that preclude us from marketing our products. We also expect that at least some of our product candidates will be expensive, if
approved. Patient acceptance of and demand for any product candidates for which we obtain regulatory approval or license will
depend largely on many factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies
and other third-party payors, pricing, the effectiveness of our marketing and distribution efforts, the safety and effectiveness
of alternative products, and the prevalence and severity of side effects associated with our products. If physicians, government
agencies and other third-party payors do not accept our products, we will not be able to generate significant revenue.



Our
current pipeline is based on our platform technology utilizing the Gi protein associated A3 adenosine receptor, or A3AR, as a
potent therapeutic target and currently includes three molecules, the CF101, CF102 and CF602 product candidates, of which CF 101
is the most advanced. Failure to develop these molecules will have a material adverse effect on us.



Our
current pipeline is based on a platform technology where we target the A3AR with highly selective ligands, or small signal triggering
molecules that bind to specific cell surface receptors, such as the A3AR, including CF101, CF102 and CF602, currently developed
for the treatment of autoimmune-inflammatory, oncological and ophthalmic disorders. A3ARs are structures found in cell surfaces
that record and transfer messages from small molecules or ligands, such as CF101, CF102 and CF602 to the rest of the cell. CF101
is the most advanced of our drug candidates. As such, we are currently dependent on only three molecules for our potential commercial
success, and any safety or efficacy concerns related to such molecules would have a significant impact on our business. Failure
to develop our drug candidates, in whole or in part, will have a material adverse effect on us.



Clinical
trials are very expensive, time-consuming and difficult to design and implement, and, as a result, we may suffer delays or suspensions
in future trials which would have a material adverse effect on our ability to generate revenues.



Human
clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory
requirements. Regulatory authorities, such as the FDA, may preclude clinical trials from proceeding. Additionally, the clinical
trial process is time-consuming, failure can occur at any stage of the trials, and we may encounter problems that cause us to
abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including:



| | ● | unforeseen
                                         safety issues;
| | - | ------------------------------------------------------------------



| | ● | determination
                                         of dosing issues;
| | - | ------------------------------------------------------------------------





8







| | ● | lack
                                         of effectiveness or efficacy during clinical trials;
| | - | --------------------------------------------------------------------------------------------------



| | ● | failure
                                         of third party suppliers to perform final manufacturing steps for the drug substance;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | ● | slower
                                         than expected rates of patient recruitment and enrollment;
| | - | ----------------------------------------------------------------------------------------------------------



| | ● | lack
                                         of healthy volunteers and patients to conduct trials;
| | - | ---------------------------------------------------------------------------------------------------



| | ● | inability
                                         to monitor patients adequately during or after treatment;
| | - | ------------------------------------------------------------------------------------------------------------



| | ● | failure
                                         of third party contract research organizations to properly implement or monitor the clinical
                                         trial protocols;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | failure
                                         of institutional review boards to approve our clinical trial protocols;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | ● | inability
                                         or unwillingness of medical investigators and institutional review boards to follow our
                                         clinical trial protocols; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | lack
                                         of sufficient funding to finance the clinical trials.
| | - | ---------------------------------------------------------------------------------------------------



We
have experienced the risks involved with conducting clinical trials, including but not limited to, increased expense and delay
and failure to meet end points of the trial. For example, in December 2013, Ophthalix, our subsidiary, announced top-line results
of a Phase III study with CF 101 for dry-eye syndrome in which CF101 did not meet the primary efficacy endpoint of complete clearing
of corneal staining, nor the secondary efficacy endpoints. In addition, two Phase IIb studies in RA, utilizing CF101 in combination
with methotrexate, a generic drug commonly used for treating RA patients, or MTX, failed to reach their primary end points.



In
addition, we or regulatory authorities may suspend our clinical trials at any time if it appears that we are exposing participants
to unacceptable health risks or if the regulatory authorities find deficiencies in our regulatory submissions or the conduct of
these trials. Any suspension of clinical trials will delay possible regulatory approval, if any, and adversely impact our ability
to develop products and generate revenue.



If
we acquire or license additional technology or product candidates, we may incur a number of costs, may have integration difficulties
and may experience other risks that could harm our business and results of operations.



We
may acquire and license additional product candidates and technologies. Any product candidate or technology we license from others
or acquire will likely require additional development efforts prior to commercial sale, including extensive pre-clinical or clinical
testing, or both, and approval by the FDA and applicable foreign regulatory authorities, if any. All product candidates are prone
to risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate or product
developed based on licensed technology will not be shown to be sufficiently safe and effective for approval by regulatory authorities.
In addition, we cannot assure you that any product candidate that we develop based on acquired or licensed technology that is
granted regulatory approval will be manufactured or produced economically, successfully commercialized or widely accepted in the
marketplace. Moreover, integrating any newly acquired product candidates could be expensive and time-consuming. If we cannot effectively
manage these aspects of our business strategy, our business may not succeed.



The
manufacture of our product candidates is a chemical synthesis process and if one of our materials suppliers encounters problems
manufacturing our products, our business could suffer.



The
FDA and foreign regulators require manufacturers to register manufacturing facilities. The FDA and foreign regulators also inspect
these facilities to confirm compliance with requirements that the FDA or foreign regulators establish. We do not intend to engage
in the manufacture of our products other than for pre-clinical and clinical studies, but we or our materials suppliers may face
manufacturing or quality control problems causing product production and shipment delays or a situation where we or the supplier
may not be able to maintain compliance with the FDA’s or foreign regulators’ requirements necessary to continue manufacturing
our drug substance. Drug manufacturers are subject to ongoing periodic unannounced inspections by the FDA, the U.S. Drug Enforcement
Agency, or DEA, and corresponding foreign regulators to ensure strict compliance with requirements and other governmental regulations
and corresponding foreign standards. Any failure to comply with DEA requirements or FDA or foreign regulatory requirements could
adversely affect our clinical research activities and our ability to market and develop our product candidates.





9







We
do not currently have sales, marketing or distribution capabilities or experience, and we are unable to effectively sell, market
or distribute our product candidates now and we do not expect to be able to do so in the future. The failure to enter into agreements
with third parties that are capable of performing these functions would have a material adverse effect on our business and results
of operations.



We
do not currently have and we do not expect to develop sales, marketing and distribution capabilities. If we are unable to enter
into agreements with third parties to perform these functions, we will not be able to successfully market any of our platforms
or product candidates. In order to successfully market any of our platform or product candidates, we must make arrangements with
third parties to perform these services.



As
we do not intend to develop a marketing and sales force with technical expertise and supporting distribution capabilities, we
will be unable to market any of our product candidates directly. To promote any of our potential products through third parties,
we will have to locate acceptable third parties for these functions and enter into agreements with them on acceptable terms, and
we may not be able to do so. Any third-party arrangements we are able to enter into may result in lower revenues than we could
achieve by directly marketing and selling our potential products. In addition, to the extent that we depend on third parties for
marketing and distribution, any revenues we receive will depend upon the efforts of such third parties, as well as the terms of
our agreements with such third parties, which cannot be predicted in most cases at this time.  As a result, we might not
be able to market and sell our products in the United States or overseas, which would have a material adverse effect on us.



We
will to some extent rely on third parties to implement our manufacturing and supply strategies. Failure of these third parties
in any respect could have a material adverse effect on our business, results of operations and financial condition.



If
our current and future manufacturing and supply strategies are unsuccessful, then we may be unable to conduct and complete any
future pre-clinical or clinical trials or commercialize our product candidates in a timely manner, if at all. Completion of any
potential future pre-clinical or clinical trials and commercialization of our product candidates will require access to, or development
of, facilities to manufacture a sufficient supply of our product candidates. We do not have the resources, facilities or experience
to manufacture our product candidates for commercial purposes on our own and do not intend to develop or acquire facilities for
the manufacture of product candidates for commercial purposes in the foreseeable future. We may rely on contract manufacturers
to produce sufficient quantities of our product candidates necessary for any pre-clinical or clinical testing we undertake in
the future. Such contract manufacturers may be the sole source of production and they may have limited experience at manufacturing,
formulating, analyzing, filling and finishing our types of product candidates.



We
also intend to rely on third parties to supply the requisite materials needed for the manufacturing of our active pharmaceutical
ingredients, or API. There may be a limited supply of these requisite materials. We might not be able to enter into agreements
that provide us assurance of availability of such components in the future from any supplier. Our potential suppliers may not
be able to adequately supply us with the components necessary to successfully conduct our pre-clinical and clinical trials or
to commercialize our product candidates. If we cannot acquire an acceptable supply of the requisite materials to produce our product
candidates, we will not be able to complete pre-clinical and clinical trials and will not be able to market or commercialize our
product candidates





10







We
depend on key members of our management and key consultants and will need to add and retain additional leading experts. Failure
to retain our management and consulting team and add additional leading experts could have a material adverse effect on our business,
results of operations or financial condition.



We
are highly dependent on our executive officers and other key management and technical personnel. Our failure to retain our Chief
Executive Officer, Pnina Fishman, Ph.D., who has developed much of the technology we utilize today, or any other key management
and technical personnel, could have a material adverse effect on our future operations. Our success is also dependent on our ability
to attract, retain and motivate highly trained technical, and management personnel, among others, to continue the development
and commercialization of our current and future products. We presently maintain a life insurance policy on our Chief Executive
Officer, Pnina Fishman.



Our
success also depends on our ability to attract, retain and motivate personnel required for the development, maintenance and expansion
of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified
employees or consultants. The loss of key personnel or the inability to hire and retain additional qualified personnel in the
future could have a material adverse effect on our business, financial condition and results of operation.



We
face significant competition and continuous technological change, and developments by competitors may render our products or technologies
obsolete or non-competitive. If we cannot successfully compete with new or existing products, our marketing and sales will suffer
and we may not ever be profitable.



We
will compete against fully integrated pharmaceutical and biotechnology companies and smaller companies that are collaborating
with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations.
In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and
development programs than we do, and have substantially greater financial resources than we do, as well as significantly greater
experience in:



| | ● | developing
                                         drugs;
| | - | ----------------------------------------------------------



| | ● | undertaking
                                         pre-clinical testing and human clinical trials;
| | - | ----------------------------------------------------------------------------------------------------



| | ● | obtaining
                                         FDA, addressing various regulatory matters and other regulatory approvals of drugs;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | ● | formulating
                                         and manufacturing drugs; and
| | - | ---------------------------------------------------------------------------------



| | ● | launching,
                                         marketing and selling drugs.
| | - | --------------------------------------------------------------------------------



If
our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior
to our product candidates, our commercial opportunities will be reduced or eliminated. The extent to which any of our product
candidates achieve market acceptance will depend on competitive factors, many of which are beyond our control. Competition in
the biotechnology and biopharmaceutical industry is intense and has been accentuated by the rapid pace of technology development.
Our competitors include large integrated pharmaceutical companies, biotechnology companies that currently have drug and target
discovery efforts, universities, and public and private research institutions. Almost all of these entities have substantially
greater research and development capabilities and financial, scientific, manufacturing, marketing and sales resources than we
do. These organizations also compete with us to:



| | ● | attract
                                         parties for acquisitions, joint ventures or other collaborations;
| | - | ------------------------------------------------------------------------------------------------------------------



| | ● | license
                                         proprietary technology that is competitive with the technology we are developing;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | ● | attract
                                         funding; and
| | - | -------------------------------------------------------------



| | ● | attract
                                         and hire scientific talent and other qualified personnel.
| | - | ----------------------------------------------------------------------------------------------------------



Our
competitors may succeed in developing and commercializing products earlier and obtaining regulatory approvals from the FDA more
rapidly than we do. Our competitors may also develop products or technologies that are superior to those we are developing, and
render our product candidates or technologies obsolete or non-competitive. If we cannot successfully compete with new or existing
products, our marketing and sales will suffer and we may not ever be profitable.





11







Our
competitors currently include companies with marketed products and/or an advanced research and development pipeline. The major
competitors in the arthritis and psoriasis therapeutic field include Abbott Laboratories, Johnson & Johnson, Amgen, Roche,
Pfizer, Novartis, Astellas, Eli Lilly, Janssen and more. The competitive landscape in the ophthalmic therapeutics field includes
Novartis/Alcon, Allergan, Pfizer, Roche/Genentech, Merck (which acquired Inspire Pharmaceuticals), Santen (which acquired Novagali),
Bausch & Lomb (which acquired ISTA Pharmaceuticals and is currently being acquired by Valeant), GlaxoSmithKline, or GSK, Sanofi-Aventis
(which acquired Fovea) and more. Competitors in the hepatocellular carcinoma, also known as primary liver cancer, or HCC field
include companies such as Onyx, Bayer, Bristol-Myers Squibb, Abbott Laboratories, Eli Lilly, Arqule and more. Competitors in the
hepatitis C virus, or HCV, field include companies such as Merck, Vertex, Roche, Bristol-Myers Squibb (which acquired Inhibitex),
Gilead Sciences (which acquired Pharmasset), Achillion, Idenix, Valeant, Human Genome Sciences, Abbott Laboratories, AstraZeneca,
BoehringerIngelheim, Novartis, Pfizer, Idenix, Johnson & Johnson, Presidio, Medivir, Celgene, Enanta, GSK and more. See “Item
4. Information on the Company—B. Business Overview—Competition.”



Moreover,
several companies have reported the commencement of research projects related to the A3AR. Such companies include CV Therapeutics
Inc. (which was acquired by Gilead), King Pharmaceuticals R&D Inv. (which was acquired by Merck), Hoechst Marion Roussel Inc.,
Novo Nordisk A/S and Inotek Pharmaceuticals. However, we are not aware if such projects are ongoing or have been completed and,
to the best of our knowledge, there is no approved drug currently on the market which is similar to our A3AR agonists, nor are
we aware of any allosteric modulatorin the A3AR product pipeline similar to our allosteric modulator with respect to chemical
profile and mechanism of action.



We
may suffer losses from product liability claims if our product candidates cause harm to patients.



Any
of our product candidates could cause adverse events. Although data from a pooled analysis of 730 patients (527 CF101, 203 placebo)
indicates that CF101 is safe and well tolerated at doses up to 4.0 mg administered twice daily for up to 12 weeks, there were
incidences (albeit less than or equal to 5%) of adverse events in five completed and fully analyzed trials in inflammatory disease.
Such adverse events included nausea, diarrhea, constipation, common and viral syndromes (such as, tonsillitis, otitis and respiratory
and urinary tract infections, myalgia, arthralgia, dizziness, headache, palpitations and pruritus. We observed an even lower incidence
(less than or equal to 2%) of serious adverse events, including pancytopenia (although extensive evaluation suggests that such
adverse event was associated with an inadvertent overdose of MTX), exacerbation of chronic obstructive lung disease and exacerbation
of Parkinson’s Disease. Notwithstanding the foregoing, the placebo group in such studies had a higher incidence of overall
adverse events than any CF101 dose group and a higher incidence of drug-related adverse events than any CF101 dose group (with
the exception of the 1.0 mg group). Safety data from 652 additional subjects treated with CF101 in 3 subsequent Phase II and Phase
III trials are consistent with data from previous trials in showing a low incidence of adverse events associated with CF101 treatment,
an absence of apparent dose-response of CF101-associated adverse events and incidences of most adverse events in the CF101 groups
comparable to those in the placebo group. No new safety concerns have been identified and no novel or unexpected safety concerns
have appeared over 24 weeks of treatment in more recent trials.In a trial of 19 patients with hepatocellular carcinoma dosed with
CF102 for a median of 190 days, CF102 was generally well-tolerated.  The most common CF102-related adverse events were fatigue
(5 patients, 26.3%), asthenia and decreased appetite (4 patients each, 21.1%), and pyrexia and constipation (3 patients each,
15.8%).



There
is also a risk that certain adverse events may not be observed in clinical trials, but may nonetheless occur in the future. If
any of these adverse events occur, they may render our product candidates ineffective or harmful in some patients, and our sales
would suffer, materially adversely affecting our business, financial condition and results of operations.



In
addition, potential adverse events caused by our product candidates could lead to product liability lawsuits. If product liability
lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit the marketing
and commercialization of our product candidates. Our business exposes us to potential product liability risks, which are inherent
in the testing, manufacturing, marketing and sale of pharmaceutical products. We may not be able to avoid product liability claims.
Product liability insurance for the pharmaceutical and biotechnology industries is generally expensive, if available at all. If,
at any time, we are unable to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential
product liability claims, we may be unable to clinically test, market or commercialize our product candidates. A successful product
liability claim brought against us in excess of our insurance coverage, if any, may cause us to incur substantial liabilities,
and, as a result, our business, liquidity and results of operations would be materially adversely affected.





12







Our
product candidates will remain subject to ongoing regulatory requirements even if they receive marketing approval, and if we fail
to comply with these requirements, we could lose these approvals, and the sales of any approved commercial products could be suspended.



Even
if we receive regulatory approval to market a particular product candidate, the product will remain subject to extensive regulatory
requirements, including requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage, advertising,
promotion, distribution and recordkeeping. Even if regulatory approval of a product is granted, the approval may be subject to
limitations on the uses for which the product may be marketed or the conditions of approval, or may contain requirements for costly
post-marketing testing and surveillance to monitor the safety or efficacy of the product, which could negatively impact us or
our collaboration partners by reducing revenues or increasing expenses, and cause the approved product candidate not to be commercially
viable. In addition, as clinical experience with a drug expands after approval, typically because it is used by a greater number
and more diverse group of patients after approval than during clinical trials, side effects and other problems may be observed
after approval that were not seen or anticipated during pre-approval clinical trials or other studies. Any adverse effects observed
after the approval and marketing of a product candidate could result in limitations on the use of or withdrawal of any approved
products from the marketplace. Absence of long-term safety data may also limit the approved uses of our products, if any. If we
fail to comply with the regulatory requirements of the FDA and other applicable U.S. and foreign regulatory authorities, or previously
unknown problems with any approved commercial products, manufacturers or manufacturing processes are discovered, we could be subject
to administrative or judicially imposed sanctions or other setbacks, including the following:



| | ● | Restrictions
                                         on the products, manufacturers or manufacturing process;
| | - | --------------------------------------------------------------------------------------------------------------



| | ● | Warning
                                         letters;
| | - | ---------------------------------------------------------



| | ● | Civil
                                         or criminal penalties, fines and injunctions;
| | - | --------------------------------------------------------------------------------------------



| | ● | Product
                                         seizures or detentions;
| | - | ------------------------------------------------------------------------



| | ● | Import
                                         or export bans or restrictions;
| | - | -------------------------------------------------------------------------------



| | ● | Voluntary
                                         or mandatory product recalls and related publicity requirements;
| | - | -------------------------------------------------------------------------------------------------------------------



| | ● | Suspension
                                         or withdrawal of regulatory approvals;
| | - | ------------------------------------------------------------------------------------------



| | ● | Total
                                         or partial suspension of production, and
| | - | ---------------------------------------------------------------------------------------



| | ● | Refusal
                                         to approve pending applications for marketing approval of new products or supplements
                                         to approved applications.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If
we or our collaborators are slow or unable to adapt to changes in existing regulatory requirements or adoption of new regulatory
requirements or policies, marketing approval for our product candidates may be lost or cease to be achievable, resulting in decreased
revenue from milestones, product sales or royalties, which would have a material adverse effect on our results of operations.





13







We
deal with hazardous materials and must comply with environmental, health and safety laws and regulations, which can be expensive
and restrict how we do business.



Our
activities and those of our third-party manufacturers on our behalf involve the controlled storage, use and disposal of hazardous
materials, including corrosive, explosive and flammable chemicals and other hazardous compounds.  We and our manufacturers
are subject to U.S. federal, state, local, Israeli and other foreign laws and regulations governing the use, manufacture, storage,
handling and disposal of these hazardous materials.  Although we believe that our safety procedures for handling and
disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk
of accidental contamination or injury from these materials.  In addition, if we develop a manufacturing capacity, we
may incur substantial costs to comply with environmental regulations and would be subject to the risk of accidental contamination
or injury from the use of hazardous materials in our manufacturing process.



In
the event of an accident, government authorities may curtail our use of these materials and interrupt our business operations.
In addition, we could be liable for any civil damages that result, which may exceed our financial resources and may seriously
harm our business. Although our Israeli insurance program covers certain unforeseen sudden pollutions, we do not maintain a separate
insurance policy for any of the foregoing types of risks. In addition, although the general liability section of our life sciences
policy covers certain unforeseen, sudden environmental issues, pollution in the United States and Canada is excluded from the
policy. In the event of environmental discharge or contamination or an accident, we may be held liable for any resulting damages,
and any liability could exceed our resources. In addition, we may be subject to liability and may be required to comply with new
or existing environmental laws regulating pharmaceuticals or other medical products in the environment.



We
may not be able to successfully grow and expand our business. Failure to manage our growth effectively will have a material adverse
effect on our business, results of operations and financial condition.



We
may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth,
which will result in an increase in the level of responsibility for management personnel. To manage growth effectively, we will
be required to continue to implement and improve our operating and financial systems and controls to expand, train and manage
our employee base. The management, systems and controls currently in place or to be implemented may not be adequate for such growth,
and the steps taken to hire personnel and to improve such systems and controls might not be sufficient. If we are unable to manage
our growth effectively, it will have a material adverse effect on our business, results of operations and financial condition.



We
may encounter difficulties in managing our growth. These difficulties could increase our losses.



We
may experience rapid and substantial growth in order to achieve our operating plans, which will place a strain on our human and
capital resources. If we are unable to manage this growth effectively, our losses could materially increase. Our ability to manage
our operations and growth effectively requires us to continue to expend funds to enhance our operational, financial and management
controls, reporting systems and procedures and to attract and retain sufficient numbers of talented employees. If we are unable
to scale up and implement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies
in existing systems and controls, then we will not be able to make available the products required to successfully commercialize
our technology. Failure to attract and retain sufficient numbers of talented employees will further strain our human resources
and could impede our growth or result in ineffective growth.



Our
ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty
in obtaining adequate directors’ and officers’ liability insurance.



We
may be unable to maintain sufficient insurance as a public company to cover liability claims made against our officers and directors.
If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers and
directors to manage our company.





14









Risks
Related to Our Intellectual Property



We
license from the National Institute of Health, or the NIH, and Leiden University intellectual property which protects certain
small molecules which target the A3AR, in furtherance of our platform technology, and we could lose our rights to these licenses
if a dispute with the NIH or Leiden University arises or if we fail to comply with the financial and other terms of the licenses.



We
have licensed intellectual property from the NIH and Leiden University pursuant to license agreements, or the License Agreements,
relating to molecules which target the A3AR. The License Agreements impose certain payment, reporting, confidentiality and other
obligations on us. In the event that we were to breach any of the obligations and fail to cure, the NIH and Leiden University
would have the right to terminate the respective License Agreement. In addition, the NIH and Leiden University each have the right
to terminate the respective License Agreement upon our bankruptcy, insolvency, or receivership. Further, the NIH retains a paid-up,
worldwide license to practice the licensed inventions for government purposes and may require us to grant sublicenses when necessary
to fulfill health or safety needs and retains “march-in” rights, i.e., the right to terminate the license,
if, among other things, the invention is needed for a public use such as addressing a public health crisis or the licensee or
sublicensee fails to take within a reasonable time to take effective steps to achieve practical application of the licensed invention.
If any dispute arises with respect to our arrangements with the NIH and Leiden University, such dispute may disrupt our operations
and would likely have a material adverse impact on us if resolved in a manner that is unfavorable to our Company. All of our current
product candidates are partly based on the intellectual property licensed under the License Agreements, and if the License Agreements
were terminated, it would have a material adverse effect on our business, prospects and results of operations.



The
failure to obtain or maintain patents, licensing agreements, including our current licensing agreements, and other intellectual
property could impact our ability to compete effectively.



To
compete effectively, we need to develop and maintain a proprietary position with regard to our own technologies, intellectual
property, licensing agreements, product candidates and business. Legal standards relating to the validity and scope of claims
in the biotechnology and biopharmaceutical fields are still evolving. Therefore, the degree of future protection for our proprietary
rights in our core technologies and any products that might be made using these technologies is also uncertain. The risks and
uncertainties that we face with respect to our patents and other proprietary rights include the following:



| | ● | while
                                         the patents we license have been issued, the pending patent applications we have filed
                                         may not result in issued patents or may take longer than we expect to result in issued
                                         patents;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | we
                                         may be subject to interference proceedings;
| | - | ---------------------------------------------------------------------------------------



| | ● | we
                                         may be subject to opposition proceedings in foreign countries;
| | - | ----------------------------------------------------------------------------------------------------------



| | ● | any
                                         patents that are issued may not provide meaningful protection;
| | - | -----------------------------------------------------------------------------------------------------------



| | ● | we
                                         may not be able to develop additional proprietary technologies that are patentable;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | ● | other
                                         companies may challenge patents licensed or issued to us or our customers;
| | - | -------------------------------------------------------------------------------------------------------------------------



| | ● | other
                                         companies may independently develop similar or alternative technologies, or duplicate
                                         our technologies;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | other
                                         companies may design around technologies we have licensed or developed; and
| | - | --------------------------------------------------------------------------------------------------------------------------



| | ● | enforcement
                                         of patents is complex, uncertain and expensive.
| | - | ----------------------------------------------------------------------------------------------------



We
cannot be certain that patents will be issued as a result of any of our pending applications, and we cannot be certain that any
of our issued patents, whether issued pursuant to our pending applications or licensed from the NIH and Leiden University, will
give us adequate protection from competing products. For example, issued patents, including the patents licensed from the NIH
and Leiden University, may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope. In addition,
since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain
that we were the first to make our inventions or to file patent applications covering those inventions.





15









Moreover,
the composition of matter patents pertaining to CF101 and CF102 that we licensed from the NIH expired on July 13, 2014 in Europe
and will expire on June 30, 2015 in the United States. As of June 30, 2015, the License Agreement with the NIH will terminate.
We do not expect that we will be able to submit an NDA seeking approval of CF101 or CF102 prior to the composition of matter patents’
respective expiration dates. However, because CF101 and CF102 each may be a new chemical entity, or NCE, following approval of
an NDA, we, if we are the first applicant to obtain NDA approval, may be entitled to five years of data and market exclusivity
in the United States with respect to such NCEs. Analogous data and market exclusivity provisions, of varying duration, may be
available in Europe and other foreign jurisdictions. We also have rights under our pharmaceutical use issued patents with respect
to CF101 and CF102, which provide patent exclusivity within our field of activity until the mid- to late-2020s. While we believe
that we may be able to protect our exclusivity in our field of activity through such use patent portfolio and such period of exclusivity,
the lack of composition of matter patent protection may diminish our ability to maintain a proprietary position for our intended
uses of CF101 and CF102. Moreover, we cannot be certain that we will be the first applicant to obtain an FDA approval for any
indication of CF101 and we cannot be certain that we will be entitled to NCE exclusivity. Such diminution of our proprietary position
could have a material adverse effect on our business, results of operation and financial condition.



It
is also possible that others may obtain issued patents that could prevent us from commercializing our products or require us to
obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those
patents that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement,
and we may be unable to do so.



In
addition to patents and patent applications, we depend upon trade secrets and proprietary know-how to protect our proprietary
technology. We require our employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit
the disclosure of confidential information to any other parties. We require our employees and consultants to disclose and assign
to us their ideas, developments, discoveries and inventions. These agreements may not, however, provide adequate protection for
our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure.



Costly
litigation may be necessary to protect our intellectual property rights and we may be subject to claims alleging the violation
of the intellectual property rights of others.



We
may face significant expense and liability as a result of litigation or other proceedings relating to patents and other intellectual
property rights of others. In the event that another party has also filed a patent application or been issued a patent relating
to an invention or technology claimed by us in pending applications, we may be required to participate in an interference proceeding
declared by the U.S. Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties
and costs for us, even if the eventual outcome were favorable to us. We, or our licensors, also could be required to participate
in interference proceedings involving issued patents and pending applications of another entity. An adverse outcome in an interference
proceeding could require us to cease using the technology or to license rights from prevailing third parties.



The
cost to us of any patent litigation or other proceeding relating to our licensed patents or patent applications, even if resolved
in our favor, could be substantial. Our ability to enforce our patent protection could be limited by our financial resources,
and may be subject to lengthy delays. If we are unable to effectively enforce our proprietary rights, or if we are found to infringe
the rights of others, we may be in breach of our License Agreement.



A
third party may claim that we are using inventions claimed by their patents and may go to court to stop us from engaging in our
normal operations and activities, such as research, development and the sale of any future products. Such lawsuits are expensive
and would consume time and other resources. There is a risk that the court will decide that we are infringing the third party’s
patents and will order us to stop the activities claimed by the patents, redesign our products or processes to avoid infringement
or obtain licenses (which may not be available on commercially reasonable terms). In addition, there is a risk that a court will
order us to pay the other party damages for having infringed their patents.





16







Moreover,
there is no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities
claimed by the patent, or that such a license, if made available to us, could be acquired on commercially acceptable terms. In
addition, third parties may, in the future, assert other intellectual property infringement claims against us with respect to
our product candidates, technologies or other matters.



We
rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties
using our intellectual property to compete against us.



Although
we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the
non-disclosure of confidential information to third parties, as well as agreements that purport to require the disclosure and
assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we
employ them, the agreements can be difficult and costly to enforce. Although we seek to obtain these types of agreements from
our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize or independently
develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights
associated with our products. If a dispute arises, a court may determine that the right belongs to a third party. In addition,
enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary know-how that we seek
to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the
protective measures we employ, we still face the risk that:



| | ● | these
                                         agreements may be breached;
| | - | --------------------------------------------------------------------------



| | ● | these
                                         agreements may not provide adequate remedies for the applicable type of breach;
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | ● | our
                                         trade secrets or proprietary know-how will otherwise become known; or
| | - | ------------------------------------------------------------------------------------------------------------------



| | ● | our
                                         competitors will independently develop similar technology or proprietary information.
| | - | ----------------------------------------------------------------------------------------------------------------------------------



International
patent protection is particularly uncertain, and if we are involved in opposition proceedings in foreign countries, we may have
to expend substantial sums and management resources.



Patent
law outside the United States is in some cases different than in the United States and is currently undergoing review and revision
in many countries. Further, the laws of some foreign countries may not protect our intellectual property rights to the same extent
as the laws of the United States. For example, certain countries do not grant patent claims that are directed to the treatment
of humans. We may participate in opposition proceedings to determine the validity of our foreign patents or our competitors’
foreign patents, which could result in substantial costs and diversion of our efforts.



Although
most jurisdictions in which we have applied for, intend to apply for, or have been issued patents have patent protection laws
similar to those of the United States, some of them do not. For example, we expect to do business in Brazil and India in the future.
However, the Brazilian drug regulatory agency, ENVISA, has the authority to nullify patents on the basis of its perceived public
interest and the Indian patent law does not allow patent protection for new uses of pharmaceuticals (many of our current patent
applications are of such nature). Additionally, due to uncertainty in patent protection law, we have not filed applications in
many countries where significant markets exist, including Indonesia, Pakistan, Russia, African countries and Taiwan.



We
may be unable to protect the intellectual property rights of the third parties from whom we license certain of our intellectual
property or with whom we have entered into other strategic relationships.



Certain
of our intellectual property rights are currently licensed from the NIH and Leiden University, and, in the future, we intend to
continue to license intellectual property from the NIH and Leiden University and/or other universities and/or strategic partners.
Such third parties may determine not to protect the intellectual property rights that we license from them and we may be unable
defend such intellectual property rights on our own or we may have to undertake costly litigation to defend the intellectual property
rights of such third parties. There can be no assurances that we will continue to have proprietary rights to any of the intellectual
property that we license from such third parties or otherwise have the right to use through similar strategic relationships. Any
loss or limitations on use with respect to our right to use such intellectual property licensed from third parties or otherwise
obtained from third parties with whom we have entered into strategic relationships could have a material adverse effect on our
business, results of operations and financial condition.





17







Under
current U.S. and Israeli law, we may not be able to enforce employees’ covenants not to compete and therefore may be unable
to prevent our competitors from benefiting from the expertise of some of our former employees.



We
have entered into non-competition agreements with our key employees, in most cases within the framework of their employment agreements.
These agreements prohibit our key employees, if they cease working for us, from competing directly with us or working for our
competitors for a limited period. Under applicable U.S. and Israeli law, we may be unable to enforce these agreements. If we cannot
enforce our non-competition agreements with our employees, then we may be unable to prevent our competitors from benefiting from
the expertise of our former employees, which could materially adversely affect our business, results of operations and ability
to capitalize on our proprietary information.



Intellectual
property rights do not necessarily address all potential threats to our competitive advantage.



The
degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have
limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples
are illustrative:



| | ● | Others
                                         may be able to make compounds that are the same as or similar to our product candidates
                                         but that are not covered by the claims of the patents that we own or have exclusively
                                         licensed;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | We
                                         or our licensors or any future strategic partners might not have been the first to make
                                         the inventions covered by the issued patent or pending patent application that we own
                                         or have exclusively licensed;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | We
                                         or our licensors or any future strategic partners might not have been the first to file
                                         patent applications covering certain of our inventions;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Others
                                         may independently develop similar or alternative technologies or duplicate any of our
                                         technologies without infringing our intellectual property rights;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | It
                                         is possible that our pending patent applications will not lead to issued patents;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | ● | Issued
                                         patents that we own or have exclusively licensed may not provide us with any competitive
                                         advantages, or may be held invalid or unenforceable, as a result of legal challenges
                                         by our competitors;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Our
                                         competitors might conduct research and development activities in countries where we do
                                         not have patent rights and then use the information learned from such activities to develop
                                         competitive products for sale in our major commercial markets;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | We
                                         may not develop additional proprietary technologies that are patentable; and
| | - | ------------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         patents of others may have an adverse effect on our business.
| | - | ----------------------------------------------------------------------------------------------------------





18







We
may be subject to claims challenging the inventorship of our patents and other intellectual property.



We
may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other
intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations
of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against
these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property.
Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims,
litigation could result in substantial costs and be a distraction to management and other employees. In addition, the Israeli
Supreme Court ruled in 2012 that an employee who receives a patent or contributes to an invention during his employment may be
allowed to seek compensation for it from their employer, even if the employee’s contract of employment specifically states
otherwise and the employee has transferred all intellectual property rights to the employer. The Israeli Supreme Court ruled that
the fact that a contract revokes the employee’s right for royalties and compensation, does not rule out the right of the
employee to claim their right for royalties. As a result, it is unclear if, and to what extent, our employees may be able to claim
compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims
are successful which in turn could impact our future profitability.



Risks
Related to Our Industry



We
are subject to government regulations and we may experience delays in obtaining required regulatory approvals in the United States
to market our proposed product candidates.



Various
aspects of our operations are subject to federal, state or local laws, rules and regulations, any of which may change from time
to time. Costs arising out of any regulatory developments could be time-consuming and expensive and could divert management resources
and attention and, consequently, could adversely affect our business operations and financial performance.



Delays
in regulatory approval, limitations in regulatory approval and withdrawals of regulatory approval may have a material adverse
effect on us. If we experience significant delays in testing or receiving approvals or sign-offs to conduct clinical trials, our
product development costs, or our ability to license product candidates, will increase. If the FDA grants regulatory approval
to market a product, this approval will be limited to those disease states and conditions for which the product has demonstrated,
through clinical trials, to be safe and effective. Any product approvals that we receive in the future could also include significant
restrictions on the use or marketing of our products. Product approvals, if granted, can be withdrawn for failure to comply with
regulatory requirements or upon the occurrence of adverse events following commercial introduction of the products. Failure to
comply with applicable FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall
or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action against our
product candidates or us. If approval is withdrawn for a product, or if a product were seized or recalled, we would be unable
to sell or license that product and our revenues would suffer. In addition, outside the United States, our ability to market any
of our potential products is contingent upon receiving market application authorizations from the appropriate regulatory authorities
and these foreign regulatory approval processes include all of the risks associated with the FDA approval process described above.



We
expect the healthcare industry to face increased limitations on reimbursement as a result of healthcare reform, which could adversely
affect third-party coverage of our products and how much or under what circumstances healthcare providers will prescribe or administer
our products.



In
both the United States and other countries, sales of our products will depend in part upon the availability of reimbursement from
third-party payors, which include governmental authorities, managed care organizations and other private health insurers. Third-party
payors are increasingly challenging the price and examining the cost effectiveness of medical products and services.



Increasing
expenditures for healthcare have been the subject of considerable public attention in the United States. Both private and government
entities are seeking ways to reduce or contain healthcare costs. Numerous proposals that would effect changes in the U.S. healthcare
system have been introduced or proposed in Congress and in some state legislatures, including reducing reimbursement for prescription
products and reducing the levels at which consumers and healthcare providers are reimbursed for purchases of pharmaceutical products.





19







In
2010, the United States Congress enacted the Patient Protection and Affordable Care Act of 2010 or, Affordable Care Act. The Affordable
Care Act seeks to reduce the federal deficit and the rate of growth in health care spending through, among other things, stronger
prevention and wellness measures, increased access to primary care, changes in health care delivery systems and the creation of
health insurance exchanges. Enrollment in the health insurance exchanges began in October 2013. The Affordable Care Act requires
the pharmaceutical industry to share in the costs of reform, by, among other things, increasing Medicaid rebates and expanding
Medicaid rebates to cover Medicaid managed care programs. Other components of healthcare reform include funding of pharmaceutical
costs for Medicare patients in excess of the prescription drug coverage limit and below the catastrophic coverage threshold. Under
the Affordable Care Act, pharmaceutical companies are now obligated to fund 50% of the patient obligation for branded prescription
pharmaceuticals in this gap, or “donut hole.” Additionally, commencing in 2011, an excise tax was levied against certain
branded pharmaceutical products. The tax is specified by statute to be approximately $3 billion in 2012 through 2016, $3.5 billion
in 2017, $4.2 billion in 2018, and $2.8 billion each year thereafter. The tax is to be apportioned to qualifying pharmaceutical
companies based on an allocation of their governmental programs as a portion of total pharmaceutical government programs.



Although
we cannot predict the full effect on our business of the implementation of existing legislation, including the Affordable Care
Act or the enactment of additional legislation, we believe that legislation or regulations that reduce reimbursement for or restrict
coverage of our products could adversely affect how much or under what circumstances healthcare providers will prescribe or administer
our products. This could materially and adversely affect our business by reducing our ability to generate revenue, raise capital,
obtain additional collaborators and market our products. In addition, we believe the increasing emphasis on managed care in the
United States has and will continue to put pressure on the price and usage of pharmaceutical products, which may adversely impact
product sales.



We
are subject to federal anti-kickback laws and regulations. Our failure to comply with these laws and regulations could have adverse
consequences to us.



There
are extensive U.S. federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result
in significant criminal and civil penalties. These federal laws include: the anti-kickback statute, which prohibits certain business
practices and relationships, including the payment or receipt of remuneration for the referral of patients whose care will be
paid by Medicare or other federal healthcare programs; the physician self-referral prohibition, commonly referred to as the Stark
Law; the anti-inducement law, which prohibits providers from offering anything to a Medicare or Medicaid beneficiary to induce
that beneficiary to use items or services covered by either program; the False Claims Act, which prohibits any person from knowingly
presenting or causing to be presented false or fraudulent claims for payment by the federal government, including the Medicare
and Medicaid programs; and the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human Services
to impose civil penalties administratively for fraudulent or abusive acts.



Sanctions
for violating these federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments,
money penalties, imprisonment, denial of Medicare and Medicaid payments, or exclusion from the Medicare and Medicaid programs,
or both, and debarment. As federal and state budget pressures continue, federal and state administrative agencies may also continue
to escalate investigation and enforcement efforts to root out waste and to control fraud and abuse in governmental healthcare
programs. Private enforcement of healthcare fraud has also increased, due in large part to amendments to the civil False Claims
Act in 1986 that were designed to encourage private persons to sue on behalf of the government. A violation of any of these federal
and state fraud and abuse laws and regulations could have a material adverse effect on our liquidity and financial condition.
An investigation into the use by physicians of any of our products once commercialized may dissuade physicians from either purchasing
or using them, and could have a material adverse effect on our ability to commercialize those products.





20







Risks
Related to our Ordinary Shares and ADSs



We
may be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes in 2014 or in any subsequent year.
There may be negative tax consequences for U.S. taxpayers that are holders of our ordinary shares or the ADSs.



We
will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (i) at least 75% of our gross
income is “passive income” or (ii) on average at least 50% of our assets by value produce passive income or are held
for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends,
interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that
gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including
those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income
and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.
We believe we may be a PFIC during 2014and although we have not determined whether we will be a PFIC in 2015, or in any subsequent
year, our operating results for any such years may cause us to be a PFIC. If we are a PFIC in 2014, or any subsequent year, and
a U.S. shareholder does not make an election to treat us as a “qualified electing fund,” or QEF, or make a “mark-to-market”
election, then “excess distributions” to a U.S. shareholder, and any gain realized on the sale or other disposition
of our ordinary shares or ADSs will be subject to special rules. Under these rules: (i) the excess distribution or gain would
be allocated ratably over the U.S. shareholder’s holding period for the ordinary shares (or ADSs, as the case may be); (ii)
the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were
a PFIC would be taxed as ordinary income; and (iii) the amount allocated to each of the other taxable years would be subject to
tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed
deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition,
if the U.S. Internal Revenue Service determines that we are a PFIC for a year with respect to which we have determined that we
were not a PFIC, it may be too late for a U.S. shareholder to make a timely QEF or mark-to-market election. U.S. shareholders
who hold our ordinary shares or ADSs during a period when we are a PFIC will be subject to the foregoing rules, even if we cease
to be a PFIC in subsequent years, subject to exceptions for U.S. shareholders who made a timely QEF or mark-to-market election.
A U.S. shareholder can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with
the instructions thereto. Upon request, we will annually furnish U.S. shareholders with information needed in order to complete
IRS Form 8621 (which form would be required to be filed with the IRS on an annual basis by the U.S. shareholder) and to make and
maintain a valid QEF election for any year in which we or any of our subsidiaries that we control is a PFIC.



The
market price of our ordinary shares is, and the market price of the ADSs will be, subject to fluctuation, which could result in
substantial losses by our investors.



The
stock market in general and the market price of our ordinary shares on the TASE, in particular, is subject to fluctuation, and
changes in our share price may be unrelated to our operating performance. The market price of our ordinary shares on the TASE
has fluctuated in the past, and we expect it will continue to do so. It is likely that the market price of the ADSs will likewise
be subject to wide fluctuations. The market price of our ordinary shares and ADSs are and will be subject to a number of factors,
including:





| | ● | announcements
    of technological innovations or new products by us or others;                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                 
| | ● | announcements
    by us of significant strategic partnerships, out-licensing, in-licensing, joint ventures, acquisitions or capital commitments;
| |   |                                                                                                                                                 
| | ● | expiration
    or terminations of licenses, research contracts or other collaboration agreements;                                               
| | ● | public
    concern as to the safety of drugs we, our licensees or others develop;                                                               
| |   |                                                                                                                                                 
| | ● | general
    market conditions;                                                                                                                  
| |   |                                                                                                                                                 
| | ● | the
    volatility of market prices for shares of biotechnology companies generally;                                                            
| |   |                                                                                                                                                 
| | ● | success
    of research and development projects;                                                                                               
| |   |                                                                                                                                                 
| | ● | success
    in clinical and preclinical studies;                                                                                                
| |   |                                                                                                                                                 
| | ● | departure
    of key personnel;                                                                                                                 





21









| | ● | developments
    concerning intellectual property rights or regulatory approvals;                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                     
| | ● | variations
    in our and our competitors’ results of operations;                                                                   
| |   |                                                                                                                                     
| | ● | changes
    in earnings estimates or recommendations by securities analysts, if our ordinary shares or ADSs are covered by analysts;
| |   |                                                                                                                                     
| | ● | changes
    in government regulations or patent decisions;                                                                          
| |   |                                                                                                                                     
| | ● | developments
    by our licensees; and                                                                                              
| |   |                                                                                                                                     
| | ● | general
    market conditions and other factors, including factors unrelated to our operating performance.                          



These
factors and any corresponding price fluctuations may materially and adversely affect the market price of our ordinary shares and
the ADSs and result in substantial losses by our investors.



Additionally,
market prices for securities of biotechnology and pharmaceutical companies historically have been very volatile. The market for
these securities has from time to time experienced significant price and volume fluctuations for reasons unrelated to the operating
performance of any one company. In the past, following periods of market volatility, shareholders have often instituted securities
class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and
attention of management from our business, even if we are successful. Future sales of our ordinary shares or ADSs could reduce
the market price of our ordinary shares and ADSs.



Substantial
sales of our ordinary shares or the ADSs either on the TASE or on the NYSE MKT, as applicable, may cause the market price of our
ordinary shares or the ADSs to decline.



Sales
by us or our security-holders of substantial amounts of our ordinary shares or the ADSs, or the perception that these sales may
occur in the future, could cause a reduction in the market price of our ordinary shares or the ADSs. The issuance of any additional
ordinary shares or ADSs, or any securities that are exercisable for or convertible into our ordinary shares or the ADSs, may have
an adverse effect on the market price of our ordinary shares or the ADSs, as applicable, and will have a dilutive effect on our
shareholders.



ADS
holders are not shareholders and do not have shareholder rights.



The Bank of New York Mellon,
as Depositary, delivers the ADSs. Each ADS represents two of our ordinary shares. ADS holders will not be treated as shareholders
and do not have the rights of shareholders. The depositary will be the holder of the shares underlying the ADSs. Holders of ADSs
will have ADS holder rights. A deposit agreement among us, the depositary, ADS holders and the beneficial owners of ADSs sets
out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and
the ADSs. Our shareholders have shareholder rights. Israeli law and our Articles of Association govern shareholder rights. ADS
holders do not have the same voting rights as our shareholders. Shareholders are entitled to our notices of general meetings and
to attend and vote at our general meetings of shareholders. At a general meeting, every shareholder present (in person or by proxy,
attorney or representative) and entitled to vote has one vote. This is subject to any other rights or restrictions which may be
attached to any shares. ADS holders may instruct the depositary how to vote the number of deposited shares their ADSs represent.
Otherwise you won’t be able to exercise your right to vote unless you withdraw the shares. However, you may not know
about the meeting enough in advance to withdraw the shares.The depositary will notify ADS holders of shareholders’
meetings and arrange to deliver our voting materials to them if we ask it to. Those materials will describe the matters to be
voted on and explain how ADS holders may instruct the depositary how to vote. For instructions to be valid, they must reach the
depositary by a date set by the depositary. The depositary will try, as far as practical, subject to the laws of Israel and our
articles of association or similar documents, to vote or to have its agents vote the shares or other deposited securities as instructed
by ADS holders. The depositary will only vote or attempt to vote as instructed. We cannot assure you that you will receive the
voting materials in time to ensure that you can instruct the depositary to vote your hares. In addition, the depositary and its
agents are not responsible for failing to carry out voting instructions or for the matter of carrying out voting instructions. This
means that you may not be able to exercise your right to vote and there may be nothing you can do if your shares are not voted
as requested.







22







ADS
holders do not have the same rights to receive dividends or other distributions as our shareholders. Subject to any special rights
or restrictions attached to a share, the directors may determine that a dividend will be payable on a share and fix the amount,
the time for payment and the method for payment (although we have never declared or paid any cash dividends on our ordinary shares
and we do not anticipate paying any cash dividends in the foreseeable future). Dividends and other distributions payable to our
shareholders with respect to our ordinary shares generally will be payable directly to them. Any dividends or distributions payable
with respect to ordinary shares deposited in the ADS facility will be paid to the depositary, which has agreed to pay to ADS holders
the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after deducting
its fees and expenses. ADS holders will receive these distributions in proportion to the number of ordinary shares their ADSs
represent. In addition, there may be certain circumstances in which the depositary may not pay ADS holders amounts distributed
by us as a dividend or distribution.



Our
ordinary shares and the ADSs are traded on different markets and this may result in price variations.



Our
ordinary shares have traded on the TASE since October 2005 and the ADSs have been listed on the NYSE MKT since November 2013.
Trading on these markets will take place in different currencies (U.S. dollars on the NYSE MKT and NIS on the TASE), and at different
times (resulting from different time zones, different trading days and different public holidays in the United States and Israel).
The trading prices of our securities on these two markets may differ due to these and other factors. Any decrease in the price
of our securities on one of these markets could cause a decrease in the trading price of our securities on the other market.



The
ADSs have a limited prior trading history in the United States, and an active market may not develop, which may limit the ability
of our investors to sell the ADSs in the United States.



There
is a limited public market for the ADSs in the United States. Although we recently listed the ADSs on the NYSE MKT, the ADSs are
thinly traded and an active trading market for the ADSs may never develop or may not be sustained if one develops. If an active
market for the ADSs does not develop or is not sustained, it may be difficult to sell your ADSs.



We
have incurred significant additional increased costs as a result of the listing of ADSs for trading on the NYSE MKT, and our management
is required to devote substantial time to new compliance initiatives as well as to compliance with ongoing U.S. and Israeli reporting
requirements.



As
a public company in the United States, we incur additional significant accounting, legal and other expenses that we did not incur
before becoming a reporting company in the United States. We also incur costs associated with corporate governance requirements
of the SEC and the NYSE MKT Company Guide, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley
Act of 2002, or the Sarbanes-Oxley Act as a result of ADSs being listed on the NYSE MKT. These rules and regulations have increased
our legal and financial compliance costs, introduced new costs such as investor relations, stock exchange listing fees and shareholder
reporting, and made some activities more time consuming and costly. The implementation and testing of such processes and systems
may require us to hire outside consultants and incur other significant costs. Any future changes in the laws and regulations affecting
public companies in the United States and Israel, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules
and regulations adopted by the SEC and the NYSE MKT Company Guide, as well as applicable Israeli reporting requirements, for so
long as they apply to us, may result in increased costs to us as we respond to such changes. These laws, rules and regulations
could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability
insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the
same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified
persons to serve on our Board of Directors, our board committees or as executive officers.





23







As
a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable
SEC and NYSE MKT requirements, which may result in less protection than is accorded to investors under rules applicable to domestic
issuers.



As
a foreign private issuer, we will be permitted to follow certain home country corporate governance practices instead of those
otherwise required under the NYSE MKT Company Guide for domestic issuers. For instance, we may follow home country practice in
Israel with regard to, among other things, composition and function of the audit committee and other committees of our Board of
Directors and certain general corporate governance matters. In addition, in certain instances we will follow our home country
law, instead of the NYSE MKT Company Guide, which requires that we obtain shareholder approval for certain dilutive events, such
as an issuance that will result in a change of control of the company, certain transactions other than a public offering involving
issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. We comply
with the director independence requirements of the NYSE MKT Company Guide, including the requirement that a majority of the Board
of Directors be independent, and make the required affirmative determination thereunder upon filing the listing application with
the NYSE MKT. Following our home country governance practices as opposed to the requirements that would otherwise apply to a United
States company listed on the NYSE MKT may provide less protection than is accorded to investors under the NYSE MKT Company Guide
applicable to domestic issuers.



In
addition, as a foreign private issuer, we will be exempt from the rules and regulations under the U.S. Securities Exchange Act
of 1934, as amended, or the Exchange Act, related to the furnishing and content of proxy statements, and our officers, directors
and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16
of the Exchange Act. In addition, we will not be required under the Exchange Act to file annual, quarterly and current reports
and financial statements with the SEC as frequently or as promptly as domestic companies whose securities are registered under
the Exchange Act.



Because
we became a reporting company under the Exchange Act by means of filing a Form 20-F, we may have difficulty attract the attention
of research analysts at major brokerage firms.



Because
we did not become a reporting company by conducting an underwritten initial public offering in the U.S., we may have difficulty
attracting the attention of security analysts at major brokerage firms in order for them to provide coverage of our company. The
failure to receive research coverage or support in the market for our shares will have an adverse effect on our ability to develop
a liquid market for the ADSs.



If
we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act as they apply to a foreign private issuer that
is listing on a U.S. exchange for the first time, or our internal control over financial reporting is not effective, the reliability
of our financial statements may be questioned and our share price and the ADS price may suffer.



We
have become subject to the requirements of the Sarbanes-Oxley Act since the ADSs are listed on the NYSE MKT. Section 404 of the
Sarbanes-Oxley Act requires companies subject to the reporting requirements of the U.S. securities laws to do a comprehensive
evaluation of its and its subsidiaries’ internal control over financial reporting. To comply with this statute, we must
document and test our internal control procedures and our management and issue a report concerning our internal control over financial
reporting. In addition, under the JOBS Act, emerging growth companies, like ourselves, are exempt from certain reporting requirements,
including the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. Under this exemption, our auditor
will not be required to attest to and report on our management’s assessment of our internal control over financial reporting
during a five-year transition period. We will need to prepare for compliance with Section 404 by strengthening, assessing and
testing our system of internal controls to provide the basis for our report. However, the continuous process of strengthening
our internal controls and complying with Section 404 is complicated and time-consuming. Furthermore, as our business continues
to grow both domestically and internationally, our internal controls will become more complex and will require significantly more
resources and attention to ensure our internal controls remain effective overall. During the course of the testing, our management
may identify material weaknesses or significant deficiencies, which may not be remedied in a timely manner to meet the deadline
imposed by the Sarbanes-Oxley Act. If our management cannot favorably assess the effectiveness of our internal control over financial
reporting, or our independent registered public accounting firm identifies material weaknesses in our internal controls, investor
confidence in our financial results may weaken, and the market price of our securities may suffer.





24







As
an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain
disclosure requirements.



As
an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain
disclosure requirements. We are an emerging growth company until the earliest of: (i) the last day of the fiscal year during which
we had total annual gross revenues of $1 billion or more, (ii) the last day of the fiscal year following the fifth anniversary
of the date of the first sale of our common stock pursuant to an effective registration statement, (iii) the date on which we
have, during the previous three-year period, issued more than $1 billion in non-convertible debt or (iv) the date on which we
are deemed a “large accelerated issuer” as defined in Regulation S-K of the Securities Act. For so long as we remain
an emerging growth company, we will not be required to:



| | ● | have
                                         an auditor report on our internal control over financial reporting pursuant to Section
                                         404(b) of the Sarbanes-Oxley Act;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | comply
                                         with any requirement that may be adopted by the Public Company Accounting Oversight Board,
                                         or the PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s
                                         report providing additional information about the audit and the financial statements
                                         (auditor discussion and analysis);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | submit
                                         certain executive compensation matters to shareholders advisory votes pursuant to the
                                         “say on frequency” and “say on pay” provisions (requiring a non-binding
                                         shareholder vote to approve compensation of certain executive officers) and the “say
                                         on golden parachute” provisions (requiring a non-binding shareholder vote to approve
                                         golden parachute arrangements for certain executive officers in connection with mergers
                                         and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer
                                         Protection Act of 2010; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | include
                                         detailed compensation discussion and analysis in our filings under the Exchange Act,
                                         and instead may provide a reduced level of disclosure concerning executive compensation.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Although
we intend to rely on the exemptions provided in the JOBS Act, the exact implications of the JOBS Act for us are still subject
to interpretations and guidance by the SEC and other regulatory agencies. In addition, as our business grows, we may no longer
satisfy the conditions of an emerging growth company. We are currently evaluating and monitoring developments with respect to
these new rules and we cannot assure you that we will be able to take advantage of all of the benefits from the JOBS Act.



Risks
Related to our Operations in Israel



We
conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability
in Israel and its region.



Our
headquarters, all of our operations and some of our suppliers and third party contractors are located in central Israel and our
key employees, officers and most of our directors are residents of Israel. Accordingly, political, economic and military conditions
in Israel and the surrounding region may directly affect our business. Since the establishment of the State of Israel in 1948,
a number of armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption
or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and results
of operations and could make it more difficult for us to raise capital. During the winter of 2008, winter of 2012 and the summer
of 2014, Israel was engaged in an armed conflict with Hamas, a militia group and political party operating in the Gaza Strip,
and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group
and political party. These conflicts involved missile strikes against civilian targets in various parts of Israel, and negatively
affected business conditions in Israel. Recent political uprisings and social unrest in various countries in the Middle East and
North Africa are affecting the political stability of those countries. This instability may lead to deterioration of the political
relationships that exist between Israel and these countries, and have raised concerns regarding security in the region and the
potential for armed conflict. Any armed conflicts, terrorist activities or political instability in the region could adversely
affect business conditions and could harm our results of operations. For example, any major escalation in hostilities in the region
could result in a portion of our employees and service providers being called up to perform military duty for an extended period
of time. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension,
forcing us to make alternative arrangements when necessary. In addition, the political and security situation in Israel may result
in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their
commitments under those agreements pursuant to force majeure provisions in such agreements.





25







Our
commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the
Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist
attacks or acts of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred
by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely
negatively affect business conditions and could harm our results of operations.



Further,
in the past, the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict
business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on
our operating results, financial condition or the expansion of our business.



Our
operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.



Many
Israeli citizens, including Motti Farbstein, our Chief Operating and Financial Officer, are obligated to perform one month, and
in some cases more, of annual military reserve duty until they reach the age of 45 (or older, for reservists with certain occupations)
and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there
have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups
in the future. Our operations could be disrupted by such call-ups, which may include the call-up of Motti Farbstein. Such disruption
could materially adversely affect our business, financial condition and results of operations.



Because
a certain portion of our expenses is incurred in currencies other than the NIS, our results of operations may be harmed by currency
fluctuations and inflation.



Our
reporting and functional currency is the NIS, and we pay a substantial portion of our expenses in NIS. Part of our expenses are
payable in U.S. dollars or in Euros as well asthe revenues from our licensing arrangements that are payable in U.S. dollars and
Canadian dollars, we expect our revenues from future licensing arrangements to be denominated in U.S. dollars or in Euros. As
a result, we are exposed to the currency fluctuation risks relating to the recording of our revenues in NIS. For example, if the
NIS strengthens against either the U.S. dollar or the Euro, our reported revenues in NIS may be lower than anticipated. The Israeli
rate of inflation has not offset or compounded the effects caused by fluctuations between the NIS and the U.S. dollar or the Euro.
To date, we have not engaged in hedging transactions. Although the Israeli rate of inflation has not had a material adverse effect
on our financial condition during 2012, 2013, or 2014 to date, we may, in the future, decide to enter into currency hedging transactions
to decrease the risk of financial exposure from fluctuations in the exchange rates of the currencies mentioned above in relation
to the NIS. These measures, however, may not adequately protect us from material adverse effects.





26







Provisions
of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our Company, which could prevent a
change of control, even when the terms of such a transaction are favorable to us and our shareholders.



Israeli
corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special
approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant
to these types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date
that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the
date that the shareholders of both merging companies approved the merger. In addition, a majority of each class of securities
of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least
95% of the issued share capital; provided that, pursuant to an amendment to the Israeli Companies Law, effective as of May 15,
2011, a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer;
except that, if the total votes to reject the tender offer represent less than 2% of our issued and outstanding share capital,
in the aggregate, approval by a majority of the offerees that do not have a personal interest in such tender offer is not required
to complete the tender offer), and the shareholders, including those who indicated their acceptance of the tender offer, may,
at any time within six months following the completion of the tender offer, petition the court to alter the consideration for
the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal
rights).



Furthermore,
Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence
does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize
tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral
in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period
of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are
restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time
expires, the tax becomes payable even if no actual disposition of the shares has occurred.



These
and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such
an acquisition or merger would be beneficial to us or to our shareholders. See “Item 10. Additional Information — Memorandum
and Articles of Association.”



It
may be difficult to enforce a U.S. judgment against us and our officers and directors named in this Annual Report on Form 20-F
in Israel or the United States, or to serve process on our officers and directors.



We
are incorporated in Israel. All of our executive officers and directors listed in this Annual Report on Form 20-F reside outside
of the United States, and all of our assets and most of the assets of our executive officers and directors are located outside
of the United States. Therefore, a judgment obtained against us or most of our executive officers and all of our directors in
the United States, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible
in the United States and may not be enforced by an Israeli court. It also may be difficult for you to effect service of process
on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel.



Your
rights and responsibilities as a shareholder will be governed by Israeli law which may differ in some respects from the rights
and responsibilities of shareholders of U.S. companies.



We
are incorporated under Israeli law. The rights and responsibilities of the holders of our ordinary shares and ADSs are governed
by our Articles of Association and Israeli law. These rights and responsibilities differ in some respects from the rights and
responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has a
duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including,
among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles
of association, increases in a company’s authorized share capital, mergers and acquisitions and interested party transactions
requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a
shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness
toward the company. There is limited case law available to assist us in understanding the implications of these provisions that
govern shareholders’ actions. These provisions may be interpreted to impose additional obligations and liabilities on holders
of our ordinary shares and ADSs that are not typically imposed on shareholders of U.S. corporations.





27







ITEM
4. Information on the Company



A. History
and Development of the Company



Our legal name is Can-FiteBio
Pharma Ltd. and our commercial name is “Can-Fite.” We are a company limited by shares organized under the laws of
the State of Israel. Our principal executive offices are located at 10 Bareket Street, Kiryat Matalon, Petah-Tikva 4951778 Israel.
Our telephone number is +972 (3) 924-1114.





We were founded on September
11, 1994 by Pnina Fishman, Ph.D., our Chief Executive Officer and a director, and Ilan Cohn, Ph.D., our Vice-Chairman of the Board
of Directors, under the name Can-Fite Technologies Ltd. On January 7, 2001, we changed our name to Can-FiteBio Pharma Ltd. We
completed our initial public offering in Israel in October 2005 and our ordinary shares are traded on the TASE under the symbol
“CFBI”. On October 2, 2012, our ADSs began trading over the counter, or OTC, in the United States under the symbol
“CANFY” and on November 19, 2013,our ADSs began trading on the NYSE MKT under the symbol “CANF.”





In
November 2011, through a series of transactions, we spun-off our activity in the ophthalmic field to OphthaliX, Inc., a Delaware
corporation and successor-in-interest to Denali Concrete Management, Inc., a Nevada corporation, or OphthaliX, whose common shares
are traded in the United States on OTC under the symbol “OPLI.” In the spin-off transactions, we granted an exclusive
license for the use of our CF101 drug candidate in the ophthalmic field to Eye-Fite Ltd., an Israel limited company and a former
wholly-owned subsidiary of ours, or Eye-Fite, and transferred our issued and outstanding ordinary shares in Eye-Fite to OphthaliX
in exchange for an 86.7% interest in OphthaliX. In connection with the spin-off transactions, OphthaliX completed a series of
private placement financing transactions. Following the spin-off transactions and the private placement financing transactions,
we held approximately 82% interest in OphthaliX and OphthaliX continues to develop the CF101 drug candidate for certain ophthalmic
indications. See “Item 10. Additional Information—Material Contracts—OphthaliX Agreements.”



Our
capital expenditures for the years ended December 31, 2014, 2013 and 2012 were NIS 37,000, NIS 43,000 and NIS 17,000, respectively.
Our current capital expenditures are made solely within Israel and primarily consist of the acquisition of computers and related
communications equipment. Such capital expenditures are financed internally.



We
qualify as an “emerging growth company,” as defined in the JOBS Act. For as long as we are deemed an emerging growth
company, we may take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable
to other public companies. These provisions include:



| | ● | an
    exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required
    by Section 404 of the Sarbanes-Oxley Act of 2002;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | an
    exemption from compliance with any new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement
    to the auditor’s report in which the auditor would be required to provide additional information about our audit and
    our financial statements; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | reduced
    disclosure about our executive compensation arrangements.
| | - | ---------------------------------------------------------------------



We
will continue to be deemed an emerging growth company until the earliest of:



| | ● | the
    last day of our fiscal year in which we have total annual gross revenues of $1,000,000,000 (as such amount is indexed for
    inflation every five years by the SEC to reflect the change in the Consumer Price Index for All Urban Consumers published
    by the Bureau of Labor Statistics, setting the threshold to the nearest $1,000,000) or more;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
    last day of our fiscal year following the fifth anniversary of the date of our first sale of common equity securities pursuant
    to an effective registration statement under the Securities Act;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
    date on which we have, during the prior three-year period, issued more than $1,000,000,000 in non-convertible debt; or
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | ● | the
    date on which we are deemed to be a ‘large accelerated filer,” as defined in Regulation S-K under the Securities
    Act.
| | - | ---------------------------------------------------------------------------------------------------------------------------------





28









B. Business
Overview



We
are a clinical-stage biopharmaceutical company focused on developing orally bioavailable small molecule therapeutic products for
the treatment of autoimmune-inflammatory, oncological and ophthalmic diseases. Our platform technology utilizes the Gi protein
associated A3AR as a therapeutic target. A3AR is highly expressed in inflammatory and cancer cells, and not significantly expressed
in normal cells, suggesting that the receptor could be a unique target for pharmacological intervention. Our pipeline of drug
candidates are synthetic, highly specific agonists and allosteric modulators, or ligands or molecules that initiate molecular
events when binding with target proteins, targeting the A3AR.



Our
product pipeline is based on the research of Dr. Pnina Fishman, who investigated a clinical observation that tumor metastasis
can be found in most body tissues, but are rarely found in muscle tissue, which constitutes approximately 60% of human body weight.
Dr. Fishman’s research revealed that one reason that striated muscle tissue is resistant to tumor metastasis is that muscle
cells release small molecules which bind with high selectivity to the A3AR. As part of her research, Dr. Fishman also discovered
that A3ARs have significant expression in tumor and inflammatory cells, whereas normal cells have low or no expression of this
receptor. The A3AR agonists and allosteric modulators, currently our pipeline of drug candidates, bind with high selectivity and
affinity to the A3ARs and upon binding to the receptor initiate down-stream signal transduction pathways resulting in apoptosis,
or programmed cell death, of tumors and inflammatory cells and to the inhibition of inflammatory cytokines. Cytokines are proteins
produced by cells that interact with cells of the immune system in order to regulate the body’s response to disease and
infection. Overproduction or inappropriate production of certain cytokines by the body can result in disease. We have in-licensed
certain patents and patent applications protecting three different A3AR ligands which represent our current pipeline of drug candidates
under development and include two synthetic A3AR agonists, CF101 (known generically as IB-MECA) and CF102 (known generically as
CI-IB-MECA) from the NIH, and an allosteric modulator at the A3AR, CF602 from Leiden University. In addition, we have out-licensed
CF101 for (i) the treatment of autoimmune diseases to Seikagaku Corporation, a Japanese public corporation, or SKK, for the Japanese
market, (ii) for the treatment of rheumatoid arthritis, or RA to Kwang Dong Pharmaceutical Co. Ltd., a South Korean limited company,
or KD, for the Korean market and (iii) for the treatment of ophthalmic diseases to Eye-Fite, a wholly-owned subsidiary of OphthaliX
for the global market. We also recently entered into a distribution agreement with Cipher Pharmaceuticals, Inc. for the distribution
of CF101 for the treatment of psoriasis and rheumatoid arthritis in the Canadian market upon receipt of regulatory approvals.



Our
product candidates, CF101, CF102 and CF602 are being developed to treat several autoimmune-inflammatory, oncological and ophthalmic
indications. CF101 is in various stages of clinical development for the treatment of autoimmune-inflammatory diseases, including
RA; psoriasis and osteoarthritis, or OA. CF101 is also being developed by OphthaliX for the treatment of ophthalmic indications,
including glaucoma and uveitis. CF602 is our second generation allosteric drug candidate for the treatment of inflammatory diseases,
which has shown proof of concept in in vitro and in vivo studies. The CF102 drug candidate is being developed for the treatment
of HCC, and for the treatment of HCV.In addition, we recently announced that we are planning to develop CF602 to treat sexual
dysfunction. Preclinical studies revealed that our drug candidates have potential to treat additional inflammatory diseases, such
as Crohn’s disease, oncological diseases and viral diseases, such as the JC virus, a virus that causes a potentially fatal
brain disease in persons with an immunodeficiency.



We
believe our pipeline of drug candidates represent a significant market opportunity. For instance, according to Visiongain, the
world RA market size is predicted to generate revenues of $38.5 billion in 2017. According to GlobalData, the psoriasis drug market
is forecasted to grow from $3.6 billion in 2010 to $6.7 billion by 2018. According to Global Industry Analysts, the global liver
cancer drug market is expected to exceed $2 billion by 2015. GlobalData estimated the glaucoma market to exceed $3 billion by
2018.



We
believe that our drug candidates have certain unique characteristics and advantages over drugs currently available on the market
and under development to treat these indications. To date, we have generated our pipeline by in-licensing, researching and developing
two synthetic A3AR agonists, CF101 and CF102, and an allosteric modulator, CF602. For example, our technology platform is based
on the finding that the A3AR is highly expressed in pathological cells, such as various tumor cell types and inflammatory cells.
High A3AR expression levels are also found in peripheral blood mononuclear cells, or PBMCs, of patients with cancer, inflammatory
and viral diseases. PBMCs are a critical part of the immune system required to fight infection. We believe that targeting the
A3AR with synthetic and highly selective A3AR agonists, such as CF101 and CF102, and allosteric modulators, such as CF602, induces
anti-cancer and anti-inflammatory effects. In addition, our human clinical data suggests that the A3AR is a biological marker
and that high A3AR expression prior to treatment may be predictive of good patient response to our drug treatment. In fact, as
a result of our research we have developed a simple blood assay to test for A3AR expression as a predictive biological marker.
We have been granted a U.S. patent with respect to the intellectual property related to such assay and utilized this assay in
our Phase IIb study of CF101 tor the treatment of RA.





29







Moreover,
we believe characteristics of CF101, as exhibited in our clinical studies to date, including its good safety profile, clinical
activity, simple and less frequent delivery through oral administration and its low cost of production, position it well against
the competition in the autoimmune-inflammatory markets, including the RA and psoriasis markets, where treatments, when available,
often include injectable drugs, many of which can be highly toxic, expensive and not always effective. Furthermore, pre-clinical
pharmacology studies in different experimental animal models of arthritis revealed that CF101 acts as a disease modifying anti-rheumatic
drug, or a DMARD, which, when coupled with its good safety profile, make it competitive in the psoriasis, RA and OA markets. Our
recent findings also demonstrate that a biological predictive marker can be utilized prior to treatment with CF101, which may
allow it to be used as a personalized medicine therapeutic approach for the treatment of RA. We also believe CF101 is well-positioned
against some of the competition in the ophthalmic markets, in particular, glaucoma, where treatments, when available, often include
frequent self-administered eye drops, which may be more difficult than taking pills and may result in less than the full dose
of the drug actually entering the eye, have undesirable side effects and do not simultaneously treat the underlying cause and
relieve the symptoms associated with the indication. Like CF101, CF102 has a good safety profile, is orally administered and has
a low cost of production, which we believe positions it well in the HCC market, where only one drug, Nexavar, has been approved
by the FDA.



Nevertheless,
other drugs on the market, new drugs under development (including drugs that are in more advanced stages of development in comparison
to our drug candidates) and additional drugs that were originally intended for other purposes, but were found effective for purposes
targeted by us, may all be competitive to the current drugs in our pipeline. In fact, some of these drugs are well established
and accepted among patients and physicians in their respective markets, are orally bioavailable, can be efficiently produced and
marketed, and are relatively safe. None of our product candidates have been approved for sale or marketing and, to date, there
have been no commercial sales of any of our product candidates.



Our
research further suggests that A3AR affects pathological and normal cells differently. While specific A3AR agonists, such as CF101
and CF102, and allosteric modulators, such as CF602, appear to inhibit growth and induce apoptosis of cancer and inflammatory
cells, normal cells are refractory, or unresponsive to the effects of these drugs. To date, the A3AR agonists have had a positive
safety profile as a result of this differential effect.



We
also seek to obtain technologies that complement and expand our existing technology base by entering into license agreements with
academic institutions and biotechnology companies. To date, we have in-licensed intellectual property which protects certain small
molecules, such as CF101 and CF102, from the NIH, and CF602 from Leiden University. Under our license agreements we are generally
obligated to diligently pursue product development, make development milestone payments, pay royalties on any product sale and
make payments upon the grant of sublicense rights. The scope of payments we are required to make under our in-licensing agreements
is comprised of various components that are paid commensurate with the progressive development and commercialization of our drug
products. See “Item 4. Information on the Company—Business Overview—In-Licensing Agreements.”



In
addition to in-licensing, we have also out-licensed one of our molecules to third-parties to capitalize on the experience, capabilities
and location of such third-parties. Similar to our obligations under any in-license agreements, pursuant to these out-licensing
agreements, our licensees are generally obligated to diligently pursue product development, make up-front payments, make development
milestone payments and pay royalties on sales. Accordingly, we expect to fund certain of our future operations through out-licensing
arrangements with respect to our product candidates. To date, we have out-licensed CF101 for the treatment of autoimmune diseases
for the Japanese market to SKK, and CF101 for the treatment of RA for the Korean market to KD and CF101 for ophthalmic diseases
for the global market to OphthaliX. See “Item 4. Information on the Company—Business Overview—Out-Licensing
and Distribution Agreements.”





30







We
are currently: (i) expecting top-line results for a recently completed Phase II/III trial with respect to the development of CF101
for the treatment of psoriasis; (ii) preparing for a Phase III trial with respect to the development of CF101 for the treatment
of RA; (iii) preparing for a Phase II study with respect to the development of CF101 for the treatment of OA; (iv) conducting
a Phase II study with respect to the development of CF102 for the treatment of HCC (and as part of this study, we will also test
CF102 in patients with both HCC and HCV); and (v) preparing for further preclinical work with respect to the development of CF602.
OphthaliX is currently: (i) conducting a Phase II trial with respect to the development of CF101 for the treatment of glaucoma
or related syndromes of ocular hypertension; and (ii) initiating a Phase II study of CF101 for the treatment of uveitis.



Our Strategy



Our
strategy is to build a fully integrated biotechnology company that discovers, in-licenses and develops an innovative and effective
small molecule drug portfolio of ligands that bind to a specific therapeutic target for the treatment of autoimmune-inflammatory,
oncological, ophthalmic diseases and more. We continue to develop and test our existing pipeline, while also testing other indications
for our existing drugs and examining, from time to time, the potential of other small molecules that may fit our platform technology
of utilizing small molecules to target the A3AR. We generally focus on drugs with global market potential and we seek to create
global partnerships to effectively assist us in developing our portfolio and to market our products. Our approach allows us to:



| | ● | continue
    to advance our clinical and preclinical pipeline;
| | - | --------------------------------------------------------------



| | ● | test
    our products for additional indications which fit our molecules’ mechanism of action;
| | - | ----------------------------------------------------------------------------------------------



| | ● | identify
    other small molecule drugs or ligands;
| | - | ---------------------------------------------------



| | ● | focus
    on our product candidates closest to realizing their potential; and
| | - | -----------------------------------------------------------------------------



| | ● | avoid
    dependency on a small number of small molecules and indications.
| | - | --------------------------------------------------------------------------



Using
this approach, we have successfully advanced our product candidates for a number of indications into various stages of clinical
development. Specific elements of our current strategy include the following:



Successful
development of our existing portfolio of small molecule orally bioavailable drugs for the treatment of various diseases. We
intend to continue to develop our existing portfolio of small molecule orally bioavailable drugs, both for existing targeted diseases,
as well as other potential indications. Our drug development will continue to focus on inflammatory, oncological and ophthalmic
diseases. We will focus most prominently on advancing our product candidates that are in the most advanced stages, i.e., plaque
psoriasis and RA (and later posterior uveitis and glaucoma) with respect to CF101, and HCC with respect to CF102. Following the
announcement of top-line results that CF101 did not meet the dry eye syndrome or DES Phase III primary and secondary efficacy
end-points, Ophthalix decided to end the development of CF101 for DES.



Use
our expertise with our platform technology to evaluate in-licensing opportunities. We continuously seek attractive product
candidates and innovative technologies to in-license or acquire. We intend to focus on product candidates that would be synergistic
with our A3AR expertise. We believe that by pursuing selective acquisitions of technologies in businesses that complement our
own, we will be able to enhance our competitiveness and strengthen our market position. We intend to utilize our expertise in
A3AR and our pharmacological expertise to validate new classes of small molecule orally bioavailable drugs. We will then seek
to grow our product candidate portfolio by attempting to in-license those various candidates and to develop them for a variety
of indications.





31







Primarily
develop products that target major global markets. Our existing product candidates are almost all directed at diseases that
have major global markets. Our intent is to continue to develop products that target diseases that affect significant populations
using our platform technology. We believe these arrangements will allow us to share the high development cost, minimize the risk
of failure and enjoy our partners’ marketing capabilities, while also enabling us to treat a more significant number of
persons. We believe further that this strategy will increase the likelihood of advancing clinical development and potential commercialization
of our product candidates.



Commercialize
our product candidates through out-licensing and distribution arrangements. We have entered into two out-licensing arrangements
with major pharmaceutical companies in the Far East and one distribution agreement with a growing pharmaceutical company in Canada.
We intend to continue to commercialize our product candidates through out-licensing and distribution arrangements with third parties
who may perform any or all of the following tasks: completing development, securing regulatory approvals, manufacturing, marketing
and sales. We do not intend to develop our own manufacturing facilities or sales forces. If appropriate, we may enter into co-development
and similar arrangements with respect to any product candidate with third parties or commercialize a product candidate ourselves.
We believe these arrangements will allow us to share the high development cost, minimize the risk of failure and enjoy our partners’
marketing capabilities. We believe further that this strategy will increase the likelihood of advancing clinical development and
potential commercialization of our product candidates.





32







Our
Product Pipeline



The
table below sets forth our current pipeline of product candidates, including the target indication and status of each.



|Clinical
    Application/Drug | Pre-Clinical                                       | Phase
    I | Phase
    II | Phase
    III
|----------------------------- | -------------------------------------------------- | ----------- | ------------ | -------------
|Autoimmune-Inflammatory       |                                                    |             |              |              
|                              | Psoriasis
    – CF101(1)                           |             |              |              
|                              | Rheumatoid
    Arthritis – CF101(2)                |             |              |              
|                              | Osteoarthritis
    – CF101(3)                      |             |              |              
|                              | Inflammation
    and Sexual Dysfunction – CF602(4) |             |              |              
|Oncology                      |                                                    |             |              |              
|                              | HCC
    – CF102(5)                                 |             |              |              
|Ophthalmology(6)              |                                                    |             |              |              
|                              | Glaucoma
    – CF101(7)                            |             |              |              
|                              | Uveitis
    – CF101(8)                             |             |              |              
|                              |                                                    |             |              |              
|                              | Completed                                          |             |              |              
|                              |                                                    |             |              |              
|                              | On-going                                           |             |              |              
|                              |                                                    |             |              |              
|                              | Preparatory
    work                               |             |              |              










|(1) | We
                                         are expecting top-line results for a recently completed Phase II/III trial with respect
                                         to the development of CF101 for the treatment of psoriasis.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | We
                                         are preparing for a Phase III trial with respect to the development of CF101 for the
                                         treatment of RA.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | We
                                         are preparing for a Phase II study with respect to the development of CF101 for the treatment
                                         of OA.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | We
                                         are preparing for further preclinical work with respect to the development of CF602.
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(5) | We
                                         are conducting a Phase II study with respect to the development of CF102 for the treatment
                                         of HCC (and as part of this study, we will also test CF102 in patients with both HCC
                                         and HCV).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | OphthaliX,
                                         an 82% owned subsidiary of ours, develops CF101 for ophthalmic indications.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(7) | OphthaliX
                                         is conducting a Phase II trial with respect to the development of CF101 for the treatment
                                         of glaucoma or related syndromes of ocular hypertension.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | OphthaliX
                                         is initiating a Phase II study of CF101 for the treatment of uveitis.
|--- | ------------------------------------------------------------------------------------------------------------------------





33







CF101



CF101,
our lead therapeutic product candidate, is in development for the treatment of autoimmune-inflammatory diseases, psoriasis, RA
and OA, and the ophthalmic diseases, glaucoma and uveitis. In certain of our pharmacological studies, CF101 has also shown potential
for development for the treatment of Crohn’s disease. CF101 is a highly-selective, orally bioavailable small molecule synthetic
drug, which targets the A3AR. Based on our clinical studies to date, we believe that CF101 has a favorable safety profile and
significant anti-inflammatory effects as a result of its capability to inhibit the production of inflammatory cytokines, such
as TNF-α, IL-6 and IL-1, and chemokines, or small cytokines, such as MMPs, by signaling key proteins such as NF-кB
and PKB/AKT. Overall, these up-stream events result in apoptosis of inflammatory cells. See Figure 1 below. CF101’s anti-inflammatory
effect is mediated via the A3AR, which is highly expressed in inflammatory cells.







Figure
1: CF101 anti-inflammatory mechanism of action



Set
forth below are general descriptions of the inflammatory and ophthalmic diseases with respect to which CF101 is currently undergoing,
or is in preparation for clinical trials.



Psoriasis:
Psoriasis is an autoimmune hereditary disease that affects the skin. In psoriasis, immune cells move from the dermis to the epidermis,
where they stimulate keratinocytes, or skin cells, to proliferate. DNA acts as an inflammatory stimulus to stimulate receptors
which produce cytokines, such as IL-1, IL-6, and TNF-α, and antimicrobial peptides. These cytokines and antimicrobial peptides
signal more inflammatory cells to arrive and produce further inflammation. In other words, psoriasis occurs when the immune system
overreacts and mistakes the skin cells as a pathogen, and sends out faulty signals that speed up the growth cycle of skin cells.
Normally, skin cells grow gradually and flake off approximately every four weeks. New skin cells grow to replace the outer layers
of the skin as they shed. But in psoriasis, new skin cells move rapidly to the surface of the skin in days rather than weeks.
They build up and form thick patches called plaques.



There
are five types of psoriasis: plaque, guttate, inverse, pustular and erythrodermic. The most common form, plaque psoriasis, is
commonly seen as red and white hues of scaly patches appearing on the top first layer of the epidermis, or skin. In plaque psoriasis,
skin rapidly accumulates at these sites, which gives it a silvery-white appearance. Plaques frequently occur on the skin of the
lower back, elbows and knees, but can affect any area, including the scalp, palms of hands, soles of feet and genitals. The plaques
range in size from small to large. In contrast to eczema, psoriasis is more likely to be found on the outer side of the joint.
Some patients, though, have no dermatological symptoms.



Psoriasis
is a chronic recurring condition that varies in severity from minor localized patches to complete body coverage. Fingernails and
toenails are frequently affected, known as psoriatic nail dystrophy, and can be seen as an isolated symptom. Psoriasis can also
cause inflammation of the joints, which is known as psoriatic arthritis.





34







Rheumatoid
Arthritis: RA, is a chronic, systemic autoimmune-inflammatory disease that may affect many tissues and organs, but principally
attacks flexible synovial, or joints, on both sides of the body. This symmetry helps distinguish RA from other types of arthritis,
which is the general term for joint inflammation. Although the cause of RA is unknown, autoimmunity plays a pivotal role in both
its chronicity and progression. The disease involves abnormal B cell–T cell interaction, which results in the release of
cytokines. The cytokines signal the release of inflammatory cells. The inflammatory cells migrate from the blood into the joints
and joint-lining tissue. There, the cells produce inflammatory substances that cause irritation, wearing down of cartilage, or
the cushioning material at the end of bones, swelling and inflammation of the joint lining, which is caused by excess synovial
fluid, the development of pannus, or fibrous tissue, in the joint, and ankylosis, or fusion of the joints. Joint inflammation
is characterized by redness, warmth, swelling and pain within the joint. As the cartilage wears down, the space between the bones
narrows. If the condition worsens, the bones could rub against each other. As the lining expands due to inflammation from excess
fluid, it may erode the adjacent bone, resulting in bone damage. RA can also produce diffuse inflammation in the lungs, membrane
around the heart, the membranes of the lungs, and white of the eye, and also nodular lesions, most common in subcutaneous tissue.



Osteoarthritis:
OA is a common chronic degenerative joint disease that is characterized by a group of mechanical abnormalities involving degradation
of joints, including articular cartilage, or the cartilage found on joint surfaces. Although degeneration of joint cartilage is
the central feature in OA, the disease is also associated with changes in synovium and subchondral bone metabolism, causing inflammation
of the synovial membrane in the involved joints. Synovial inflammation and local concentration of pro-inflammatory mediators seem
to be directly involved in the generation of pain in osteoarthritic joints.



OA
is related to, but not caused by, aging. As a person ages, the water content of the cartilage decreases, causing the cartilage
to be less resilient. When the cartilage is less resilient, it can become susceptible to degradation or exacerbation of existing
degeneration. Inflammation of the surrounding joint capsule can also occur, though often mild (compared to what occurs in RA).
This can happen as breakdown products from the cartilage are released into the synovial space and the cells lining the joint attempt
to remove them. New bone outgrowths, called “spurs” or osteophytes, can form on the margins of the joints. These bone
changes, together with the inflammation, can be both painful and debilitating.



Mechanical
stress on joints underlies all OA. There are many and varied sources of mechanical stress, including misalignments of bones caused
by congenital or pathogenic causes, mechanical injury, obesity, loss of strength in muscles supporting joints and impairment of
peripheral nerves, leading to sudden or uncoordinated movements that overstress joints. However, despite the numerous causes of
osteoarthritis, the resulting pathology remains the same.



Glaucoma:Glaucoma is an eye disease in which the optic nerve is damaged. This optic nerve damage involves loss of retinal ganglion
cells, or neurons located near the inner surface of the retina, in a characteristic pattern. There are many different subtypes
of glaucoma, but they can all be considered to be a type of optic neuropathy. Raised intraocular pressure, or IOP, is the most
important and only modifiable risk factor for glaucoma. However, some individuals may have high IOP for years and never develop
optic nerve damage. This is known as ocular hypertension. Others may develop optic nerve damage at a relatively low IOP, and,
thus, glaucoma. Untreated glaucoma can lead to permanent damage of the optic nerve and resultant visual field loss, which over
time can progress to blindness.



Glaucoma
can be roughly divided into two main categories, “open angle” and “closed angle” glaucoma. The angle refers
to the area between the iris and cornea through which fluid must flow to exit the eye. The difficulty or inability of such fluid
to exit the eye causes an acute increase of pressure and pain. Closed angle glaucoma can appear suddenly, is often painful and
visual loss can progress quickly. However, the discomfort often leads patients to seek medical attention before permanent damage
occurs. Open angle, chronic glaucoma tends to progress at a slower rate and patients may not notice they have lost vision until
the disease has progressed significantly.





35







Uveitis:Uveitis is inflammation of the middle layer of the eye, or the uvea, caused by an immune reaction. Uveitis can be associated
with auto-immune inflammatory diseases and various eye infections. Uveitis is a common cause of blindness. The most common form
of uveitis is anterior uveitis, which involves inflammation in the front part of the eye. It is often called iritis because it
usually only affects the iris, the colored part of the eye. The inflammation may be associated with autoimmune diseases, but most
cases occur in healthy people. The disorder may affect only one eye and is most common in young and middle-aged people.



Posterior
uveitis affects the back part of the uvea, and involves primarily the choroid, a layer of blood vessels and connective tissue
in the middle part of the eye. This type of uveitis is called choroiditis. If the retina is also involved, it is called chorioretinitis.
Anterior uveitis affects the front part of the uvea, and involves primarily the iris and the cilliary body. This type of uveitis
is called iridocyclitis. These conditions may develop as a result of a body-wide, or systemic, infection or an autoimmune disease.
Another form of uveitis is pars planitis. This inflammation affects the narrowed area, or the pars plana, between the iris, or
colored part of the eye, and the choroid. Pars planitis usually occurs in young men and is generally not associated with any other
disease. However, some evidence suggests it may be linked to Crohn’s disease and, possibly, multiple sclerosis.



Pre-Clinical
Studies of CF101



The
information below is based on the various studies conducted with CF101, including preclinical studies. All of the studies were
conducted by Can-Fite and/or by Can-Fite’s partners or affiliates.



Pre-clinical
studies are a set of experiments carried out in animals to show that a certain drug does not evoke toxicity. Based on the animal
studies and safety data, one can approach the FDA and request permission to conduct a Phase I study in human beings.



The
toxicity of CF101 has been evaluated following 28-day, 90-day, six-month and nine-month good laboratory practice repeated-dose
toxicity studies in male and female mice (28-day, 90-day and six-month), dogs (single-dose only), and monkeys (28-day, 90-day
and nine-month). Even though the dose of CF101 in these studies was escalated to an exposure that is many folds higher than the
dose used in human clinical studies, no toxic side effects were identified.



Effects
on cardiovascular parameters were evaluated in conscious instrumented monkeys and anesthetized dogs. These studies demonstrated
no significant cardiovascular risk.



Genotoxicity
studies were conducted in bacterial and mammalian mutation assays in vitro (i.e., laboratory) and in an in vivo
(i.e., animal) mouse micronucleus assay. These studies were all negative, indicating no deleterious action on cellular genetic
material.



Reproductive
toxicology studies that we completed in mice and rabbits did not reveal evidence of negative effects on male or female fertility.
In mouse teratology studies, or studies for abnormalities of physiological developments, craniofacial and skeletal abnormalities
were observed at doses greater than 10 mg/kg; however, no such effects were observed at 3 mg/kg demonstrating the safety of the
drug in this concentration range. Teratogenicity, or any developmental anomaly in a fetus, was not observed in rabbits given doses
(greater than 13 mg/kg) that induced severe maternal toxicity in such rabbits.



Studies
of P450 enzymes, or enzymes that participate in the metabolism of drugs, showed that CF101 caused no P450 enzyme inhibition, or
increased drug activity, or induction, or reduced drug activity. Studies carried out with radiolabeled (C14) CF101
in rats showed that the drug is excreted essentially unchanged. These studies also showed that the drug is widely distributed
in all body parts, except the central nervous system.



Clinical
Studies of CF101



The
information below is based on the various studies conducted with CF101, including clinical studies in patients with autoimmune-inflammatory
and ophthalmic diseases. All of the studies were conducted by Can-Fite and/or by Can-Fite’s partners or affiliates.





36







Phase
I Clinical Studies of CF101



CF101
has been studied comprehensively in normal volunteer trials to assess safety, pharmacokinetic metabolism and food interaction.
Two Phase I studies in 40 healthy volunteers, single dose and repeated dose, indicated that CF101 is rapidly absorbed (reaching
a maximal concentration within one to two hours) with a half-life of eight to nine hours. Some mild adverse events (principally,
increased heart rate) were observed at doses higher than single doses of 10.0 mg and twice-daily doses of 5.0 mg. Such
increase in heart rate was not accompanied by any change in QT intervals. The drug showed linear kinetics, in that the concentration
that results from the dose is proportional to the dose and the rate of elimination of the drug is proportional to the concentration,
and low inter-subject variability, meaning that the same dose of the drug does not produce large differences in pharmacological
responses in different individuals. A fed-fast Phase I study (with and without food) demonstrated that food causes some attenuation
in CF101 absorption; accordingly CF101 is administered to patients on an empty stomach in our trials. An additional Phase I study
of the absorption, metabolism, excretion and mass balance of 4.0 mg (C14) CF101 was conducted in six healthy male
subjects and demonstrated that CF101 was generally well-tolerated in this group.



Based
on the findings from Phase I clinical studies, 4.0 mg BID, or twice daily, was selected as the upper limit for initial Phase
II clinical trials.



Phase
II and Phase II/III Clinical Studies of CF101



CF101 has completed 16
Phase I, II and III studies in Psoriasis, RA and DES in approximately 1,410 patients (1,000 patients treated with CF101 and 410
patients treated with a placebo) for an aggregate exposure of approximately 250 patient years (for the patients treated with CF101).
These studies indicate that CF101 has a favorable safety profile at doses up to 4.0 mg BID for up to 12 weeks. In the Phase
II and III studies, we did not observe a dose-response relationship between CF101 and adverse events. Moreover, we did not observe
any clinically significant changes in vital signs, electrocardiograms, blood chemistry or hematology. CF101 given as a standalone
therapy reached the primary endpoint in Phase II clinical studies in psoriasis and DES. In addition, we observed positive data
utilizing CF101 as a standalone drug in a Phase IIa clinical study in RA. In this study, we also observed a significant direct
correlation between A3AR expression prior to treatment and the patients’ responses to CF101. However, we did not fully attain
the primary endpoint in this study as we did not observe a significant difference in responses between CF101 and the placebo (which
for this study was 0.1 mg of CF101). Moreover, two Phase IIb studies in RA utilizing CF101 in combination with methotrexate, a
generic drug commonly used for treating RA patients, or MTX, also failed to reach the primary endpoints. Based on this data, we
believe that the failures in the Phase IIb studies in RA may have been due to low A3AR expression in the MTX-treated patients.
A phase IIb of CF101 given as a standalone therapy in patients with A3AR expression levels above a certain threshold reached the
primary endpoint in RA in December 2013. CF101 has been tested in Phase II trials to establish dose and activity (first, orally
administered capsules and then tablets in formulations of 1.0, 2.0 and 4.0 mg of CF101 BID) in psoriasis (moderate to severe
plaque psoriasis), RA and DES (moderate to severe.





Psoriasis:
The rationale for utilizing CF101 to treat psoriasis stems from our pre-clinical pharmacology studies showing that CF101 acts
as an anti-inflammatory agent via the inhibition of inflammatory cytokines, including TNF-α, which plays a major role in
the pathogenesis of psoriasis. In addition, the A3AR is over-expressed in the tissue and PBMCs of patients with psoriasis.



We
completed an exploratory Phase II trial in ten European and Israeli medical centers involving 76 patients. This study was a randomized,
double-blind, placebo controlled and included four cohorts of 1.0, 2.0, and 4.0 mg of CF101 and a placebo for a 12-week period.
The study objectives were efficacy and safety of daily doses of CF101 administered orally in patients with moderate-to-severe
plaque-type psoriasis and the efficacy endpoints were improvements in both the Psoriasis Area Sensitivity Index score, or PASI
score, and the Physicians’ Global Assessment score, or PGA score. We concluded that CF101 met such efficacy endpoints and
was safe, well tolerated and effective in ameliorating disease manifestations in these patients. The patient group receiving 2.0 mg
CF101 BID showed progressive improvement over the course of the 12-week study in the PGA and PASI scores. Analysis of the mean
change from baseline in the PASI score at week 12 revealed a statistically significant difference between the 2.0 mg CF101 BID
treated group and the placebo group (P < 0.001 versus baseline and P = 0.031 versus placebo). Analysis of the PGA score revealed
that 23.5% of the patients treated with the 2.0 mg CF101 BID achieved a score of 0 or 1, in comparison to 0% in the placebo group
(P < 0.05). The study also demonstrated linear improvement in patients in both PASI and PGA. See Figure 2. No drug-related
serious adverse events were evident during the study.





37











Figure
2: Psoriasis efficacy by PGA and PASI



Set
forth below are representative pictures of a patient with plaque-type psoriasis on the upper and lower back treated with 2.0 mg
CF101 BID, both baseline and week 12.







A
comparison between baseline and week 12 of a patient treated with 2.0 mg CF 101



In February 2015, we
completed a Phase II/III randomized, double-blind, placebo-controlled, dose-finding study of the efficacy and safety of CF101
administered daily orally in patients with moderate-to-severe plaque psoriasis. This clinical trial enrolled 326 patients  in
17 clinical centers in the United States, Europe and Israel, of which 103 patients were enrolled in the first study cohort
and were treated for 6 months and 223 patients were enrolled in the second study cohort and were treated for 8 months. The first
study cohort was comprised of three arms with patients receiving: 1 mg of CF101; 2 mg of CF101; and placebo. All patients
receiving placebo were switched to either 1 mg or 2 mg of CF101 after 12 weeks. Based on a positive safety and efficacy
interim analysis of the first 103 patients who completed 24 weeks of treatment in the trial, we decided to continue patient
enrollment for the second stage of the study and the study protocol was amended to extend the CF101 2.0 mg BID and placebo
administration for a period of 32 weeks. The positive clinical effects of the CF101 2.0 mg BID dose relative to a placebo
were observed in a variety of standard psoriasis assessment parameters, including PASI 75 and PGA scores, with the responses
accumulating steadily over the 24-week treatment period. See Figure 3. We believe that this clinical data corroborates the
published Phase II study results described above and confirms the dose selection, while the favorable safety profile of CF101
further supports its development for the systemic treatment of moderate-to-severe psoriasis. The topline results of our Phase
II/III trial are expected to be released at the end of March 2015.









38









|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------
|PGA
    Improvement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | PASI
Improvement
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                 
|Interim
    data included 103 patients who were randomized to CF101 1mg, CF101 2mg and placebo and were treated for 24 weeks. On week
    12 placebo were randomized to CF101 1mg or 2mg dose.PGA (left chart) - The percentage of patients presenting only slight or
    no clinical signs (PGA score 0-1) increased throughout the study period in the 2 mg CF101-treated group.PASI (right chart)
    - In the 2 mg CF101-treated group, a progressive improvement in the percentage of patients presenting PASI 75 improvement
    was observed.



Figure
3: Psoriasis efficacy by PGA and PASI



Rheumatoid
Arthritis:We conducted a Phase IIa blinded to dose study in 74 patients with RA, randomized to receive CF101 as a monotherapy
in one of three doses—0.1 mg, 1.0 mg and 4.0 mg. The primary efficacy endpoint was ACR20 response at week 12,
a criterion determined by the American College of Rheumatology that reflects 20% improvement in inflammation parameters. The study
data revealed maximal response at the 1.0 mg group, showing 55.6% with ACR20, 33.3% with 50% improvement, or ACR50, and 11.5%
with 70% improvement, or ACR70. CF101 administered BID for 12 weeks resulted in improvement in signs and symptoms of RA and was
safe and well-tolerated. See Figure 4. Studies in the United States were conducted pursuant to an open IND which was received
by the FDA in 2005.





39











Figure
4: Rheumatoid Arthritis efficacy by ACR



Subsequently,
two Phase IIb studies with CF101 in combination with MTX were conducted. The study protocols were multicenter, randomized, double-blind,
placebo-controlled, parallel-group and dose-finding to determine the safety and efficacy of daily CF101 administered orally when
added to weekly MTX in patients with active RA. The objectives of both studies were improvement in ACR20, ACR50, ACR70 and DAS28,
or the Disease Activity Score of 28 Joints, and EULAR, or the European League Against Rheumatism, response criteria, as well as
a positive safety profile. The trials’ primary endpoints were both ACR20.



The
first Phase IIb trial showed that the combined treatment had an excellent safety profile, but no significant ACR20 response was
observed between the RA group treated with CF101 and MTX and the group treated with MTX alone (the placebo group). However, the
ACR50, ACR70 and the EULAR Good Values in the combined treatment group were higher than those of the MTX placebo group. The study
also indicated that the 1.0 mg CF101 dose was the most favorable dose, i.e., the dose yielded the highest ACR50 and EULAR Good
Values as compared to the MTX placebo group. The most commonly reported adverse events in this study included nausea, dizziness,
headache and common bacterial and viral infections and infestations.



Following
a decision of our Clinical Advisory Board in October 2007, an additional Phase IIb study was initiated. This study was conducted
in medical centers in Europe and Israel and included 230 patients who received the drug orally BID (0.1 and 1.0 mg CF101 tablets
plus MTX versus a placebo, which was MTX alone) for 12 weeks. On April 30, 2009, we published preliminary results of the Phase
IIb study, which were later confirmed as the final results, also indicating that the study’s objectives were not achieved.
The most commonly reported adverse events in this study included nausea, myalgia and dizziness.



The
two Phase IIb studies failed to achieve the primary endpoint of ACR20. A cross study analysis of the three RA clinical studies
revealed that in the first Phase IIa study, where CF101 had been administered as a standalone drug, A3AR had been over-expressed
in the patients’ PBMCs prior to CF101 treatment, whereas A3AR had not been over-expressed in the Phase IIb patient population.
We believe, based on the foregoing data, that there may be a direct and statistically significant correlation between A3AR over-expression
at baseline and patients’ response to CF101, and that CF101 should be administered as a standalone drug and not in combination
with MTX. Furthermore, the correlation between A3AR expression levels prior to treatment and patients’ response to the drug
suggest that the A3AR may be a predictive biomarker to be analyzed prior to CF101 treatment. See Figures 5 and 6.





40













Figure
5: Direct correlation between A3AR at baseline and response to CF101







Figure
6: Direct correlation between A3AR at baseline and response to CF101



Based
on the results of the two Phase IIb studies, we conducted an additional Phase IIb clinical study with CF101 as a stand-alone,
monotherapy treatment and not in combination with MTX. The trial wasa 12-week multicenter, randomized, double-blind, placebo-controlled,
parallel-group study involving 79 patients to determine the safety and efficacy of CF101 administered orally daily in patients
with active RA and elevated baseline expression levels of the A3AR in PBMCs. Enrolled patients had high baseline A3AR biomarker
expression (determined at 1.5-fold over a predetermined age-matched standard). This selection criteria was made following the
findings during previous Phase IIa and IIb RA studies showing a positive correlation between A3AR expression at baseline and patients’
response to the drug, potentially rendering A3AR expression as a predictive biomarker.The primary objectives of this study wereto
determine the efficacy of oral CF101 when administered daily as a standalone treatment for 12 weeks to patients with active RA
and elevated baseline expression levels of the A3AR in the patients’ PBMCs, in comparison to a placebo treatment, and to
assess the safety of daily oral CF101 under the circumstances of the trial. In December 2013, we announced the results of the
study in which CF101 met all primary efficacy endpoints, showing statistically significant superiority over placebo in reducing
signs and symptoms of RA as compared to the placebo. The treatment had an ACR20 response rate of 49% for CF101 compared to 25%
for placebo (p=0.035), an ACR50 response rate of 19% for CF101 compared to 9% for placebo, and an ACR70 response rate of 11% for
CF101 arm compared to 3% for placebo. Similar to our observations in the previously reported CF101 psoriasis trials, the response
of patients with RA was cumulative over time, suggesting a consistent anti-inflammatory effect of CF101.  Moreover, half
of the RA patients treated with CF101 showed clinically meaningful improvement.CF101 was very well-tolerated and showed no evidence
of immunosuppression, and there were no severe treatment-emergent adverse events during the study. A subgroup analysis of 16 patients
with no prior systemic therapy showed a dramatic increase in the response showing ACR20 of 75%, ACR50 50%, and ACR70 50%. We believe
this may be related to the fact that in this patient population there is a full receptor expression since they had not been treated
earlier with any systemic drugs.





41







| | 
| | 

Figure
7: ACR response data –Rheumatoid Arthritis phase IIb



In
December 2014, we completed the design of an RA Phase III study of CF101. The Phase III study will be a multicenter, randomized,
double-blind, placebo-controlled, parallel-group study that will investigate the efficacy and safety of daily CF101 administered
orally as a monotherapy for 12 weeks to patients with active RA. The study will have three arms, a 2 mg CF101 dose, a 3mg CF101
dose and placebo, given orally twice daily in the form of tablets. Approximately 300 patients are expected to be enrolled in the
study, where sample size for each treatment group will be approximately 100 patients and will provide a statistical power of at
least 90%. The study primary end point will be ACR 20 response at Week 12. The A3 adenosine receptor biomarker will be evaluated
prior to treatment and its correlation to patients' response to the drug will be analyzed upon study conclusion.



DES:
DES is an eye disease caused by eye dryness, which, in turn, is caused by either decreased tear production or increased tear film
evaporation.  A Phase II study in DES was conducted by Can-Fite after discovering that patients in the Phase IIa study for
another condition also experienced improvement in DES symptoms. The results of the Phase II trial demonstrated the ability of
CF101 to improve signs of ocular surface inflammation of the patients studied. Following positive results in the Phase II study,
we initiated a Phase III DES trial, under an IND with the FDA which was conducted by OphthaliX in the United States, Europe and
Israel.The randomized, double-masked Phase III clinical trial enrolled 237 patients with moderate-to-severe DES who were randomized
to receive two oral doses of CF101 (0.1 and 1.0 mg) and a placebo, for a period of 24 weeks.  The primary efficacy endpoint
was complete clearing of corneal staining. In December 2013, we announced the results of this Phase III study of CF101 for the
treatment of DES. In the study, CF101 did not meet the primary efficacy endpoint of complete clearing of corneal staining, nor
the secondary efficacy endpoints. Nonetheless, CF101 was found to be well tolerated.In 2014 we decided to end the development
of CF101 for the DES indication. This decision was based on a lack of correlation between patients' response to CF101 and over-expression
of the drug target, the A3 adenosine receptor in this patient population.





42







Glaucoma:
We believe that the statistically significant decrease in IOP in the Phase II trial for DES, although observed in subjects
without ocular hypertension, is clinically significant and indicates that CF101 may also have potential as a glaucoma
therapy, as the main goal of glaucoma therapy is to reduce IOP. This finding led to a patent application for the use of CF101
for lowering IOP. It is our belief that this result, together with the neuro-protective and anti-inflammatory effects that
have been demonstrated in our studies and the studies of others, warrant rapid progression into clinical study in this
indication. A Phase II study in patients with glaucoma or related syndromes of ocular hypertension is currently ongoing in
Israel and Europe via OphthaliX. This study is a randomized, double-masked, placebo-controlled, parallel-group study of the
safety and efficacy of daily CF101 administered orally in subjects with elevated IOP. The objective of this study are to
determine the safety and efficacy of oral CF101 in lowering IOP when administered BID for 16 weeks in subjects with elevated
IOP. OphthaliX has enrolled 44 subjects in the first segment of the study, randomized in a 3:1 ratio to CF101 1.0 mg
treatment to the placebo.  OphthaliX is currently in the process of enrolling approximately 44 subject to the second
segment randomized in a 3:1 ratio to CF101 2.0 mg treatment to the placebo The full study data is expected to be announced in
the second half of2015. Neither we nor OphthaliX has filed an IND for this indication as CF101 for the treatment of glaucoma
is not currently being clinically tested in the United States and there are no near-term plans to do so.



Additional
Developments with CF101



Uveitis



Former
pre-clinical pharmacology studies conducted by us in collaboration with a worldwide leading laboratory in uveitis research at
the National Eye Institute at the U.S National Institute of Health, or the NIH, under a Cooperative Research and Development Agreement,
demonstrated that CF101 was effective in inhibiting the development of posterior uveitis in an experimental animal model. Additional
preclinical studies conducted by OphthaliX, showed that CF101 was effective in treating anterior uveitis in experimental animal
models.



The efficacy of CF101
in treating both anterior and posterior uveitis in experimental animal models supports further testing of CF101 for the treatment
of patients with either anterior or posterior uveitis. We, together with the NIH, have applied for a patent for the use of CF101
for the treatment of uveitis. We have licensed our share of this intellectual property to OphthaliX and together with OphthaliX
are in discussions with the NIH to obtain an exclusive license on the NIH’s share of this intellectual property. OphthaliX
submitted a protocol for a Phase II uveitis study in Europe and Israel to investigate the efficacy and safety of CF101 in 45 patients
with active, sight-threatening, noninfectious intermediate or posterior uveitis, who will be treated with either CF101 or a placebo
for a period of six months. The primary endpoint of this study is the proportion of subjects whose vitreous haze score improves
by two or more grades on the “Miami Scale” (Vitreous Haze: Miami Scale 2). OphthaliX is currently reviewing its clinical
development plans and intends to provide an update on the development for this indication on a later stage. Neither the OphthaliX
nor we have filed an IND for this indication as CF101 for the treatment of uveitis is not currently being clinically tested in
the United States and there are no near-term plans to do so.





Osteoarthritis



According
to the Arthritis Foundation, OA is the most common arthritic disease. Currently, there is a shortage of effective drugs for treating
OA patients. CF101 has induced a significant anti-inflammatory effect in experimental animal models with respect to the treatment
of OA and, as such, we are currently preparing for a Phase II study. We have not yet filed an IND for this indication as CF101
for the treatment of OA is not currently being clinically tested in the United States and there are no near-term plans to do so.





43







Crohn’s
Disease



Crohn’s
disease is an inflammatory bowel disease that may affect any portion of the gastrointestinal tract, causing a wide variety of
symptoms. It primarily causes abdominal pain, diarrhea, vomiting and weight loss, however, it may also cause complications outside
the gastrointestinal tract, such as skin rashes, arthritis, inflammation of the eye, tiredness and lack of concentration. Pre-clinical
pharmacology studies that we have conducted demonstrated the efficacy of CF101 for the treatment of Crohn’s disease. We
do not presently have plans for the treatment of Crohn’s disease.



CF102



CF102
is our second drug candidate and is under development for the treatment of HCC and HCV. CF102 is also a small, orally bioavailable
molecule, and an A3AR agonist, with high affinity and selectivity to the A3AR. In comparison to the expression in adjacent normal
liver tissue, the A3AR is over-expressed in tumor tissues of patients with HCC, and the over-expression is also reflected in the
patients’ PBMCs. A3AR over-expression in the patients’ tumor cells and PBMCs is attributed to high expression of certain
A3AR transcription factors. The binding of CF102 to the A3AR results in down-regulation, or a decrease in the quantity of a cellular
component, such as the number of receptors on a cell’s surface, of certain A3AR transcription factors. Our studies have
shown that this down-regulation leads to apoptosis of HCC cells. In our pre-clinical and clinical studies, CF102 demonstrated
anti-cancer, anti-viral and liver protective effects. As a result, we believe that CF102 can be used to treat a variety of oncological
and liver-related diseases and viruses. In February 2012, the FDA granted an orphan drug status for the active moiety, or the
part of the drug that is responsible for the physiological or pharmacological action of the drug substance, of CF102 for the treatment
of HCC. An orphan drug designation is a special designation by the FDA for drug approval and marketing. The special designation
is granted to companies that develop a given drug for unique populations and for incurable and relatively rare diseases. The orphan
drug designation program provides orphan status to drugs and biologics which are intended for the safe and effective treatment,
diagnosis or prevention of rare diseases or disorders that affect fewer than 200,000 people in the United States. Orphan drug
designations have enabled companies to achieve medical breakthroughs that may not have otherwise been achieved due to the economics
of drug research and development as this status lessens some of the regulatory burdens, for approval, including statistical requirements
for efficacy, safety and stability, in an effort to maintain development momentum. Orphan drug designation also results in additional
marketing exclusivity and could result in certain financial incentives.



Set
forth below are general descriptions of the diseases with respect to which CF102 has underwent or is currently undergoing clinical
trials.



HCC:HCC is an oncological disease characterized by malignant tumors that grow on the surface or inside of the liver. This type
of tumor is refractory to chemotherapy and to other anti-cancer agents. HCC, like any other cancer, develops when there is a mutation
to the cellular machinery that causes the cell to replicate at a higher rate and/or results in the cell avoiding apoptosis. Chronic
infections of Hepatitis B and/or C can aid the development of HCC by repeatedly causing the body’s own immune system to
attack the liver cells, some of which are infected by the virus. While this constant cycle of damage followed by repair can lead
to mistakes during repair which in turn lead to carcinogenesis, this hypothesis is more applicable, at present, to HCV. Chronic
HCV causes HCC through cirrhosis. In chronic Hepatitis B, however, the integration of the virus into infected cells can directly
induce a non-cirrhotic liver to develop HCC. Alternatively, repeated consumption of large amounts of ethanol can have a similar
effect.



Hepatitis
C:HCV is an infectious disease affecting primarily the liver, caused by the Hepatitis C virus. The infection is often asymptomatic,
but chronic infection can lead to scarring of the liver and ultimately to cirrhosis, which is generally apparent after many years,
and chronic liver disease. The virus also increases the chance for HCC development. In some cases, those with cirrhosis will develop
liver failure, liver cancer or life-threatening esophageal and gastric varices, or dilated submucosal veins, which can be life-threatening.
HCV is spread primarily by blood-to-blood contact often associated with intravenous drug use, poorly sterilized medical equipment,
transfusions, and sexual intercourse.





44







Pre-Clinical
Studies of CF102



We
conducted several pre-clinical studies, including studies of toxicity. The results indicated that CF102 was well- tolerated with
no adverse effects. In these studies, we evaluated the toxicity, stability, metabolism and other safety parameters of CF102 at
doses much higher than the doses that we currently administer to humans in our clinical trials of CF102. In pre-clinical pharmacology
studies, CF102 inhibited the growth of HCC via the induction of tumor cell apoptosis. In addition, in collaboration with leading
virology labs, we observed that CF102 inhibited viral replication of HCV through the down-regulation of viral proteins. Both of
these findings served as a basis to further explore development of this drug for HCC and HCV. Moreover, our pre-clinical studies
demonstrated that CF102 acted to stimulate liver regeneration after partial hepatectomy, or removal of a part of the liver, and
as such, we applied for a patent for this treatment.



Clinical
Studies of CF102



The
information discussed below is based on the various studies conducted by Can-Fite with CF102, including clinical studies in patients
with oncological and liver-related diseases and viruses.



Phase
I Clinical Study



CF102
completed a Phase I double-blind, randomized, placebo-controlled, ascending single dose trial to evaluate the safety, tolerability,
and pharmacokinetics of orally administered CF102 in healthy volunteers. The study was conducted in the United States under an
open IND. CF102 was found to be safe and well-tolerated with a half-life time of 12 hours. See Figure 10.







Figure
10. CF102 Pharmacokinetic profile



Phase
I/II Clinical Study



CF102
completed two Phase I/II studies in Israel, one in patients with HCC and another in patients with HCV. The HCC Phase I/II study
was an open-label, dose-escalation study evaluating the safety, tolerability, pharmacokinetics and pharmacodynamics of orally
administered CF102 in patients with advanced HCC. The primary objectives of the study were to determine the safety and tolerability,
dose-limiting toxicities, maximum tolerated dose, and recommended Phase II dose of orally administered CF102 in patients with
advanced HCC; and to assess the repeat-dose pharmacokinetics behavior of CF102 in those patients. The secondary objectives were
to document any observed therapeutic effect of CF102 in patients with HCC and to evaluate the relationship between PBMCs and the
A3AR expression at baseline, as a biomarker, and the effects of CF102 in patients with HCC. The study included 18 patients, nine
of which were also carriers of HCV. The initial dose of CF102 was 1.0 mg BID, with planned dose escalations in subsequent cohorts
to 5.0 and 25.0 mg BID. This Phase I/II study achieved its objectives, showing a good safety profile, or no material differences
versus a placebo with respect to observed and patient-indicated side effects, for CF102 and a linear pharmacokinetic drug profile,
with no dose-limiting toxicities at any dose level. The median overall survival time for the patients in this study was 7.8 months,
which is encouraging data considering that (i) 67% of the patient population in the study had previously progressed on Nexavar,
produced by Onyx Pharmaceuticals and Bayer, and that CF102 was a second line therapy for these patients and (ii) 28% of the patient
population were Child-Pugh Class B patients (patients classified on the Child Pugh scoring system for chronic liver disease as
having significantly impaired liver function) whose overall survival time is usually 3.5 to 5.5 months. Accordingly, we may also
consider CF102 as a drug to be developed for this patient sub-population of Child-Pugh Class B patients. CF102 had no adverse
effect on routine measures of liver function over a six-month period in 12 patients treated for at least that duration. These
findings are consistent with our pre-clinical CF102 data which demonstrated a protective effect on normal liver tissue in an experimental
model of liver inflammation. As such, CF102 may potentially be a safer alternative to patients with cirrhosis and/or hepatic impairment.
The study also demonstrated a direct relationship between A3AR expression at baseline and patients’ response to CF102, suggesting
A3AR as a predictive biological marker. We also observed a decrease in the viral load of seven out of nine patients who were also
carriers of HCV. The most commonly reported adverse events included loss of appetite, ascites, nausea, diarrhea, constipation
and pain. However, many of these events are expected in a population of patients with advanced HCC. The most frequently reported
drug-related adverse events included diarrhea, fatigue, loss of appetite, pain and weakness.





45







Our
second Phase I/II study was a randomized, double-blind, placebo-controlled, dose-escalation study evaluating the safety, tolerability,
biological activity, and pharmacokinetics of orally administered CF102 in 32 subjects with chronic HCV genotype 1. Eligible subjects
were assigned in a 3:1 ratio (eight subjects in each cohort) to receive QD or BID treatment (1.0, 5.0 and 25.0 mg of CF102) for
15 days with oral CF102 or with a placebo. Dose escalation occurred in four sequential cohorts. The study’s primary objectives
were to determine the safety and tolerability of orally administered CF102 in patients with chronic HCV genotype 1, to assess
the effects on HCV load during 15 days of treatment with CF102 and to assess the repeat-dose pharmacokinetic behavior of CF102
under the conditions of this trial. The secondary objective of this trial was to perform an exploratory evaluation of the relationship
between A3AR in PBMCs at baseline and the clinical effects of CF102 on the study’s patients. Following the decrease in HCV
load that had been observed in HCV patients treated with CF102 in the parallel HCC study and the good safety profile of CF102,
we received Israeli Institutional Review Board approval to extend the treatment period of the Phase I/II in patients with HCV
to four months with the 1.0 mg dose vs. the placebo. The results of this Phase I/II HCV study demonstrated safety and a linear
pharmacokinetic drug profile, however, no significant decrease in the viral load was observed. Notwithstanding, we did observe
in the parallel HCC study that seven out of the nine patients with both HCC and HCV experienced a decrease in viral load and that
these seven patients were treated with higher CF102 dosages than what was administered to the patients with chronic HCV genotype
1 only, and not HCC, possibly explaining the difference in results. The most commonly reported adverse events included loss of
appetite, ascites, nausea, diarrhea, constipation and pain. However, many of these events are expected in a population of patients
with advanced HCV. The most frequently reported drug-related adverse events included diarrhea, fatigue, loss of appetite, pain
and weakness.



We
are conducting a Phase II study in HCC patients. In January 2013, as part of our preparatory work for such study, we announced
that we believe that the optimal drug dose for the upcoming study is CF102 25.0 mg. This does was found to be the most effective
dose out of the three dosages tested (1.0 mg, 5.0 mg and 25.0 mg) in the previous Phase I/II study. We filed a patent application
protecting such optimal dose of CF102 for HCC. A publication summarizing the results of the Phase I/II study was published in
“The Oncologist”, a leading oncology scientific journal. We also highlighted that one patient has been treated with
CF102 for over five years. Also as part of the Phase II study, we plan to examine the viral load of HCC patients who are also
infected with HCV. If we observe a decrease in the viral load in the HCV sub-population during this forthcoming study, we intend
to commence a separate Phase II study for the HCV indication.



The Phase II study is
a randomized, double-blind, placebo controlled trial to be conducted in the U.S., Europe and Israel with an estimated 78 patients
to be enrolled. CF 102 is being evaluated for efficacy and safety as a second-line treatment for advanced HCC in subjects with
Child-Pugh B who failed Nexavar as a first line treatment. The primary endpoint of the study is overall patient survival. In March
2014, the study protocolwas approved by the Institutional Review Board at the Rabin Medical Center in Israel and in December 2014
we dosed the first patient at the study’s Israeli site.







46







Additional
Developments with CF102



JC
Virus



In
April 2011, we announced that, in laboratory study, CF102 inhibited the reproduction of the JC virus, a type of polyomavirus,
which is dormant in approximately 70% to 90% of the world population. However, in patients treated with biological drugs, including
monoclonal antibody therapeutics, such as anti-TNFs or anti-CD20, JC virus replication may occur, resulting in development of
progressive multifocal leukoencephalopathy, or PML, which is characterized by progressive damage or inflammation of the white
matter of the brain and, eventually, death. The ability of CF102 to suppress the JC Virus culture, as indicated in the laboratory
study, may indicate that it may be used for the treatment of PML as a combination therapy with biological drugs. As CF102 is already
in various stages of clinical development for other indications, its efficacy for this new application may be tested in clinical
trials.



CF602



The
allosteric modulator, CF602, is our third drug candidate in its pipeline. CF602 is an orally bioavailable small molecule, which
enhances the affinity of the natural ligand, adenosine, to its A3AR. The advantage of this molecule is its capability to target
specific areas where adenosine levels are increased. Normal body cells and tissues are refractory to allosteric modulators. This
approach complements the basic platform technology of Can-Fite, utilizing the Gi coupled protein A3AR as a potent target in inflammatory
diseases. CF602 has demonstrated proof of concept for anti-inflammatory activity in in vitro and in vivo studies
performed by us.



Recently, CF602 was tested
in an experimental animal model of diabetic rats, which similar to diabetic patients, suffer from sexual dysfunction. Erectile
dysfunction was assessed by monitoring the ratio between intra-cavernosal pressure (ICP) and mean arterial pressure (MAP) as a
physiological index of erectile function.  The ICP/MAP for the CF602 treated group improved by 118% over the placebo group.
This data is similar to that achieved earlier by sildenafil (Viagra) in preclinical studies. In addition, treatment with CF602
reversed smooth muscle and endothelial damage, in a dose dependent manner, leading to the improvement in erectile dysfunction.
Subject to having sufficient financial resources, we intend to conduct further pre-clinical studies for this drug candidate. After
completion of all pre-clinical testing, we intend to file an IND with respect to CF602.





During
clinical studies conducted with our product candidates, other than CF602, patients suffering from sexual dysfunction reported
that they returned to normal functioning following the treatment with such drugs. We believe that these findings are correlated
with our platform technology, which is the targeting of the A3AR. Adenosine, like nitric oxide, is a potent and short-lived vaso-relaxant
that functions via intracellular signaling (in particular, through cAMP) to promote smooth muscle relaxation. Recent studies conducted
by others show that adenosine functions to relax the corpus cavernosum and thereby promote penile erection. We have filed a patent
application in Israel for the treatment of sexual dysfunction utilizing our drug candidates and are planning to develop CF602
for this indication as it uses the same platform technology and becomes active through the same mechanism as the rest of our drug
candidates. GlobalData valued the erectile dysfunction therapeutic market at $2.9 billion in 2010 reducing to $2.6 billion by
2018, which mainly includes the drugs Viagra, Cialis and Levitra.



Commercial
Biomarker Test



In
March 2015, we completed the development of a commercial predictive biomarker blood test kit for A3AR. The biomarker test can
be used at any molecular biology lab, where a small blood sample from a prospective patient would be tested and within just a
few hours, results indicate if the patient would benefit from treatment with our drugs, which are currently in clinical trials
for rheumatoid arthritis, psoriasis, and liver cancer.



The
U.S. Patent and Trademark Office previously issued to us a patent for the utilization of A3AR as a biomarker to predict patient
response to its drug CF101 in autoimmune inflammatory indications.



In-Licensing
Agreements



The
following are summary descriptions of certain in-licensing agreements to which we are a party. The descriptions provided below
do not purport to be complete and are qualified in their entirety by the complete agreements, which are attached as exhibits to
this Annual Report on Form 20-F.





47







NIH
Agreement



On
January 29, 2003, we entered into a license agreement with the NIH, or the NIH Agreement, through the U.S. Public Health Service.
Pursuant to the NIH Agreement, we were granted an exclusive license for the use of a family of U.S. and European patents and patent
applications relating to CF101, CF102 and other small molecules and for the use, sale, production and distribution of products
derived from such patents around the world. Subject to certain conditions, we may sublicense the NIH Agreement. However, the NIH
retains a paid-up, worldwide license to practice the licensed inventions for government purposes and may require us to grant sublicenses
when necessary to fulfill health or safety needs.



According
to the NIH Agreement, we are committed to pay royalties as follows: (i) a $225,000 signing payment; (ii) a minimum non-refundable
annual payment of $50,000; (iii) 4% to 5.5% of our total net revenues from sales of licensed products or from conducting tests
with respect to CF101, CF102 and the other licensed small molecules worldwide, on a consolidated basis, out of which 1.75%-2.75%
may be offset against royalties that we are required to pay another third party; (iv) individual payments ranging from $25,000
to $500,000 subject to meeting certain drug development milestones, including the initiation of certain clinical trials with respect
to the licensed products; and (v) additional payments totaling 20% of all monetary consideration received from sublicensees, except
for royalties received on any such sublicensee’s net revenues from sales of the licensed products, out of which 2% may be
offset against royalties that we are required to pay another third party. As of December 31, 2014, we have paid approximately
$1,025,000 in royalties to the NIH in connection with the NIH Agreement. We estimate that we will further pay a total of approximately
$425,000 in milestone payments to the NIH in connection with the NIH Agreement until its expiration.



The
NIH Agreement sets certain development milestones with which we must comply. On August 4, 2005 and February 4, 2013, amendments
were signed with the NIH to extend such milestone dates. The amendments had no effect on the originally determined license terms.



The
NIH Agreement will remain in effect until the last patent licensed under the NIH Agreement expires on June 30, 2015, unless it
is earlier terminated by one of the parties, according to the NIH Agreement. The termination rights include, but are not limited,
our right to terminate upon 60-days’ prior written notice to the NIH, the NIH’s right to terminate if we become insolvent
or bankruptcy proceedings are initiated against us, and NIH’s right to terminate upon our default in the performance of
any material obligation and our failure to cure such default within 90 days of written notice of such default.



In
addition, on January 24, 2006, we entered into a cooperative research and development agreement, or CRADA, with the NIH whereby
we received an option to obtain a license from the NIH for any new group of A3AR agonists to be developed under terms that will
be determined between the parties on the date of exercise of such option. In connection with the CRADA and the option granted
thereunder, we signed a commercial evaluation license agreement with the NIH on April 17, 2007, and selected one molecule, CF502
(or MRS3558) to evaluate. However, at a later stage, we decided not to continue the development of CF502, terminated the commercial
evaluation license agreement and did not exercise the option granted under the CRADA.



Leiden
University Agreements



On November 2, 2009, we
entered into a license agreement, or the Leiden University Agreement, with Leiden University. Leiden University is affiliated
with the NIH and is the joint owner with the NIH of the patents licensed pursuant to the Leiden University Agreement. The Leiden
University Agreement grants an exclusive license for the use of the patents of several compounds, including CF602, that comprise
certain allosteric compound drugs, and for the use, sale, production and distribution of products derived from such patents in
the territory, i.e., China and certain countries in Europe (Austria, Belgium, Denmark, France, Germany, Italy, Spain, Sweden,
Switzerland, Holland and England). Subject to certain conditions, we may sublicense the Leiden University Agreement. However,
the U.S. government has an irrevocable, royalty-free, paid-up right to practice the patent rights throughout the territory on
behalf of itself or any foreign government or international organization pursuant to any existing or future treaty or agreement
to which the U.S. government is a signatory and the U.S. government may require us to grant sublicenses when necessary to fulfill
health or safety needs.







48







Pursuant
to the Leiden University Agreement, we are committed to make the following payments: (i) a one-time concession commission of 25,000
Euros; (ii) annual royalties of 10,000 Euros until clinical trials commence; (iii) 2% to 3% of net sales value, as defined in
the Leiden University Agreement, received by us; (iv) royalties of up to 850,000 Euros based on certain progress milestones in
the clinical stages of the products which are the subject of the patent under the Leiden University Agreement; and (v) if we sublicense
the agreement, we will provide Leiden University royalties at a rate of 2-3% of net sales value, as defined in the Leiden University
Agreement, and 10% of certain consideration received for granting the sublicense. In the event that we transfer to a transferee
the aspect of our business involving the Leiden University Agreement, we must pay to Leiden University an assignment royalty of
10% of the consideration received for the transfer of the agreement. However, a merger, consolidation or any other change in ownership
will not be viewed as an assignment of the agreement. In addition, we have agreed to bear all costs associated with the prosecution
of the patents and patent applications to which we are granted a license under the Leiden University Agreement. As of December
31, 2014, we have paid approximately 85,000 Euros in royalties to Leiden University in connection with the Leiden University Agreement.



The
Leiden University Agreement expires when the last of the patents expires in each country of the territory, unless earlier terminated
in accordance with the terms of the Leiden University Agreement. The last of such patents is set to expire on 2027. The termination
rights of the parties include, but are not limited to, (i) the non-defaulting party’s right to terminate if the defaulting
party does not cure within 90 days of written notice identifying the default and requesting remedy of the same; and (ii) Leiden
University’s right to terminate if we become insolvent, have a receiver appointed over our assets or initiate a winding-up.
In addition, Leiden University may terminate the agreement when it is determined, in consultation with NIH, that termination is
necessary to alleviate health and safety needs and certain other similar circumstances.



Out-Licensing
and Distribution Agreements



The
following are summary descriptions of certain out-licensing and distribution agreements to which we are a party. The descriptions
provided below do not purport to be complete and are qualified in their entirety by the complete agreements, which are attached
as exhibits to this Annual Report on Form 20-F.



Seikagaku
Agreement



On
September 22, 2006, we executed an exclusive license agreement, which was amended in December 2006, with Seikagaku Corporation,
a Japanese public corporation, or SKK, for the use, development and marketing of CF101 in Japan with respect to inflammatory indicators,
except for ophthalmic disease indicators. The agreement with SKK as amended, or the Seikagaku Agreement, also grants to SKK an
exclusive, royalty-free license to use certain of our trademarks, as determined from time to time, in connection with the distribution,
marketing, promotion and sale of any products derived from CF101 pursuant to the Seikagaku Agreement. Under the terms of the Seikagaku
Agreement, we cannot prevent SKK from making financial, operational or strategic decisions associated with the use, development
or marketing of CF101 in Japan.



The
Seikagaku Agreement contemplates the creation of a four member joint committee consisting of two members from each party with
the purpose of serving as a joint source of experience and knowledge in CF101 development and to facilitate communication and
coordination between the parties with respect to such development. The joint committee, among other things specifically identified
in the Seikagaku Agreement, provides to the parties opinions, proposals, ideas and updates with respect to the CF101 development
processes conducted separately by each party.



Under
the Seikagaku Agreement, we are entitled to up-front and milestone payments of up to $17 million (of which $2 million is
attributable to our participation in certain research and development activities), annual payments of $500,000 and at least
an additional $1 million in milestone payments if SKK pursues a second indication (the current indication is RA).We will also
be entitled to royalties in an amount between 7-12% of annual net sales in Japan subject to certain sales criteria. In
accordance with the Seikagaku Agreement, we received an up-front payment of $3.0 million in 2006, a milestone payment of $1.0
million in 2008 and $0.5 million per year from 2007 through 2011 as an annual minimum royalty payment (for an aggregate of
$2.5 million). In addition to the amounts above, we will be entitled to additional payments based on sales of raw materials
to SKK for the purpose of developing, producing and marketing CF101. If SKK decides to produce the raw materials itself, we
will be entitled to $1.0 million and an additional manufacturing royalty payment. Furthermore, we will be entitled to receive
additional payments if SKK requests information regarding the results and reports of other clinical and non-clinical studies
conducted by us and we will be required to make certain payments to SKK if we request results and reports from their clinical
and non-clinical studies. These payments will be calculated based on a percentage of the costs of such clinical and
non-clinical studies, as the case may be.





49







Pursuant
to a representative agreement, dated September 22, 2006, we have paid or are committed to pay, 5% of the above amounts actually
received as a brokerage commission to Fuji Techno Interface Ltd., the Japanese company that brokered the Seikagaku Agreement.
The Seikagaku Agreement is effective until SKK completes all payments required by the agreement, unless it is earlier terminated
as a result of a material breach not cured within the specified time frame or as a result of the initiation of bankruptcy or insolvency-
related proceedings.



As
of December 31, 2014, SKK had paid us approximately $8.5million in up-front and milestone payments.



Kwang
Dong Agreements



On
December 22, 2008, we entered into a license agreement with Kwang Dong Pharmaceutical Co. Ltd, a South Korean limited company,
or KD, and the Kwang Dong License Agreement, respectively, for the use, development and marketing of CF101 in the Republic of
Korea with respect to RA. In addition, the Kwang Dong License Agreement grants to KD an exclusive, royalty-free license to use
certain of our trademarks, as determined from time to time, in connection with the distribution, marketing, promotion and sale
of any products derived from CF101 pursuant to the Kwang Dong License Agreement.



The
Kwang Dong License Agreement also provides for the creation of a four member joint committee consisting of two members from each
party for the purpose of serving as a joint source of experience and knowledge in CF101 development and to facilitate communication
and coordination between the parties with respect to such development. The joint committee will, among other things specifically
identified in the Kwang Dong License Agreement, provide to the parties opinions, proposals, ideas and updates with respect to
the CF101 development processes conducted separately by each party.



According
to the Kwang Dong License Agreement, we are entitled to receive or have received the following payments: (i) a non-refundable
amount of $300,000 paid within 30 days of the effective date of the agreement; (ii) an amount of up to $1.2 million based on our
compliance with certain milestones, including but not limited to, the conclusion of the Phase II clinical trial for CF101 for
treating RA and the receipt of various regulatory authorizations; and (iii) annual royalties of 7% of annual net sales of the
licensed drug in the Republic of Korea. In addition to the amounts detailed above, we will be entitled to additional payments
based on sales of raw materials to KD for the purpose of developing, producing and marketing CF101.



The
Kwang Dong License Agreement is effective until KD completes all payments required thereunder, unless it is earlier terminated
as a result of a material breach not cured within the specified time frame, the breach by KD of the Kwang Dong Purchase Agreement
or the initiation of bankruptcy or insolvency related proceedings.



Pursuant
to a share purchase agreement entered into with KD at the same time as the Kwang Dong License Agreement, KD purchased 95,304 of
our ordinary shares, representing approximately 1.0 % of our share capital on a fully diluted basis, as of the date of the purchase.
The shares were purchased for a premium of 50% on the shares’ average closing price for the ten days preceding December
11, 2008, or a purchase price of NIS 0.455 per share.



After
the TASE approved such shares for the listing for trade on January 5, 2009, the shares were allocated to KD and the transaction
was finalized in January 2009.As of December 31, 2014, KD had paid us approximately $0.8million, which represents milestone payments
pursuant to the Kwang Dong License Agreement, an advance of certain amounts to become due under the Kwang Dong License Agreement
and the purchase price for the shares.



Cipher
Pharmaceuticals Agreement



On March 20, 2015, we
entered into a Distribution and Supply Agreement with Cipher Pharmaceuticals, or Cipher, granting Cipher the exclusive right to
distribute CF101 in Canada for the treatment of psoriasis and RA.







50







Under
the Distribution and Supply Agreement, we are entitled to CDN$1.65 million upon execution of the agreement plus milestone payments
upon receipt of regulatory approval by Health Canada for CF101 and the first delivery of commercial launch quantities as follows
(i) CDN$1 million upon the first approved indication for either psoriasis or RA, and (ii) CDN $1 million upon the second approved
indication for either psoriasis or RA. In addition, following regulatory approval, we shall be entitled to a royalty of 16.5%
of net sales of CF101 in Canada and reimbursement for the cost of manufacturing CF101. We are also entitled to a royalty payment
for any authorized generic of CF101 that Cipher distributes in Canada.



We
are responsible for supplying Cipher with finished product for distribution and conducting product development activities while
Cipher is responsible for distribution, marketing and obtaining applicable regulatory approvals in Canada. The Distribution and
Supply Agreement has an initial term of fifteen years, automatically renewable for additional five year periods and may be terminated
in certain limited circumstances including certain breaches of the agreement and failure to achieve certain minimum quantities
of sales during the contract period.



The
timeline to regulatory submissions to Health Canada will be determined by the completion of the remaining clinical trial program.



Eye-Fite
Agreement



In
connection with the spin-off transaction described below in “Item 10. Additional Information—Material Contracts—OphthaliX
Agreements”, on November 21, 2011, we entered into a license agreement, or the Eye-Fite Agreement, with Eye-Fite according
to which we (i) granted Eye-Fite a sole and exclusive worldwide license for the use of CF101 solely in the field of ophthalmic
diseases and patent rights which we received under the NIH Agreement, with respect to CF101 in the field of ophthalmic diseases
for research, development, commercialization and marketing throughout the world and (ii) assigned to Eye-Fite our rights, title
and interest in and to any and all INDs to CF101 in the ophthalmic field. As consideration for the grant of the license, we received
999 ordinary shares of Eye-Fite, in addition to the one share we already had, which resulted in us owning all of the issued and
outstanding shares of Eye-Fite, all of which were transferred to OphthaliX in connection with this transaction. In addition, Eye-Fite
must, for the duration of the NIH Agreement, make the following payments to the NIH: (i) a nonrefundable minimum annual royalty
of $25,000, (ii) earned royalties of 4.0% to 5.5% on net sales in territories in where such patents exist and (iii) individual
payments ranging from $25,000 to $500,000 upon the achievement of various development milestones for each indication. Eye-Fite
will also be required to make payments to the NIH of 20% of sublicensing revenues, excluding royalties and net of the required
milestone payments. The payments set forth above represent our liabilities to the NIH under to the NIH Agreement, which pursuant
to the Eye-FiteAgreement, Eye-Fite is obligated to make to the NIH.



If
Eye-Fite fails to make a required payment to the NIH, Can-Fite will be entitled to terminate the license granted to Eye-Fite under
the Eye-Fite Agreement upon 30 days’ prior written notice. The Eye-Fite Agreement will remain in effect until the expiration
of the last of the patents licensed thereunder, unless earlier terminated by one of the parties in accordance with its terms.
Can-Fite may terminate the Eye-Fite Agreement upon customary bankruptcy and insolvency events of Eye-Fite and upon Eye-Fite’s
material breach of the Eye-Fite Agreement, upon 30 days’ prior written notice. Eye-Fite may terminate the Eye-Fite Agreement
upon three months’ prior written notice for any reason and upon 30 days’ prior written notice for Can-Fite’s
material breach of the Eye-Fite Agreement. All inventions resulting from the development and commercialization of CF101 under
the Eye-Fite Agreement belong to Can-Fite, whether invented solely by Can-Fite, solely by Eye-Fite or by both entities. However,
the Eye-Fite Agreement also grants Eye-Fite an exclusive license to use any such inventions in the field of ophthalmic diseases
around the world for no additional consideration.



Total
Revenues by Category of Activity and Geographic Markets



We
have not generated any revenues during the prior three fiscal years. Historically, we have generated revenues from payments received
pursuant to our out-licensing agreements with SKK and KD with respect to CF101.See “Item 4—Information on the Company—Business
Overview—Out-Licensing and Distribution Agreements”. We expect to generate future revenues through our current and
potential future out-licensing arrangements with respect to CF101, as well as through future out-licensing arrangements with respect
to our other product candidates, i.e., CF102 and CF602.





51







Seasonality



Our
business and operations are generally not affected by seasonal fluctuations or factors.



Raw Materials
and Suppliers



We
believe that the raw materials that we require to manufacture CF101, CF102 and CF602 are widely available from numerous suppliers
and are generally considered to be generic industrial chemical supplies. We do not rely on a single or unique supplier for the
current production of any therapeutic small molecule in our pipeline.



Manufacturing



We
are currently manufacturing our active pharmaceutical ingredient, or API, through a leading Chinese contract research organization,
or CRO. The relevant suppliers of our drug products are compliant with both current Good Manufacturing Practices, or cGMP, and
current Good Laboratory Practices, or cGLP, and allow us to manufacture drug products for our current clinical trials. We anticipate
that we will continue to rely on third parties to produce our drug products for clinical trials and commercialization.



There
can be no assurance that our drug candidates, if approved, can be manufactured in sufficient commercial quantities, in compliance
with regulatory requirements and at an acceptable cost. We and our contract manufacturers are, and will be, subject to extensive
governmental regulation in connection with the manufacture of any pharmaceutical products or medical devices. We and our contract
manufacturers must ensure that all of the processes, methods and equipment are compliant with cGMP for drugs on an ongoing basis,
as mandated by the FDA and other regulatory authorities, and conduct extensive audits of vendors, contract laboratories and suppliers.



Contract
Research Organizations



We
outsource certain preclinical and clinical development activities to CROs, which in pre-clinical studies work according to cGMP
and cGLP. We believe our clinical CROs comply with guidelines from the International Conference on Harmonisation of Technical
Requirements for Registration of Pharmaceuticals for Human Use, which attempt to harmonize the FDA and the European Medicines
Agency, or the EMA, regulations and guidelines. We create and implement the drug development plans and, during the preclinical
and clinical phases of development, manage the CROs according to the specific requirements of the drug candidate under development.



Marketing
and Sales



We
do not currently have any marketing or sales capabilities. We intend to license to, or enter into strategic alliances with, larger
companies in the pharmaceutical business, which are equipped to market and/or sell our products, if any, through their well-developed
marketing capabilities and distribution networks. We intend to out-license some or all of our worldwide patent rights to more
than one party to achieve the fullest development, marketing and distribution of any products we develop.



Intellectual
Property



Our
success depends in part on our ability to obtain and maintain proprietary protection for our product candidates, technology and
know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary
rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications
related to our proprietary technology, inventions and improvements that we believe are important to the development of our business.
We also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary position.



Patents



As
of March 23, 2015, we owned or exclusively licensed (from the NIH and Leiden University) 15 patent families that, collectively,
contain approximately 150 issued patents and pending patent applications in various countries around the world relating to our
two clinical candidates, CF101 and CF102, and our preclinical candidate, CF602. Patents related to our drug candidates may provide
future competitive advantages by providing exclusivity related to the composition of matter, formulation and method of administration
of the applicable compounds and could materially improve their value. The patent positions for our leading drug candidates are
described below.





52







We
currently license from the NIH and Leiden University certain intellectual property that is necessary to conduct our business.
We currently hold an exclusive license from the NIH to a family of patents that protects certain small molecules that are A3AR
agonists, such as CF101 and CF102, and the pharmaceutical use of such molecules. This exclusive license relates to two compositions
of matter patents that were granted in the United States and Europe (in particular, United Kingdom, France, Germany, Switzerland,
Italy, Belgium and Luxembourg), the former of which is expected to expire in 2015 and the latter in 2014. We will not be able
to extend the foregoing expiration dates and as such, as of June 30, 2015, the license agreement with the NIH will terminate.
We do not expect that we will be able to submit an NDA seeking approval of CF101 or CF102 prior to the composition of matter patents’
respective expiration dates. However, because CF101 and CF102 each may be a new chemical entity, or NCE, following approval of
an NDA, we, if we are the first applicant to obtain NDA approval, may be entitled to five years of data exclusivity in the United
States with respect to such NCEs. Analogous data and market exclusivity provisions, of varying duration, may be available in Europe
and other foreign jurisdictions. We also have rights under our pharmaceutical use issued patents with respect to CF101 and CF102,
which provide patent exclusivity within our field of activity until the mid- to late-2020s. While we believe that we may be able
to protect our exclusivity in its field of activity through such use patent portfolio and such period of exclusivity, the lack
of composition of matter patent protection may diminish our ability to maintain a proprietary position for its intended uses of
CF101 and CF102. Moreover, we cannot be certain that we will be the first applicant to obtain an FDA approval for any indication
of CF101 and we cannot be certain that we will be entitled to NCE exclusivity. Such diminution of our proprietary position could
have a material adverse effect on our business, results of operation and financial condition. We also currently hold an exclusive
license from the NIH and Leiden University of the Netherlands to a family of patents and patent applications that relate to the
allosteric modulators of the A3AR, which includes the allosteric modulator CF602. This exclusive license relates to two patents
that were granted in the United States, China and in Europe (validated in, Austria, Belgium, Denmark, France, Germany, Italy,
Spain, Sweden, Switzerland, Holland and England). These granted patents and the patents that may be granted on patent applications
of this patent family are set to expire in 2027. We hold the foregoing licenses pursuant to the terms and conditions of certain
license agreements.



With
respect to our product candidates, we currently own patents and/or have patent applications pending in several countries around
the world for the following families of patents:



| | ● | a
    family of patents which pertains to the use of substances that bind to the A3AR, including CF101 and CF102; the pharmaceutical
    uses to which such family relates include the treatment of proliferative diseases, such as cancer, psoriasis and autoimmune
    diseases. Such patents were granted in the United States, Europe (by the European Patent Office, or the EPO, and validated
    in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Portugal, Spain, Sweden,
    Switzerland, Holland and the United Kingdom), Australia, Canada, Israel, China, Japan, South Korea, Mexico, Poland, Russia
    and Hong-Kong. These patents are set to expire in 2020, other than the United States patent that will expire in 2022;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a
    family of patents and a patent application which pertain to use of substances that bind to the A3AR for the treatment of viral
    diseases, such as AIDS and hepatitis, and which inhibit viral replication. Such patents were granted in the United States,
    in Europe (by the EPO and validated in France, Germany, Italy, Switzerland and the United Kingdom), Australia, China, Israel,
    Japan, Singapore, Canada and Hong Kong. The patents are set to expire in 2022, other than the United States patent that will
    expire in 2023. The patent application is pending in Brazil with a filing date of January 1, 2002 and a priority date of January
    16, 2001;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a
    patent which pertains to the use of A3AR agonists for the treatment of inflammatory arthritis, in particular RA. This patent
    was granted in the United States and is set to expire in 2023;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a
    family of patents and patent applications which pertain to a method of identifying inflammation, determining its severity,
    and determining and monitoring the efficacy of the anti-inflammatory treatment by determining the level of A3AR expression
    in white blood cells as a biological marker for inflammation. These patents were granted in certain countries in Europe (by
    the EPO and validated in France, Germany, Italy, Spain, Switzerland and the United Kingdom), Australia, Israel, Japan, USA,
    China and Mexico. The patents are set to expire in 2025. The patent applications are pending in the Canada, and Brazil. Each
    of the applications has a filing date of November 30, 2005 and a priority date of December 2, 2004;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





53







| | ● | a
    family of patents and patent applications which pertain to the use of A3AR agonists for the treatment of DES. This family
    includes patents in Japan and Mexico. These patents are set to expire in 2026.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a
    family of patents and patent applications which pertains to the use of A3AR agonists for the treatment of reducing IOP. Such
    patents were granted in Australia and United States. The patents are set to expire in 2030. The patent applications are pending
    in the EPO (this European application designates all EPC member states), Israel, Japan, China, Canada,  Mexico and
    South Korea, each with a filing date of May 16, 2010 and a priority date of May 17, 2009;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a
    family of patents and patent applications which pertains to the use of a specific dose level of CF101 (total daily dose of
    4.0 mg) for the treatment of psoriasis. Such a patent was granted in the United States. The patent is set to expire in 2030.The
    patent applications are pending in the China, the EPO (this European application designates all EPC member states), Israel
    (which was recently allowed) India, Japan and South Korea, each with a filing date of September 6, 2010 and a priority date
    of September 6, 2009;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a family of patents
and patent applications which pertain to the method for producing CF101. Such patents were granted in China, Japan and Israel.
These patents are set to expire in 2028. The patent applications are pending in the United States, the EPO (this European application
designates all EPC member states) and India, each with a filing date of March 13, 2008 and a priority date of March 14, 2007;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a
    family of patents and patent applications which pertain to the use of A3AR agonists for the treatment of OA. Such patents
    were granted in Europe (by the EPO and validated in Austria, Belgium, Denmark, France, Germany, Italy, Spain, Sweden, Switzerland,
    Holland and the United Kingdom), Australia, Canada, South Korea, China and Mexico. The patents are set to expire in 2026.
    Patent applications are pending in the United States, Brazil, Israel and Japan. These patent applications have a filing date
    of November 29, 2006 and a priority date of November 30, 2005;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a
    family of patents and patent applications which pertains to the use of A3AR agonists for increasing liver cell division, intended
    to induce liver regeneration following injury or surgery. Such patents were granted in China, Israel, Japan, USA and Europe
    (by the EPOand validated in Austria, Belgium, Denmark, France, Germany, Italy, Netherlands, Poland, Spain, Sweden, Switzerland
    and Turkey). There is one patent application pending in the United States with a filing date of October 22, 2007 and a priority
    date of October 15, 2007.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ● | a
    family of patent applications which pertain to the use of A3AR agonists for the maintenance of liver function in patients
    having chronic liver disease. These patent applications are pending in China, Israel, Japan, Hong-Kong, United States and
    Europe (this European application designates all EPC member states). These patent applications have a filing date of August
    8, 2013 and a priority date of January 23, 2012;                                                                                                                          



| | ● | a
    family of patent application under joint ownership with the NIH and licensed, to the extent of our ownership, to Eye-Fite,
    which pertain to the use of A3AR agonists for the treatment of uveitis. These patent applications are pending in the Canada,
    Israel, Mexico and South Korea. The patent applications have filing dates of February 27, 2011 and priority dates of March
    3, 2010;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





54







| | ● | a
    patent application which pertains to the treatment of hepatocellular carcinoma. This patent application is a PCT application
    with a filing date of January 23, 2013 and a priority date of January 23, 2012;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a
    family of patent applications which pertain to treatment of sexual dysfunction. This family includes patent applications in
    Israel (two), Australia, China, Japan, Russia, Brazil, Canada, Europe, India, Mexico, South Korea, and USA. The two Israeli
    patent applications have filing dates of August 8, 2012 and November 12, 2012 and the other patent applications have a filing
    date of August 8, 2013 with priority dates of August 8, 2012 and November 12, 2012.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We
believe that our owned and licensed patents provide broad and comprehensive coverage of our technology, and we intend to aggressively
enforce our intellectual property rights if necessary to preserve such rights and to gain the benefit of our investment. However,
the patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. Our ability
to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effective claims
and enforcing those claims once granted. We do not know whether any of our patent applications or those patent applications that
we license will result in the issuance of any patents. Our issued patents and those that may issue in the future, or those licensed
to us, may be challenged, narrowed, circumvented or found to be invalid or unenforceable, which could limit our ability to stop
competitors from marketing related products or the length of term of patent protection that we may have for our products. Neither
we nor our licensors can be certain that we were the first to invent the inventions claimed in our owned or licensed patents or
patent applications. In addition, our competitors may independently develop similar technologies or duplicate any technology developed
by us, and the rights granted under any issued patents may not provide us with any meaningful competitive advantages against these
competitors. Furthermore, because of the extensive time required for development, testing and regulatory review of a potential
product, before any of our products can be commercialized, any related patent may expire or remain in force for only a short period
following commercialization, thereby reducing any advantage of the patent.



Trade
Secrets



We
may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect.
We seek to protect our proprietary technology and processes, in part, by confidentiality agreements and assignment of inventions
agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality
of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information
technology systems. While we have confidence in these individuals, organizations and systems, such agreements or security measures
may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known
or be independently discovered by competitors or others.



Scientific
Advisory Board



We
seek advice from our Scientific Advisory Board on scientific and medical matters generally. We call for Scientific Advisory Board
meetings on an as-needed basis. The following table sets forth certain information with respect to our Scientific Advisory Board
members.



|Name                     |  | Position/Institutional
    Affiliation           
|------------------------ |  | -------------------------------------------------
|Nabil
    Hanna, Ph.D.   |  | Former
    Chief Science Officer of Biogen-Idec  
|Kamel
    Khalili, Ph.D. |  | Temple
    University, Philadelphia, Pennsylvania





55







Clinical
Advisory Board



Our
Clinical Advisory Board, which consists of three members, a leading U.S.-based rheumatologist, oncologist and dermatologist, plays
an active role in consulting with us with respect to clinical drug development. We call for Clinical Advisory Board meetings on
an as-needed basis. The following table sets forth certain information with respect to our Clinical Advisory Board members.



|Name                      |  | Position/Institutional
    Affiliation                                                                                                      
|------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|Dr.
    Michael Weinblatt |  | Head,  Division
    of Rheumatology, Immunology and Allergy, Brigham and Women’s Hospital                                                   
|                          |  |                                                                                                                                             
|Dr.
    Keith Stuart      |  | Chairman,
    Department of Hematology and Oncology; Professor of Medicine, Tufts University School of Medicine; Lahey Clinic Medical Center
|                          |  |                                                                                                                                             
|Dr.
    Jonathan Wilkin   |  | Former
    Head, Dermatology Division, FDA                                                                                                  



Competition



The
pharmaceutical industry is characterized by rapidly evolving technology, intense competition and a highly risky, costly and lengthy
research and development process. Adequate protection of intellectual property, successful product development, adequate funding
and retention of skilled, experienced and professional personnel are among the many factors critical to success in the pharmaceutical
industry.



Our
technology platform is based on the finding that the A3AR is highly expressed in pathological cells, such as various tumor cell
types and inflammatory cells. We believe that targeting the A3AR with synthetic and highly selective A3AR agonists, such as CF101
and CF102, and allosteric modulators, such as CF602, induces anti-cancer and anti-inflammatory effects. Currently, our drug candidates,
CF101, CF102 and CF602 are being developed to treat several autoimmune-inflammatory, oncological and ophthalmic indications, including
but not limited to: psoriasis; RA; OA; DES; glaucoma; uveitis; HCC and HCV. Preclinical studies have also indicated that our drug
candidates have the potential to treat additional inflammatory diseases, such as Crohn’s disease, oncological diseases and
viral disease, such as the JC virus.



Despite
the competition, however, we believe that our drug candidates have unique characteristics and advantages over certain drugs currently
available on the market and under development to treat these indications. We believe that our pipeline of drug candidates has
exhibited a potential for therapeutic success with respect to the treatment of autoimmune-inflammatory, oncological and ophthalmic
diseases. We believe that targeting the A3AR with synthetic and highly selective A3AR agonists, such as CF101 and CF102, and allosteric
modulators, such as CF602, induces anti-cancer and anti-inflammatory effects.



We
believe the characteristics of CF101, as exhibited in our clinical studies to date, including its good safety profile, clinical
activity, simple and less frequent delivery through oral administration and its low cost of production, position it well against
the competition in the autoimmune-inflammatory markets, including the psoriasis and RA markets, where treatments, when available,
often include injectable drugs, many of which can be highly toxic, expensive and not always effective. Moreover, pre-clinical
pharmacology studies in different experimental animal models of arthritis revealed that CF101 acts as a disease modifying anti-rheumatic
drug, or a DMARD, which, when coupled with its good safety profile, make it competitive in the psoriasis, RA and OA markets. Our
recent findings also demonstrate that a biological predictive marker can be utilized prior to treatment with CF101, which may
allow it to be used as a personalized medicine therapeutic approach for the treatment of RA. We believe CF101 is also well-positioned
against some of the competition in the ophthalmic markets, where treatments, when available, often include frequent self-administered
eye drops, which may be more difficult than taking pills and may result in less than the full dose of the drug actually entering
the eye, have undesirable side effects and do not simultaneously treat the underlying cause and relieve the symptoms associated
with the indication. Like CF101, CF102 has a good safety profile, is orally administered and has a low cost of production, which
we believe positions it well in the HCC market, where only one drug, Nexavar, has been approved by the FDA.



In
addition, our human clinical data suggests that A3AR may be a biological marker in that high A3AR expression prior to treatment
has been predictive of good patient response to our drug treatment. In fact, as a result of our research we have developed a simple
blood assay to test for A3AR expression as a predictive biological marker. We have applied for a patent with respect to the intellectual
property related to such assay and are currently utilizing this assay in our ongoing Phase IIb study of CF101 for the treatment
of RA.





56







On
the other hand, other drugs on the market, new drugs under development (including drugs that are in more advanced stages of development
in comparison to our drug pipeline) and additional drugs that were originally intended for other purposes, but were found effective
for purposes targeted by us, may all be competitive to the current drug candidates in our pipeline. In fact, some of these drugs
are well established and accepted among patients and physicians in their respective markets, are orally bioavailable, can be efficiently
produced and marketed, and are relatively safe. Moreover, other companies of various sizes engage in activities similar to ours.
Most, if not all, of our competitors have substantially greater financial and other resources available to them. Competitors include
companies with marketed products and/or an advanced research and development pipeline. The major competitors in the arthritis
and psoriasis therapeutic field include Abbott Laboratories, Johnson & Johnson, Amgen, Roche, Pfizer, Novartis, Astellas,
Eli Lilly and more. The competitive landscape in the ophthalmic therapeutics field includes Novartis/Alcon, Allergan, Pfizer,
Roche/Genentech, Merck (which acquired Inspire Pharmaceuticals), Santen (which acquired Novagali), Bausch & Lomb (which acquired
ISTA Pharmaceuticals and is currently being acquired by Valeant), GlaxoSmithKline, or GSK, Sanofi-Aventis (which acquired Fovea)
and more. Competitors in the HCC field include companies such as Onyx, Bayer, Bristol-Myers Squibb, Abbott Laboratories, Eli Lilly,
Arqule and more. Competitors in the HCV field include companies such as Merck, Vertex, Roche, Bristol-Myers Squibb (which acquired
Inhibitex), Gilead Sciences (which acquired Pharmasset), Achillion, Idenix, Valeant, Human Genome Sciences, Abbott, AstraZeneca,
BoehringerIngelheim, Novartis, Pfizer, Idenix, Johnson & Johnson, Presidio, Medivir, Celgene, Enanta, GSK and more.



Moreover,
several companies have reported the commencement of research projects related to the A3AR. Such companies include CV Therapeutics
Inc. (which was acquired by Gilead), King Pharmaceuticals R&D Inv. (which was acquired by Merck), Hoechst Marion Roussel Inc.,
Novo Nordisk A/S and Inotek Pharmaceuticals. However, we are not aware if such projects are ongoing or have been completed and,
to the best of our knowledge, there is no approved drug currently on the market which is similar to our A3AR agonists, nor are
we aware of any allosteric modulatorin the A3AR product pipeline similar to our allosteric modulator with respect to chemical
profile and mechanism of action.



CF101
for the Treatment of Psoriasis



Psoriasis
is a skin condition that affects 2% to 3% of the general population according to the National Psoriasis Foundation. The disease
is manifested by scaly plaques on the skin and in the severe form has a major effect on the physical and emotional well-being
of the patients. Topical agents are typically used for mild disease, phototherapy for moderate disease, and systemic agents for
severe disease. For moderate to severe cases, systemic biologic drugs, delivered via IV, have dominated the market. According
to the National Psoriasis Foundation, common side effects of biologics include respiratory infections, flu-like symptoms, and
injection site reactions while rare side effects include serious nervous system disorders, such as multiple sclerosis, seizures,
or inflammation of the nerves of the eyes, blood disorders, and certain types of cancer. We believe a significant need remains
for novel oral and safe drugs for patients who do not respond to existing therapies or for whom these therapies are unsuitable.



The
psoriasis therapeutic market is dominated by biological drugs that are primarily administered via intravenous injection (IV) and
have potential side effects. According to Global Data, the psoriasis treatment market was worth $3.6 billion in 2010 and is forecast
to grow to $6.7 billion by 2018.



The
current common treatments for psoriasis include topical and systemic drugs, steroids, immunosuppressive drugs such as Cyclosporine
A by Novartis, MTX and biological drugs. Biological drugs, such as Enbrel by Amgen and Pfizer, Amevive by Astellas and Ustakinumab
by Centocor, a division of Johnson & Johnson, have significant side effects, are expensive and patients are often not responsive.
Many of the current RA drugs on the market or in development are also used for the treatment of psoriasis. See “—CF101
for the Treatment of RA.” In addition, several therapies are in advanced clinical development for psoriasis and many others
are in Phase II or earlier stages of development.





57







CF101
for the Treatment of RA



RA
is a severe disease that attacks approximately 0.6% of the U.S. population, mainly women and, in particular, postmenopausal women.
According to Visiongain, the world RA market size is predicted to generate revenues of $38.5 billion in 2017.



Many
drugs are used to treat RA, including DMARDs. These include MTX, plaquenil, sulfasalazine and leflunomide, all of which are small
molecule drugs with mild effectiveness. MTX is the most commonly administered DMARD for RA. It is a generic chemotherapeutic agent
marketed by several manufacturers that is administered orally. Due to its relatively toxic nature, however, MTX may result in
severe side effects.



The
second class of DMARD includes biological drugs, such as Enbrel by Amgen Inc. (which contains the active ingredient Etanercept),
Remicade by Centocor, a division of Johnson & Johnson (which contains the active ingredient Infliximab) and Humira by Abbott
Laboratories (which contains the active ingredient Adalimumab). These drugs are usually administered in combination with MTX and
are more effective in combination, but may have severe side effects, including lymphoma. Biological drugs are administered through
injection, are generally expensive and there is no biomarker to predict the response, if any. Steroidal drugs are also used to
reduce the general activity of the immune system and for pain relief. In addition, the FDA recently approved Pfizer’s Xeljanz
(tofacitinib) small molecule drug, which is the first JAK inhibitor drug, or a drug that inhibits the effect of one or more of
the enzymes in the janus kinase family, or a family enzymes that transfer cytokine-mediated signals, to treat RA. Moreover, several
therapies, including biological drugs and small molecule drugs, are in advanced clinical development for RA, while others are
in Phase II or earlier stages of development.



CF101
for the Treatment of OA



According
to Transparency Market Research global osteoporosis market is estimated to be $7.3 billion in 2010 and expected to reach $11.4
billion in 2015. The medications most commonly used to treat OA are symptom-modifying drugs, primarily generics, such as non-steroidal,
anti-inflammatory drugs and cyclooxygenase 2 inhibitors, or COX-2 inhibitors, which directly target the COX-2 enzyme involved
with the etiology and pathogenesis of inflammation and pain. There are no disease-modifying OA drugs, or DMOADs, currently approved
for OA and the late stage drug pipeline also lacks DMOADs, except Novartis’ SMC021, which hasn’t met its primary end
points in a Phase III study.



Current
and future competition includes drugs being developed to relieve pain associated with OA and for the treatment of OA. In addition
to DMOADs, therapies in development for OA include stem cell therapy, COX-2 inhibitors, cathepsin S inhibitors, or synthetic inhibitors
of the cathepsin S protein, opioid receptor agonists, or pain relievers that bind to certain nervous system receptors, anti-nerve
growth factor inhibitors, or inhibitors of proteins that promote nerve growth, transient receptor potential vanilloid-1 antagonists,
or a pain reliever that binds to certain proteins responsible for heat and pain sensations, COX inhibiting nitric oxide donors,
or drugs that act as COX inhibitors while donating nitric oxide and thereby promoting an anti-inflammatory effect, phosphodiesterase
inhibitors, or drugs that block certain enzymes thereby preventing the inactivation of certain intracellular messaging, and calcitonin
receptor agonists, or drugs that bind to receptors related to functional activity.



CF101
had a significant anti-inflammatory effect in pre-clinical pharmacology studies for OA and is currently in preparation for a Phase
II study.



CF101
for the Treatment of Crohn’s Disease



According
to Transparency Market Research, the osteoporosis market will reach $6.8 billion in 2015. According to Datamonitor, in 2009, 890,000
persons were estimated to have Crohn’s disease in the seven major markets (the U.S., Japan, France, Germany, Italy, Spain
and the U.K.) and more than half of such patients were estimated to reside in the United States.



Therapies
in development for Crohn’s disease include interleukin inhibitors, a drug that inhibits cell growth, enzyme inhibitors,
stem cell therapy, integrin antagonists, or drugs that bind to certain receptors that are responsible for the regulation of cell
cycle, shape and motility, tumor necrosis factor inhibitors, or drugs that inhibit the factor that promotes inflammatory responses,
and immunomodulators, or drugs that regulate the immune system.





58







Although
CF101 was effective in our pre-clinical and pharmacological studies relating to Crohn’s disease, we currently do not have
any planned clinical trials with respect to the use of CF101 for the treatment of Crohn’s disease.



CF101
for the Treatment of Glaucoma



According
to Datamonitor, as of 2010, seven million people in the seven major markets suffered from glaucoma. GlobalData estimated that
the market for glaucoma drugs was $3.0 billion in 2010 and forecasts growth with a compound annual growth rate of 0.6% between
2010 and 2018. We expect that the number of people who suffer from glaucoma will increase as the population in each of the seven
major markets ages.



The
main drugs used to treat glaucoma include Xalatan®, Travatan® and Cosopt®.  Xalatan® is recommended by the
European Glaucoma Society and American Academy of Ophthalmologists as the first choice for the treatment of glaucoma.  According
to a Pfizer annual report, Xalatan®, which is marketed by Pfizer, is the leading drug used to treat glaucoma, and had global
sales of approximately $0.6 billion in 2013 compared to $1.2 billion in 2011.Travatan® was first launched in the United States
in 2001 and then Europe and the certain other markets in 2002.  According to Evaluate Pharma, Travatan®, marketed by
Alcon, experienced sales of approximately $600 million in 2010 and 2011.Travatan® is administered once each day, which ophthalmologists
cite as a significant advantage over other drugs used to treat glaucoma.  Cosopt® is the oldest combination therapy in
the glaucoma market.  Due to the expiration of patents covering Cosopt® in 2008, some ophthalmologists have begun to
look to other brands or generic drugs in the treatment of glaucoma.  Another leading company in this field is Allergan, which
markets Lumigan®, GanfortTM, Alphagan®, and Combigan®, with over $1.0 billion in aggregate revenues in 2011.
 The glaucoma therapeutics market has witnessed major revenues depletion in the recent years due to a string of patent expirations,
which started with the expiration of the Xalatan® patent.



Several
therapies are in advanced clinical development for glaucoma. In addition, in 2012, the FDA approved tafluprost ophthalmic solution,
Zioptan by Merck, the first preservative-free prostaglandin analog ophthalmic solution, or a solution derived from fatty acids,
for the treatment of glaucoma.



While
several anti-glaucoma drugs exist, the glaucoma therapeutics market has a high level of unmet need, which mainly arises from the
lack of approved drugs targeting the disease’s progression. Many therapies approved provide only symptomatic relief. The
therapies which are available for the treatment of glaucoma have shown low to moderate efficacy and safety profiles. Accordingly,
there is a significant need for drugs that reduce IOP. In addition, part of the pathogenesis of glaucoma is damage to the optic
nerve, so drugs that, in addition to lowering IOP, have a neuroprotective effect, would also satisfy an unmet need. Based on its
toxicological profile, we believe that CF101 has the potential to have fewer side effects than existing drugs for the treatment
of glaucoma. At the same time, CF101 offers the potential to act as a neuroprotective agent that prevents the death of retinal
cells, as well as the potential to lower IOP. We also believe that CF101 will offer less frequent administration than most existing
therapies.



CF101
for the Treatment of Uveitis



According
to Data Monitor, uveitis is estimated as the fifth or sixth leading cause of blindness in the United States. The incidence of
uveitis worldwide varies from 14 to 52.4 per 100,000 people, while the overall prevalence around the world is reported as 0.73%.
We estimate that there are approximately one million uveitis patients around the world. According to GlobalData, in 2010, the
uveitis market was $0.32 billion and is estimated to reach $1.6 billion by 2017. The current treatments for uveitis include corticosteroids,
anti-metabolites, T-cell inhibitors, alkylating agents and biological drugs, which often involve serious adverse side effects
and lack of efficacy. Accordingly, we believe that a need exists for drugs used in the treatment of uveitis that are less toxic
and more effective. There are currently several therapies in advance clinical development for anterior and posterior uveitis.



We
believe that a need exists for drugs used for the treatment of uveitis that are less toxic and more effective than currently available
therapies. Former pre-clinical pharmacology studies demonstrated that CF101 is effective in inhibiting the development of posterior
and anterior uveitis and has a favorable safety profile in experimental animal models. OphthaliX has submitted a protocol for
a Phase II study of uveitis and is currently reviewing its clinical development plans and plans to provide an update on the development
for this indication on a later stage.





59







CF102
for the Treatment of HCC



According to the Living
with Liver Cancer HCC is the sixth most common form of cancer, the most common form of liver cancer in adults and the third most
common cause of cancer-related mortality worldwide, particularly in Asia. According to the American Cancer Society, more than
700,000 people are diagnosed with liver cancer each year throughout the world and more than 600,000 persons die from liver cancer
each year. Nexavar is the only approved drug for HCC and prolongs patient survival time by only a few months. GlobalData recently
estimated that in 2017, the HCC market will be $1.2 billion. However, Global Industry Analysts predicts that the market for HCC
drugs will increase to approximately $2.0 billion by 2015.





Currently,
there is no vaccine for HCC. Several therapies are in advanced clinical development for HCC. Some drugs under development act
as a single agent and some act in combination with Nexavar. Moreover, some are first line treatments while others are second line
treatments. In addition, many existing approaches are used in the treatment of unresectable liver cancer, including alcohol injection,
radiofrequency ablation, chemoembolization, cryoablation and radiation therapy.



CF102
for the Treatment of HCV



According
to the U.S. Centers for Disease Control and Prevention, or the CDC, approximately 3.2 million people in the United States have
chronic HCV, a viral disease that causes inflammation of the liver that can lead to diminished liver function or liver failure.
Most people with HCV have no symptoms of the disease until liver damage occurs, which may take several years. Also according to
the CDC, approximately 75% to 85% of persons carrying the HCV will develop a chronic disease, such as liver cancer, liver failure
or death. According to Renub Research, the market for HCV drugs is experiencing a dramatic near-term growth, by crossing $6 billion
in 2011 and is expected to be more than double of its current figure by 2015. Renub Research believes that the robust growth will
be driven primarily by the launch of novel premium-priced agents that will increase the size of the drug-treated population, mainly
as a result of the re-treatment of prior non-responder patients.



Currently,
there is no vaccine for HCV. Prior to the recent approval of Telaprevir and Boceprevir, the available treatment was a combination
of interferon injections and ribavarin pills. Less than 50% of patients respond to this therapy and after some time, patients
may develop a resistance to the combination. In addition, these drugs may cause severe side effects. Drugs currently approved
for the treatment of HCV include interferon-alpha-based products, ribavirin-based products and protease inhibitors.



There
are also several companies that specialize in the development of HCV therapies. The HCV therapies currently in development in
multiple classes include protease inhibitors, polymerase inhibitors (nucleoside and non-nucleoside), NS5A inhibitors, toll-like
receptor inhibitors and cyclophilin inhibitors.



In
our studies of CF102, it has shown a good safety profile and a capability to decrease the viral load in HCV patients that also
have HCC. We plan to examine the viral load of HCC patients who are also infected with HCV as part of our next HCC Phase II study.



Insurance



We
maintain insurance for our offices and laboratory in Petah-Tikva, Israel. Our insurance program covers approximately $0.375 million
of equipment and lease improvements against risk of loss, excluding damage from inventory theft. In addition, we maintain the
following insurance: employer liability with coverage of approximately $5.0 million; third party liability with coverage of approximately
$0.75 million; fire insurance coverage of approximately $0.725 million; natural disaster coverage of approximately $1.1 million;
all risk coverage of approximately $0.02 million for electronic equipment and machinery insurance for laboratory refrigerators;
and directors’ and officers’ liability with coverage of $2.0 million per claim and $10.0 million in the aggregate.





60







We
also maintain worldwide product and clinical trial liability insurance with coverage of approximately $3 million with respect
to the CF101 and CF102 drugs used in clinical trials. We also procure additional insurance for each specific clinical trial which
covers a certain number of trial participants and which varies based on the particular clinical trial. Certain of such policies
are based on the Declaration of Helsinki, which is a set of ethical principles regarding human experimentation developed for the
medical community by the World Medical Association, and certain protocols of the Israeli Ministry of Health.



We
procure cargo marine coverage when we ship substances for our clinical studies. Such insurance is custom-fit to the special requirements
of the applicable shipment, such as temperature and/or climate sensitivity. If required, we insure the substances to the extent
they are stored in central depots and at clinical sites.



We
believe that our insurance policies are adequate and customary for a business of our kind. However, because of the nature of our
business, we cannot assure you that we will be able to maintain insurance on a commercially reasonable basis or at all, or that
any future claims will not exceed our insurance coverage.



Environmental
Matters



We
are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and
wastewater discharges, noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and
wastes and the cleanup of contaminated sites. We believe that our business, operations and facilities are being operated in compliance
in all material respects with applicable environmental and health and safety laws and regulations. Our laboratory personnel in
Israel have ongoing communication with the Israeli Ministry of Environmental Protection in order to verify compliance with relevant
instructions and regulations. In addition, all of our laboratory personnel participate in instruction on the proper handling of
chemicals, including hazardous substances before commencing employment, and during the course of their employment, with us. In
addition, all information with respect to any chemical substance that we use is filed and stored as a Material Safety Data Sheet,
as required by applicable environmental regulations. Based on information currently available to us, we do not expect environmental
costs and contingencies to have a material adverse effect on us. The operation of our testing facilities, however, entails risks
in these areas. Significant expenditures could be required in the future if these facilities are required to comply with new or
more stringent environmental or health and safety laws, regulations or requirements. See “Business — Government Regulation
and Funding — Israel Ministry of Environment — Toxin Permit.”



Government
Regulation and Funding



We
operate in a highly controlled regulatory environment. Stringent regulations establish requirements relating to analytical, toxicological
and clinical standards and protocols in respect of the testing of pharmaceuticals. Regulations also cover research, development,
manufacturing and reporting procedures, both pre- and post-approval. In many markets, especially in Europe, marketing and pricing
strategies are subject to national legislation or administrative practices that include requirements to demonstrate not only the
quality, safety and efficacy of a new product, but also its cost-effectiveness relating to other treatment options. Failure to
comply with regulations can result in stringent sanctions, including product recalls, withdrawal of approvals, seizure of products
and criminal prosecution.



Before
obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate through preclinical studies
and clinical trials that our product candidates are safe and effective. Historically, the results from preclinical studies and
early clinical trials often have not accurately predicted results of later clinical trials. In addition, a number of pharmaceutical
products have shown promising results in clinical trials but subsequently failed to establish sufficient safety and efficacy results
to obtain necessary regulatory approvals. We have incurred and will continue to incur substantial expense for, and devote a significant
amount of time to, preclinical studies and clinical trials. Many factors can delay the commencement and rate of completion of
clinical trials, including the inability to recruit patients at the expected rate, the inability to follow patients adequately
after treatment, the failure to manufacture sufficient quantities of materials used for clinical trials, and the emergence of
unforeseen safety issues and governmental and regulatory delays. If a product candidate fails to demonstrate safety and efficacy
in clinical trials, this failure may delay development of other product candidates and hinder our ability to conduct related preclinical
studies and clinical trials. Additionally, as a result of these failures, we may also be unable to obtain additional financing.





61







Governmental
authorities in all major markets require that a new pharmaceutical product be approved or exempted from approval before it is
marketed, and have established high standards for technical appraisal, which can result in an expensive and lengthy approval process.
The time to obtain approval varies by country and some products are never approved. The lengthy process of conducting clinical
trials, seeking approval and the subsequent compliance with applicable statutes and regulations, if approval is obtained, are
very costly and require the expenditure of substantial resources.



A
summary of the U.S., EU and Israeli regulatory processes follow below.



United
States



In
the United States, the Public Health Service Act and the Federal Food, Drug, and Cosmetic Act, as amended, and the regulations
promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the safety and effectiveness
standards for our products and the raw materials and components used in the production of, testing, manufacture, labeling, storage,
record keeping, approval, advertising and promotion of our products on a product-by-product basis.



Preclinical
tests include in vitro and in vivo evaluation of the product candidate, its chemistry, formulation and stability,
and animal studies to assess potential safety and efficacy. Certain preclinical tests must be conducted in compliance with good
laboratory practice regulations. Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring
them to be replicated. After laboratory analysis and preclinical testing, testing, a sponsor files an Investigational New Drug
application, or IND, to begin human testing. Typically, a manufacturer conducts a three-phase human clinical testing program which
itself is subject to numerous laws and regulatory requirements, including adequate monitoring, reporting, record keeping and informed
consent. In Phase I, small clinical trials are conducted to determine the safety and proper dose ranges of our product candidates.
In Phase II, clinical trials are conducted to assess safety and gain preliminary evidence of the efficacy of our product candidates.
In Phase III, clinical trials are conducted to provide sufficient data for the statistically valid evidence of safety and efficacy.
The time and expense required for us to perform this clinical testing can vary and is substantial. We cannot be certain that we
will successfully complete Phase I, Phase II or Phase III testing of our product candidates within any specific time period, if
at all. Furthermore, the FDA, the Institutional Review Board responsible for approving and monitoring the clinical trials at a
given site, the Data Safety Monitoring Board, where one is used, or we may suspend the clinical trials at any time on various
grounds, including a finding that subjects or patients are exposed to unacceptable health risk.



If
the clinical data from these clinical trials (Phases I, II and III) are deemed to support the safety and effectiveness of the
candidate product for its intended use, then we may proceed to seek to file with the FDA, a New Drug Application, or NDA, seeking
approval to market a new drug for one or more specified intended uses. We have not completed our clinical trials for any candidate
product for any intended use and therefore, we cannot ascertain whether the clinical data will support and justify filing an NDA.
Nevertheless, if and when we are able to ascertain that the clinical data supports and justifies filing an NDA, we intend to make
such appropriate filings.



The
purpose of the NDA is to provide the FDA with sufficient information so that it can assess whether it ought to approve the candidate
product for marketing for specific intended uses. The fact that the FDA has designated a drug as an orphan drug for a particular
intended use does not mean that the drug has been approved for marketing. Only after an NDA has been approved by the FDA is marketing
appropriate. A request for orphan drug status must be filed before the NDA is filed. The orphan drug designation, though, provides
certain benefits, including a seven-year period of market exclusivity subject to certain exceptions. In February 2012, the FDA
granted an orphan drug status for the active moiety, or the part of the drug that is responsible for the physiological or pharmacological
action of the drug substance, of CF102 for the treatment of HCC. See “Item 4. Information on the Company—B. Business
Overview—CF102”.



The
NDA normally contains, among other things, sections describing the chemistry, manufacturing, and controls, non-clinical pharmacology
and toxicology, human pharmacokinetics and bioavailability, microbiology, the results of the clinical trials, and the proposed
labeling which contains, among other things, the intended uses of the candidate product.





62







We
cannot take any action to market any new drug or biologic product in the United States until our appropriate marketing application
has been approved by the FDA. The FDA has substantial discretion over the approval process and may disagree with our interpretation
of the data submitted. The process may be significantly extended by requests for additional information or clarification regarding
information already provided. As part of this review, the FDA may refer the application to an appropriate advisory committee,
typically a panel of clinicians. Satisfaction of these and other regulatory requirements typically takes several years, and the
actual time required may vary substantially based upon the type, complexity and novelty of the product. Government regulation
may delay or prevent marketing of potential products for a considerable period of time and impose costly procedures on our activities.
We cannot be certain that the FDA or other regulatory agencies will approve any of our products on a timely basis, if at all.
Success in preclinical or early stage clinical trials does not assure success in later-stage clinical trials. Even if a product
receives regulatory approval, the approval may be significantly limited to specific indications or uses and these limitations
may adversely affect the commercial viability of the product. Delays in obtaining, or failures to obtain regulatory approvals,
would have a material adverse effect on our business.



Even
after we obtain FDA approval, we may be required to conduct further clinical trials (i.e., Phase IV trials) and provide additional
data on safety and effectiveness. We are also required to gain separate approval for the use of an approved product as a treatment
for indications other than those initially approved. In addition, side effects or adverse events that are reported during clinical
trials can delay, impede or prevent marketing approval. Similarly, adverse events that are reported after marketing approval can
result in additional limitations being placed on the product’s use and, potentially, withdrawal of the product from the
market. Any adverse event, either before or after marketing approval, can result in product liability claims against us.



As
an alternate path for FDA approval of new indications or new formulations of previously-approved products, a company may
file a Section 505(b)(2) NDA, instead of a “stand-alone” or “full” NDA. Section 505(b)(2)
of the Food, Drug, and Cosmetic Act, or FDC, was enacted as part of the Drug Price Competition and Patent Term Restoration
Act of 1984, otherwise known as the Hatch-Waxman Amendments. Section 505(b)(2) permits the submission of an NDA where at
least some of the information required for approval comes from studies not conducted by or for the applicant and for which
the applicant has not obtained a right of reference. Some examples of products that may be allowed to follow a 505(b)(2) path
to approval are drugs that have a new dosage form, strength, route of administration, formulation or indication. The
Hatch-Waxman Amendments permit the applicant to rely upon certain published nonclinical or clinical studies conducted for an
approved product or the FDA’s conclusions from prior review of such studies. The FDA may require companies to perform
additional studies or measurements to support any changes from the approved product. The FDA may then approve the new product
for all or some of the labeled indications for which the reference product has been approved, as well as for any new
indication supported by the NDA. While references to nonclinical and clinical data not generated by the applicant or for
which the applicant does not have a right of reference are allowed, all development, process, stability, qualification and
validation data related to the manufacturing and quality of the new product must be included in an NDA submitted under
Section 505(b)(2).



To
the extent that the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for
an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product
in the FDA’s Orange Book publication. Specifically, the applicant must certify that: (i) the required patent information
has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on
a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed
by the new product. The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such as
exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the reference product has expired.
Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its products
only to be subject to significant delay and patent litigation before its products may be commercialized.



In
addition to regulating and auditing human clinical trials, the FDA regulates and inspects equipment, facilities, laboratories
and processes used in the manufacturing and testing of such products prior to providing approval to market a product. If after
receiving FDA approval, we make a material change in manufacturing equipment, location or process, additional regulatory review
and approval may be required. We also must adhere to cGMP regulations and product-specific regulations enforced by the FDA through
its facilities inspection program. The FDA also conducts regular, periodic visits to re-inspect our equipment, facilities, laboratories
and processes following the initial approval. If, as a result of these inspections, the FDA determines that our equipment, facilities,
laboratories or processes do not comply with applicable FDA regulations and conditions of product approval, the FDA may seek civil,
criminal or administrative sanctions and/or remedies against us, including the suspension of our manufacturing operations.





63







We
have currently received no approvals to market our products from the FDA or other foreign regulators.



We
are also subject to various federal, state and international laws pertaining to health care “fraud and abuse,” including
anti-kickback laws and false claims laws. The federal Anti-kickback law, which governs federal healthcare programs (e.g., Medicare,
Medicaid), makes it illegal to solicit, offer, receive or pay any remuneration in exchange for, or to induce, the referral of
business, including the purchase or prescription of a particular drug. Many states have similar laws that are not restricted to
federal healthcare programs. Federal and state false claims laws prohibit anyone from knowingly and willingly presenting, or causing
to be presented for payment to third party payers (including Medicare and Medicaid), claims for reimbursement, including claims
for the sale of drugs or services, that are false or fraudulent, claims for items or services not provided as claimed, or claims
for medically unnecessary items or services. If the government or a whistleblower were to allege that we violated these laws there
could be a material adverse effect on us, including our stock price. Even an unsuccessful challenge could cause adverse publicity
and be costly to respond to, which could have a materially adverse effect on our business, results of operations and financial
condition. A finding of liability under these laws can have significant adverse financial implications for us and can result in
payment of large penalties and possible exclusion from federal healthcare programs. We will consult counsel concerning the potential
application of these and other laws to our business and our sales, marketing and other activities and will make good faith efforts
to comply with them. However, given their broad reach and the increasing attention given by law enforcement authorities, we cannot
assure you that some of our activities will not be challenged or deemed to violate some of these laws.



European
Economic Area



Although
we are not currently seeking regulatory approval in the EU, we or our licensees may do so in the future. As such, a summary of
the EU regulatory processes follows below.



A
medicinal product may only be placed on the market in the European Economic Area, or EEA, composed of the 27 EU member states,
plus Norway, Iceland and Lichtenstein, when a marketing authorization has been issued by the competent authority of a member state
pursuant to Directive 2001/83/EC (as recently amended by Directive 2004/27/EC), or an authorization has been granted under the
centralized procedure in accordance with Regulation (EC) No. 726/2004 or its predecessor, Regulation 2309/93. There are essentially
three community procedures created under prevailing European pharmaceutical legislation that, if successfully completed, allow
an applicant to place a medicinal product on the market in the EEA.



Centralized
Procedure



Regulation
726/2004/EC now governs the centralized procedure when a marketing authorization is granted by the European Commission, acting
in its capacity as the European Licensing Authority on the advice of the EMA. That authorization is valid throughout the entire
community and directly or (as to Norway, Iceland and Liechtenstein) indirectly allows the applicant to place the product on the
market in all member states of the EEA. The EMA is the administrative body responsible for coordinating the existing scientific
resources available in the member states for evaluation, supervision and pharmacovigilance of medicinal products. Certain medicinal
products, as described in the Annex to Regulation 726/2004, must be authorized centrally. These are products that are developed
by means of a biotechnological process in accordance with Paragraph 1 to the Annex to the Regulation. Medicinal products for human
use containing a new active substance for which the therapeutic indication is the treatment of acquired immune deficiency syndrome,
or AIDS, cancer, neurodegenerative disorder or diabetes must also be authorized centrally. Starting on May 20, 2008, the mandatory
centralized procedure was extended to autoimmune diseases and other immune dysfunctions and viral diseases. Finally, all medicinal
products that are designated as orphan medicinal products pursuant to Regulation 141/2000 must be authorized under the centralized
procedure. An applicant may also opt for assessment through the centralized procedure if it can show that the medicinal product
constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization centrally is in
the interests of patients at the community level. For each application submitted to the EMA for scientific assessment, the EMA
is required to ensure that the opinion of the Committee for Medicinal Products for Human Use, or CHMP, is given within 210 days
after receipt of a valid application. This 210 days period does not include the time that the applicant to answer any questions
raised during the application procedure, the so-called ‘clock stop’ period. If the opinion is positive, the EMA is
required to send the opinion to the European Commission, which is responsible for preparing the draft decision granting a marketing
authorization. This draft decision may differ from the CHMP opinion, stating reasons for diverging for the CHMP opinion. The draft
decision is sent to the applicant and the member states, after which the European Commission takes a final decision. If the initial
opinion of the CHMP is negative, the applicant is afforded an opportunity to seek a re-examination of the opinion. The CHMP is
required to re-examine its opinion within 60 days following receipt of the request by the applicant. All CHMP refusals and the
reasons for refusal are made public on the EMA website. Without a centralized marketing authorization it is prohibited to place
a medicinal product that must be authorized centrally on the market in the EU.





64







Mutual
Recognition and Decentralized Procedures



With
the exception of products that are authorized centrally, the competent authorities of the member states are responsible for granting
marketing authorizations for medicinal products placed on their national markets. If the applicant for a marketing authorization
intends to market the same medicinal product in more than one member state, the applicant may seek an authorization progressively
in the community under the mutual recognition or decentralized procedure. Mutual recognition is used if the medicinal product
has already been authorized in a member state. In this case, the holder of this marketing authorization requests the member state
where the authorization has been granted to act as reference member state by preparing an updated assessment report that is then
used to facilitate mutual recognition of the existing authorization in the other member states in which approval is sought (the
so-called concerned member state(s)). The reference member state must prepare an updated assessment report within 90 days of receipt
of a valid application. This report together with the approved Summary of Product Characteristics, or SmPC (which sets out the
conditions of use of the product), and a labeling and package leaflet are sent to the concerned member states for their consideration.
The concerned member states are required to approve the assessment report, the SmPC and the labeling and package leaflet within
90 days of receipt of these documents. The total procedural time is 180 days.



The
decentralized procedure is used in cases where the medicinal product has not received a marketing authorization in the EU at the
time of application. The applicant requests a member state of its choice to act as reference member state to prepare an assessment
report that is then used to facilitate agreement with the concerned member states and the grant of a national marketing authorization
in all of these member states. In this procedure, the reference member state must prepare, for consideration by the concerned
member states, the draft assessment report, a draft SmPC and a draft of the labeling and package leaflet within 120 days after
receipt of a valid application. As in the case of mutual recognition, the concerned member states are required to approve these
documents within 90 days of their receipt.



For
both mutual recognition and decentralized procedures, if a concerned member state objects to the grant of a marketing authorization
on the grounds of a potential serious risk to public health, it may raise a reasoned objection with the reference member state.
The points of disagreement are in the first instance referred to the Co-ordination Group on Mutual Recognition and Decentralized
Procedures, or CMD, to reach an agreement within 60 days of the communication of the points of disagreement. If member states
fail to reach an agreement, then the matter is referred to the EMA and CHMP for arbitration. The CHMP is required to deliver a
reasoned opinion within 60 days of the date on which the matter is referred. The scientific opinion adopted by the CHMP forms
the basis for a binding European Commission decision.



Irrespective
of whether the medicinal product is assessed centrally, de-centrally or through a process of mutual recognition, the medicinal
product must be manufactured in accordance with the principles of good manufacturing practice as set out in Directive 2003/94/EC
and Volume 4 of the rules governing medicinal products in the European community. Moreover, community law requires the clinical
results in support of clinical safety and efficacy based upon clinical trials conducted in the European community to be in compliance
with the requirements of Directive 2001/20/EC, which implements good clinical practice in the conduct of clinical trials on medicinal
products for human use. Clinical trials conducted outside the European community and used to support applications for marketing
within the EU must have been conducted in a way consistent with the principles set out in Directive 2001/20/EC. The conduct of
a clinical trial in the EU requires, pursuant to Directive 2001/20/EC, authorization by the relevant national competent authority
where a trial takes place, and an ethics committee to have issued a favorable opinion in relation to the arrangements for the
trial. It also requires that the sponsor of the trial, or a person authorized to act on his behalf in relation to the trial, be
established in the community.





65







National
Procedure



This
procedure is available for medicinal products that do not fall within the scope of mandatory centralized authorization and are
intended for use in only one EU member state. Specific procedures and timelines differ between member states, but the duration
of the procedure is generally 210 days and based on a risk/efficacy assessment by the competent authority of the member state
concerned, followed by determination of SmPC, package leaflet and label text/layout and subsequently grant of the marketing authorization.
Marketing authorizations granted on this basis are not mutually recognized by other member states.



There
are various types of applications for marketing authorizations:



Full
Applications. A full application is one that is made under any of the community procedures described above and “stands
alone” in the sense that it contains all of the particulars and information required by Article 8(3) of Directive 2001/83
(as amended) to allow the competent authority to assess the quality, safety and efficacy of the product and in particular the
balance between benefit and risk. Article 8(3)(l) in particular refers to the need to present the results of the applicant’s
research on (i) pharmaceutical (physical-chemical, biological or microbiological) tests, (ii) preclinical (toxicological and pharmacological)
studies and (iii) clinical trials in humans. The nature of these tests, studies and trials is explained in more detail in Annex
I to Directive 2001/83/EC. Full applications would be required for products containing new active substances not previously approved
by the competent authority, but may also be made for other products.



Abridged
Applications. Article 10 of Directive 2001/83/EC contains exemptions from the requirement that the applicant provide the results
of its own preclinical and clinical research. There are three regulatory routes for an applicant to seek an exemption from providing
such results, namely (i) cross-referral to an innovator’s results without consent of the innovator, (ii) well established
use according to published literature and (iii) consent to refer to an existing dossier of research results filed by a previous
applicant.



Cross-referral
to Innovator’s Data



Articles
10(1) and 10(2)(b) of Directive 2001/83/EC provide the legal basis for an applicant to seek a marketing authorization on the basis
that its product is a generic medicinal product (a copy) of a reference medicinal product that has already been authorized, in
accordance with community provisions. A reference product is, in principle, an original product granted an authorization on the
basis of a full dossier of particulars and information. This is the main exemption used by generic manufacturers for obtaining
a marketing authorization for a copy product. The generic applicant is not required to provide the results of preclinical studies
and of clinical trials if its product meets the definition of a generic medicinal product and the applicable regulatory results
protection period for the results submitted by the innovator has expired. A generic medicinal product is defined as a medicinal
product:



| | ● | having
    the same qualitative and quantitative composition in active substance as the reference medicinal product;
| | - | --------------------------------------------------------------------------------------------------------------------



| | ● | having
    the same pharmaceutical form as the reference medicinal product; and
| | - | -------------------------------------------------------------------------------



| | ● | whose
    bioequivalence with the reference medicinal product has been demonstrated by appropriate bioavailability studies.
| | - | ---------------------------------------------------------------------------------------------------------------------------





66







Applications
in respect of a generic medicinal product cannot be made before the expiry of the protection period. Where the reference product
was granted a national marketing authorization pursuant to an application made before October 30, 2005, the protection period
is either 6 years or 10 years, depending upon the election of the particular member state concerned. Where the reference product
was granted a marketing authorization centrally, pursuant to an application made before November 20, 2005, the protection period
is 10 years. For applications made after these dates, Regulation 726/2004 and amendments to Directive 2001/83/EC provide for a
harmonized protection period regardless of the approval route utilized. The harmonized protection period is in total 10 years,
including eight years of research data protection and two years of marketing protection. The effect is that the originator’s
results can be the subject of a cross-referral application after eight years, but any resulting authorization cannot be exploited
for a further two years. The rationale of this procedure is not that the competent authority does not have before it relevant
tests and trials upon which to assess the efficacy and safety of the generic product, but that the relevant particulars can, if
the research data protection period has expired, be found on the originator’s file and used for assessment of the generic
medicinal product. The 10-year protection period can be extended to 11 years where, in the first eight years post-authorization,
the holder of the authorization obtains approval for a new indication assessed as offering a significant clinical benefit in comparison
with existing products.



If
the copy product does not meet the definition of a generic medicinal product or if certain types of changes occur in the active
substance(s) or in the therapeutic indications, strength, pharmaceutical form or route of administration in relation to the reference
medicinal product, Article 10(3) of Directive 2001/83/EC provides that the results of the appropriate preclinical studies or clinical
trials must be provided by the applicant.



Well-established
Medicinal Use



Under
Article 10a of Directive 2001/83/EC, an applicant may, in substitution for the results of its own preclinical and clinical research,
present detailed references to published literature demonstrating that the active substance(s) of a product have a well-established
medicinal use within the community with recognized efficacy and an acceptable level of safety. The applicant is entitled to refer
to a variety of different types of literature, including reports of clinical trials with the same active substance(s) and epidemiological
studies that indicate that the constituent or constituents of the product have an acceptable safety/efficacy profile for a particular
indication. However, use of the published literature exemption is restricted by stating that in no circumstances will constituents
be treated as having a well-established use if they have been used for less than 10 years from the first systematic and documented
use of the substance as a medicinal product in the EU. Even after 10 years’ systematic use, the threshold for well-established
medicinal use might not be met. European pharmaceutical law requires the competent authorities to consider among other factors
the period over which a substance has been used, the amount of patient use of the substance, the degree of scientific interest
in the use of the substance (as reflected in the scientific literature) and the coherence (consistency) of all the scientific
assessments made in the literature. For this reason, different substances may reach the threshold for well-established use after
different periods, but the minimum period is 10 years. If the applicant seeks approval of an entirely new therapeutic use compared
with that to which the published literature refers, additional preclinical and/or clinical results would have to be provided.



Informed
Consent



Under
Article 10c of Directive 2001/83/EC, following the grant of a marketing authorization the holder of such authorization may consent
to a competent authority utilizing the pharmaceutical, preclinical and clinical documentation that it submitted to obtain approval
for a medicinal product to assess a subsequent application relating to a medicinal product possessing the same qualitative and
quantitative composition with respect to the active substances and the same pharmaceutical form.





67







Law
Relating to Pediatric Research



Regulation
(EC) 1901/2006 (as amended by Regulation (EC) 1902/2006) was adopted on December 12, 2006. This Regulation governs the development
of medicinal products for human use in order to meet the specific therapeutic needs of the pediatric population. It requires any
application for marketing authorization made after July 26, 2008 in respect of a product not authorized in the European Community
on January 26, 2007 (the time the Regulation entered into force), to include the results of all studies performed and details
of all information collected in compliance with a pediatric investigation plan agreed by the Pediatric Committee of the EMA, unless
the product is subject to an agreed waiver or deferral or unless the product is excluded from the scope of Regulation 1902/2006
(generics, hybrid medicinal products, biosimilars, homeopathic and traditional (herbal) medicinal products and medicinal products
containing one or more active substances of well-established medicinal use). Waivers can be granted in certain circumstances where
pediatric studies are not required or desirable. Deferrals can be granted in certain circumstances where the initiation or completion
of pediatric studies should be deferred until appropriate studies in adults have been performed. Moreover, this regulation imposes
the same obligation from January 26, 2009 on an applicant seeking approval of a new indication, pharmaceutical form or route of
administration for a product already authorized and still protected by a supplementary protection certificate granted under Regulation
EC 469/2009 and its precursor (EEC) 1768/92 or by a patent that qualifies for the granting of such a supplementary protection
certificate. The pediatric Regulation 1901/2006 also provides, subject to certain conditions, a reward for performing such pediatric
studies, regardless of whether the pediatric results provided resulted in the grant of a pediatric indication. This reward comes
in the form of an extension of six months to the supplementary protection certificate granted in respect of the product, unless
the product is subject to orphan drug designation, in which case the 10-year market exclusivity period for such orphan products
is extended to 12 years. If any of the non-centralized procedures for marketing authorization have been used, the six-month extension
of the supplementary protection certificate is only granted if the medicinal product is authorized in all member states.



Post-authorization
Obligations



In
the pre-authorization phase the applicant must provide a detailed pharmacovigilance plan that it intends to implement post-authorization.
An authorization to market a medicinal product in the EU carries with it an obligation to comply with many post-authorization
organizational and behavioral regulations relating to the marketing and other activities of authorization holders. These include
requirements relating to post-authorization efficacy studies, post-authorization safety studies, adverse event reporting and other
pharmacovigilance requirements, advertising, packaging and labeling, patient package leaflets, distribution and wholesale dealing.
The regulations frequently operate within a criminal law framework and failure to comply with the requirements may not only affect
the authorization, but also can lead to financial and other sanctions levied on the company in question and responsible officers.
As a result of the currently on-going overhaul of EU pharmacovigilance legislation the financial and organizational burden on
market authorization holders will increase significantly, such as the obligation to maintain a pharmacovigilance system master
file that applies to all holders of marketing authorizations granted in accordance with Directive 2001/83/EC or Regulation (EC)
No 726/2004. Marketing authorization holders must furthermore collect data on adverse events associated with use of the authorized
product outside the scope of the authorization. Pharmacovigilance for biological products and medicines with a new active substance
will be strengthened by subjecting their authorization to additional monitoring activities. The EU is currently in the process
of issuing implementing regulations for the new pharmacovigilance framework.



Any
authorization granted by member state authorities, which within three years of its granting is not followed by the actual placing
on the market of the authorized product in the authorizing member state ceases to be valid. When an authorized product previously
placed on the market in the authorizing member state is no longer actually present on the market for a period of three consecutive
years, the authorization for that product shall cease to be valid. The same two three year periods apply to authorizations granted
by the European Commission based on the centralized procedure.



Israel



Israel
Ministry of the Environment — Toxin Permit



In
accordance with the Israeli Dangerous Substance Law — 1993, the Ministry of the Environment may grant a permit in order
to use toxic materials. Because we utilize toxic materials in the course of operation of our laboratories, we were required to
apply for a permit to use these materials. Our current toxin permit will remain in effect until January 2017.



Other
Licenses and Approvals



We
have a business license from the municipality of Petah-Tikva for a drug development research laboratory located at our offices
in Petah Tikva, Israel. In order to obtain this license, we also received approval from the Petah-Tikva Association of Towns Fire
Department. The business license is valid until December 2017. We also have a radioactive materials or products containing radioactive
materials license, which is valid until July 2017.





68







In
2002, we received approval from the National Council on Animal Experiments, approving us as an institution authorized to conduct
experiments on animals.



Clinical
Testing in Israel



In
order to conduct clinical testing on humans in Israel, special authorization must first be obtained from the ethics committee
and general manager of the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines
for Clinical Trials in Human Subjects implemented pursuant to the Israeli Public Health Regulations (Clinical Trials in Human
Subjects), as amended from time to time, and other applicable legislation. These regulations also require authorization from the
Israeli Ministry of Health, except in certain circumstances, and in the case of genetic trials, special fertility trials and similar
trials, an additional authorization of the overseeing institutional ethics committee. The institutional ethics committee must,
among other things, evaluate the anticipated benefits that are likely to be derived from the project to determine if it justifies
the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists
for the rights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical
testing. Since we intend to perform a portion of the clinical studies on certain of our product candidates in Israel, we will
be required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conduct
our clinical trials, and in most cases, from the Israeli Ministry of Health.



Israel
Ministry of Health



Israel’s
Ministry of Health, which regulates medical testing, has adopted protocols that correspond, generally, to those of the FDA and
the EMA, making it comparatively straightforward for studies conducted in Israel to satisfy FDA and the European Medicines Agency
requirements, thereby enabling medical technologies subjected to clinical trials in Israel to reach U.S. and EU commercial markets
in an expedited fashion. Many members of Israel’s medical community have earned international prestige in their chosen fields
of expertise and routinely collaborate, teach and lecture at leading medical centers throughout the world. Israel also has free
trade agreements with the United States and the European Union.



Other
Countries



In
addition to regulations in the United States, the EU and Israel, we are subject to a variety of other regulations governing clinical
trials and commercial sales and distribution of drugs in other countries. Whether or not our products receive approval from the
FDA, approval of such products must be obtained by the comparable regulatory authorities of countries other than the United States
before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country
to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct
of clinical trials and product licensing vary greatly from country to country.



The
requirements that we and our collaborators must satisfy to obtain regulatory approval by government agencies in other countries
prior to commercialization of our products in such countries can be rigorous, costly and uncertain. In Canada and Australia, regulatory
requirements and approval processes are similar in principle to those in the United States. For example, in Canada, pharmaceutical
product candidates are regulated by the Food and Drugs Act and the rules and regulations promulgated thereunder, which are enforced
by the Therapeutic Products Directorate of Health Canada, or Health Canada. Before commencing clinical trials in Canada, an applicant
must complete preclinical studies and file a clinical trial application with Health Canada. After filing a clinical trial application,
the applicant must receive different clearance authorizations to proceed with Phase 1 clinical trials, which can then lead to
Phase 2 and Phase 3 clinical trials. To obtain regulatory approval to commercialize a new drug in Canada, a new drug submission,
or NDS, must be filed with Health Canada. If the NDS demonstrates that the product was developed in accordance with the regulatory
authorities’ rules, regulations and guidelines and demonstrates favorable safety and efficacy and receives a favorable risk/benefit
analysis, Health Canada issues a notice of compliance which allows the applicant to market the product. Facilities, procedures,
operations and/or testing of products are subject to periodic inspection by Health Canada and the Health Products and Food Branch
Inspectorate. In addition, Health Canada conducts pre-approval and post-approval reviews and plant inspections to determine whether
systems are in compliance with the good manufacturing practices in Canada, Drug Establishment Licensing requirements and other
provisions of the Food and Drug Regulations.





69







Foreign
governments also have stringent post-approval requirements including those relating to manufacture, labeling, reporting, record
keeping and marketing. Failure to substantially comply with these on-going requirements could lead to government action against
the product, our company and/or our representatives.



Although
we are not currently conducting research and development activities in certain Asian countries, including Korea and Japan, certain
of our licensees, KD and SKK, are conducting such activities with respect to CF101 in those countries, respectively. Any regulatory
approval process that may impact such licensees’ ability to continue their activities or obtain regulatory approval in those
countries could impact the revenues we generate from our out-licensing agreements with them.



Related
Matters



From
time to time, legislation is drafted, introduced and passed in governmental bodies that could significantly change the statutory
provisions governing the approval, manufacturing and marketing of products regulated by the FDA, EMA, the Israeli Ministry of
Health and other applicable regulatory bodies to which we are subject. In addition, regulations and guidance are often revised
or reinterpreted by the national agency in ways that may significantly affect our business and our product candidates. It is impossible
to predict whether such legislative changes will be enacted, whether FDA, EMA or Israeli Ministry of Health regulations, guidance
or interpretations will change, or what the impact of such changes, if any, may be. We may need to adapt our business and product
candidates and products to changes that occur in the future.



C. Organizational
Structure



Our
corporate structure consists of Can-Fite and three subsidiaries, one of which is an indirect subsidiary: Ultratrend Limited, an
English limited company, OphthaliX Inc., a Delaware corporation, or OphthaliX, and Eye-Fite Limited, an Israeli limited company,
or Eye-Fite. Ultratrend Limited is a wholly-owned subsidiary of Can-Fite, but has yet to conduct any significant activity. Can-Fite
holds 82% of the issued and outstanding capital stock of OphthaliX and accordingly may appoint all members of the Board of Directors
of OphthaliX. Eye-Fite, a wholly-owned subsidiary of OphthaliX, holds an exclusive license from Can-Fite, pursuant to which OphthaliX
develops CF101 for use in the ophthalmic field.



D. Property,
Plants and Equipment.



We
are headquartered in Petah-Tikva, Israel. We lease one floor in one facility pursuant to a lease agreement with Eshkolit Nihul
Nadlan LTD, an Israeli limited company,that pursuant to a verbal agreement expires on December 31, 2015.The Petah-Tikva
headquarters consists of approximately 300 square meters of space with eight parking spaces. Lease payments are approximately
NIS 20,448, or $5,665, per month. If our lease is terminated, we do not foresee significant difficulty in leasing another suitable
facility. The current facility houses both our administrative, clinical and research operations. The research laboratory consists
of approximately 150 square meters and includes a tissue culture laboratory and a molecular biology laboratory.



ITEM
4A. Unresolved Staff Comments



Not
Applicable.





70







ITEM
5. Operating and Financial Review and Prospects



The
information in this section should be read in conjunction with our consolidated financial statements and related notes beginning
on page F-1 and the related information included elsewhere in this Annual Report on Form 20-F. Our financial statements are prepared
in accordance with IFRS as issued by the International Accounting Standards Board, and reported in NIS. We maintain our accounting
books and records in NIS and our functional currency is NIS. Certain amounts presented herein may not sum due to rounding.



Overview



We
are a clinical-stage biopharmaceutical company focused on developing orally bioavailable small molecule therapeutic products for
the treatment of autoimmune-inflammatory, oncological and ophthalmic diseases. Our platform technology utilizes the Gi protein
associated A3AR as a therapeutic target. A3AR is highly expressed in inflammatory and cancer cells, and not significantly expressed
in normal cells, suggesting that the receptor could be a unique target for pharmacological intervention. Our pipeline of drug
candidates are synthetic, highly specific agonists and allosteric modulators, or ligands or molecules that initiate molecular
events when binding with target proteins, targeting the A3AR. Our strategy is to build a fully integrated biotechnology company
that discovers, in-licenses and develops an innovative and effective small molecule drug portfolio of ligands that bind to a specific
therapeutic target for the treatment of autoimmune-inflammatory, oncological, ophthalmic diseases and more. We continue to develop
and test our existing pipeline, while also testing other indications for our existing drug candidates and examining, from time
to time, the potential of other small molecules that may fit our platform technology of utilizing small molecules to target the
A3AR. We generally focus on drugs with global market potential and we seek to create global partnerships to effectively assist
us in developing our portfolio and to market our products.



We
have in-licensed three different A3AR ligands which represent our current pipeline of drug candidates under development and include
two synthetic A3AR agonists, CF101 (known generically as IB-MECA) and CF102 (known generically as CI-IB-MECA) from NIH, and an
allosteric modulator at the A3AR, CF602 from Leiden University. See “Item 4. Information on the Company—Business Overview—In-Licensing
Agreements”. In addition, we have out-licensed CF101 for (i) the treatment of autoimmune diseases to SKK for the Japanese
market, (ii) for the treatment of RA to KD for the Korean market and (iii) for the treatment of ophthalmic diseases to Eye-Fite,
a wholly-owned subsidiary of OphthaliX for the global market. We also recently entered into a distribution agreement for the distribution
of CF101 for the treatment of psoriasis and RA to Cipher for the Canadian market.See “Item 4. Information on the Company—Business
Overview—Out-Licensing and Distribution Agreements”.



Our
drug candidates, CF101, CF102 and CF602 are being developed to treat several autoimmune-inflammatory, oncological and ophthalmic
indications. CF101 is in various stages of clinical development for the treatment of autoimmune-inflammatory diseases, including
RA, psoriasis, and OA. CF101 is also being developed by OphthaliX for the treatment of ophthalmic indications, including DES,
glaucoma and uveitis. The CF102 drug candidate is being developed for the treatment of HCC and for the treatment of HCV. CF602
is our second generation allosteric drug candidate for the treatment of inflammatory diseases, which has shown proof of concept
in in vitro and in vivo studies. In addition, we recently announced that we are planning to develop CF602 to treat
sexual dysfunction. Preclinical studies revealed that our drug candidates have potential to treat additional inflammatory diseases,
such as Crohn’s disease, oncological diseases and viral diseases, such as the JC virus.



We
are currently: (i) expecting top-line results for a recently completed Phase II/III trial with respect to the development of CF101
for the treatment of psoriasis; (ii) preparing for a Phase III trial with respect to the development of CF101 for the treatment
of RA; (iii) preparing for a Phase II study with respect to the development of CF101 for the treatment of OA; (iv) conducting
a Phase II study with respect to the development of CF102 for the treatment of HCC (and as part of this study, we will also test
CF102 in patients with both HCC and HCV); and (v) preparing for further preclinical work with respect to the development of CF602.
OphthaliX is currently: (i) conducting a Phase II trial with respect to the development of CF101 for the treatment of glaucoma
or related syndromes of ocular hypertension; and (ii) initiating a Phase II study of CF101 for the treatment of uveitis.



Since
inception, we have incurred significant losses in connection with our research and development. At December 31, 2014, we had an
accumulated deficit of approximately NIS304,150. Although we have begun to recognize revenues in connection with our out-licensing
agreements with SKK, KD and OphthaliX, we expect to generate losses in connection with the research and development activities
relating to our pipeline of drug candidates. Such research and development activities are budgeted to expand over time and will
require further resources if we are to be successful. As a result, we expect to incur operating losses, which may be substantial
over the next several years, and we will need to obtain additional funds to further develop or research and development programs.





71







We
have funded our operations primarily through the sale of equity securities (both in private placements and in public offerings)
and payments received under the licensing arrangements with SKK and KD. We expect to continue to fund our operations over the
next several years through our existing cash resources, potential future milestone payments that we expect to receive from our
licensees, interest earned on our investments, if any, and additional capital to be raised through public or private equity offerings
or debt financings. As of December 31, 2014, we had approximately $9,280, or NIS36,091, of cash and cash equivalents based on
the exchange rate reported by the Bank of Israel as of December 31, 2014.



Revenues



Our
revenues to date have been generated primarily from payments under our licensing arrangements with SKK and KD. Under the Seikagaku
Agreement, we are entitled to up-front and milestone payments of up to $17million (of which $2 million is attributable to our
participation in certain research and development activities), annual payments of $0.5 million, and up to an additional $4 million
in milestone payments if SKK pursues a second indication (the current indication is RA). We will also be entitled to royalties
in an amount between 7-12% of annual net sales in Japan subject to certain sales criteria. In accordance with the Seikagaku Agreement,
we received an up-front payment of $3.0 million in 2006, a milestone payment of $1.0 million in 2008 and $0.5 million per year
from 2007 through 2011 as an annual minimum royalty payment (for an aggregate of $2.5 million). Under the Kwang Dong Agreement,
we are entitled to up-front and milestone payments of up to $1.5 million. In accordance with the Kwang Dong Agreement, we received
an up-front paymentof $0.3 million and a payment of $0.048 million as consideration for KD’s purchase of our ordinary shares
in 2009 and a milestone payment of $0.2 million in 2010. See “Item 4. Information on the Company—Business Overview—Out-Licensing
and Distribution Agreements”.



Under
the terms of the Seikagaku Agreement and the Kwang Dong Agreement, in addition to the payments mentioned above, we are entitled
to certain additional payments based on the sale of raw materials, subject to the terms and conditions of the respective agreements.
See “Item 4. Information on the Company—Business Overview—Out-Licensing and Distribution Agreements”.
Certain payments we have received from SKK and KD have been subject to a 10% and 5% withholding tax in Japan and Korea, respectively,
and certain payments we may receive in the future, if at all, may also be subject to the same withholding tax in Japan and Korea.
Receipt of any milestone payment under our out-licensing agreements depends on many factors, some of which are beyond our control.
We cannot assure you that we will receive any of these future payments. We expect our revenues for the next several years,if any,to
be derived primarily from payments under our current out-license agreements and our public capital raising activities, as well
as additional collaborations that we may enter into in the future with respect to our drug candidates.



Research
and Development



Our
research and development expenses consist primarily of salaries and related personnel expenses, fees paid to external service
providers, up-front and milestone payments under our license agreements, patent-related legal fees, costs of preclinical studies
and clinical trials, drug and laboratory supplies and costs for facilities and equipment. We charge all research and development
expenses to operations as they are incurred. We expect our research and development expense to remain our primary expense in the
near future as we continue to develop our products. Increases or decreases in research and development expenditures are attributable
to the number and/or duration of the pre-clinical and clinical studies that we conduct.



The
following table identifies our current major research and development projects:



|Project |  |  | Status                                            |  |  | Expected or Recent Near Term Milestone                
|------- |  |  | ------------------------------------------------- |  |  | ------------------------------------------------------
|CF 101  |  |  | Preparing for a Phase III study in RA             |  |  | Completion of preparatory work for Phase III study    
|        |  |  | Ongoing Phase II/III in Psoriasis                 |  |  | Top line results are expected in the end of March 2015
|        |  |  | Ongoing Phase II in Glaucoma  (via OphthaliX)     |  |  | Top line results are expected in Q4  2015             
|        |  |  | Preparing for Phase II in Uveitis (via OphthaliX) |  |  | Completion of preparatory work for Phase II study     
|        |  |  | Preparing for a Phase II in OA                    |  |  | Completion of preparatory work for Phase II study     
|CF 102  |  |  | Phase II in HCC                                   |  |  | Completion of patient enrollment by end of 2015       
|CF 602  |  |  | Pre-Clinical Stage                                |  |  | Continuing pre-clinical studies and preparations      





72







We
record certain costs for each development project on a “direct cost” basis, as they are recorded to the project for
which such costs are incurred. Such costs include, but are not limited to, CRO expenses, drug production for pre-clinical and
clinical studies and other pre-clinical and clinical expenses. However, certain other costs, including but not limited to, salary
expenses (including salaries for research and development personnel), facilities, depreciation, share-based compensation and other
overhead costs are recorded on an “indirect cost” basis, i.e., they are shared among all of our projects and are not
recorded to the project for which such costs are incurred. We do not allocate direct salaries to projects due to the fact that
our project managers are generally involved in several projects at different stages of development, and the related salary expense
is not significant to the overall cost of the applicable projects. In addition, indirect labor costs relating to our support of
the research and development process, such as manufacturing, controls, pre-clinical analysis, laboratory testing and initial drug
sample production, as well as rent and other administrative overhead costs, are shared by many different projects and have never
been considered by management to be of significance in its decision-making process with respect to any specific project. Accordingly,
such costs have not been specifically allocated to individual projects.



Set
forth below is a summary of the gross direct costs allocated to our main projects on an individual basis, as well as the gross
direct costs allocated to our less significant projects on an aggregate basis, for the years ended December 31, 2012, 2013 and
2014; and on an aggregate basis since project inception:



|                                     |  |                             |       |  | Total   | 
|------------------------------------ |  | --------------------------- | ----- |  | ------- | 
|                                     |  |                             |       |  | Costs   | 
|                                     |  | (USD
    in thousands)      |       |  | Since   | 
|                                     |  | Year
    Ended December 31, |       |  | Project | 
|                                     |  | 2012                        |       |  | 2013    | 
|CF101                                |  |                             | 1,987 |  |         | 
|CF102                                |  |                             | 15    |  |         | 
|CF602                                |  |                             | -     |  |         | 
|                                     |  |                             |       |  |         | 
|Other projects                       |  |                             | -     |  |         | 
|Total gross direct project costs (1) |  |                             | 2,002 |  |         | 










|(1) | Does
    not include indirect project costs and overhead, such as payroll and related expenses (including stock-based compensation),
    facilities, depreciation and impairment of intellectual property, which are included in total research and development expenses
    in our financial statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under
our licensing agreement with Eye-Fite, Eye-Fite is responsible for making payments to our licensor, the NIH, for certain patent
rights relating to CF101. See “Item 10. Additional Information — Material Contracts — Out-Licensing
and Distribution Agreements—Eye-Fite Agreement”.



From
our inception through December 31, 2014, we have incurred research and development expenses of approximately $57million. We expect
that a large percentage of our research and development expense in the future will be incurred in support of our current and future
preclinical and clinical development projects. Due to the inherently unpredictable nature of preclinical and clinical development
processes and given the early stage of our preclinical product development projects, we are unable to estimate with any certainty
the costs we will incur in the continued development of the product candidates in our pipeline for potential commercialization.
Clinical development timelines, the probability of success and development costs can differ materially from expectations. We expect
to continue to test our product candidates in preclinical studies for toxicology, safety and efficacy, and to conduct additional
clinical trials for each product candidate. If we are not able to enter into an out-licensing arrangement with respect to any
product candidate prior to the commencement of later stage clinical trials, we may fund the trials for the product candidates
ourselves.





73







While
we are currently focused on advancing each of our product development projects, our future research and development expenses will
depend on the clinical success of each product candidate, as well as ongoing assessments of each product candidate’s commercial
potential. In addition, we cannot forecast with any degree of certainty which product candidates may be subject to future out-licensing
arrangements, when such out-licensing arrangements will be secured, if at all, and to what degree such arrangements would affect
our development plans and capital requirements.



As
we obtain results from clinical trials, we may elect to discontinue or delay clinical trials for certain product candidates or
projects in order to focus our resources on more promising product candidates or projects. Completion of clinical trials by us
or our licensees may take several years or more, but the length of time generally varies according to the type, complexity, novelty
and intended use of a product candidate.



The
cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development,
including, among others:



| | ● | the
    number of sites included in the clinical trials;
| | - | --------------------------------------------------------



| | ● | the
    length of time required to enroll suitable patients;
| | - | ------------------------------------------------------------



| | ● | the
    number of patients that participate in the clinical trials;
| | - | -------------------------------------------------------------------



| | ● | the
    duration of patient follow-up;
| | - | --------------------------------------



| | ● | the
    development stage of the product candidate; and
| | - | -------------------------------------------------------



| | ● | the
    efficacy and safety profile of the product candidate.
| | - | -------------------------------------------------------------



We
expect our research and development expenses to increase in the future from current levels as we continue the advancement of our
clinical trials and preclinical product development and to the extent we in-license new product candidates. The lengthy process
of completing clinical trials and seeking regulatory approval for our product candidates requires expenditure of substantial resources.
Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could cause a delay in generating product
revenue and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations.
Because of the factors set forth above, we are not able to estimate with any certainty when we would recognize any net cash inflows
from our projects.



General
and Administrative Expenses



General
and administrative expenses consist primarily of compensation for employees in executive and operational functions, including
accounting, finance, legal, business development, investor relations, information technology and human resources. Other significant
general and administration costs include facilities costs, professional fees for outside accounting and legal services, travel
costs, insurance premiums and depreciation.



Financial
Expense and Income



Financial
expense and income consists of interest earned on our cash and cash equivalents; bank fees and other transactional costs; expense
or income resulting from fluctuations of the U.S. dollar and other currencies, in which a portion of our assets and liabilities
are denominated, against the NIS (our functional currency); and fluctuations in the market value of our warrants which trade on
the TASE.





74







Critical
Accounting Policies and Estimates



Our
accounting policies and their effect on our financial condition and results of operations are more fully described in our audited
consolidated financial statements included elsewhere in this Annual Report. The preparation of financial statements in conformity
with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB,
requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and
liabilities, revenues and expenses and disclosure of contingent assets and liabilities. These estimates are prepared using our
best judgment, after considering past and current events and economic conditions. While management believes the factors evaluated
provide a meaningful basis for establishing and applying sound accounting policies, management cannot guarantee that the estimates
will always be consistent with actual results. In addition, certain information relied upon by us in preparing such estimates
includes internally generated financial and operating information, external market information, when available, and when necessary,
information obtained from consultations with third party experts. Actual results could differ from these estimates and could have
a material adverse effect on our reported results.



We
believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past
and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions.
We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not available
at the time or it included matters that were highly uncertain at the time we were making our estimate; and (2) changes in the
estimate could have a material impact on our financial condition or results of operations.



Functional
Currency



The
presentation currency of our financial statements and our functional currency is the NIS. The functional currency of an entity
in which we own an equity interest, which is referred to as oursubsidiary, differs from our functional currency, that subsidiary
represents a foreign operation whose financial statements are translated as follows: (i) assets and liabilities are translated
at the closing rate at the date of that balance sheet, (ii) income and expenses are translated at average exchange rates for the
presented periods and (iii) share capital and capital reserves are translated at the exchange rate prevailing at the date of incurrence.
All resulting translation differences are recognized in a separate component in equity, as other comprehensive loss, “adjustments
from translation of financial statements.”



For
the convenience of the reader, the reported NIS amounts as of December 31, 2014 have been translated into U.S. dollars at the
representative rate of exchange on December 31, 2014(U.S. $1 = NIS 3.889). The U.S. dollar amounts presented should not be construed
as representing amounts that are receivable or payable in U.S. dollars or convertible into U.S. dollars, unless otherwise indicated.
The U.S. dollar amounts were rounded to whole numbers of convenience.



Principles
of Consolidation



Our
financial statements reflect the consolidation of the financial statements of companies that we control based on legal control
or effective control. We fully consolidate into our financial statements the results of operations of companies that we control.
Legal control exists when we have the power, directly or indirectly, to govern the financial and operating policies of an entity.
The effect of potential voting rights that are exercisable at the balance sheet date are considered when assessing whether we
have legal control. In addition, we consolidate on the basis of effective control even if we do not have voting control. The determination
that effective control exists involves significant judgment.



In
evaluating the effective control on our investees we consider the following criteria to determine if effective control exists:



| | ● | whether
                                         we hold a significant voting interest (but less than half the voting rights);
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | ● | whether
                                         there is a wide diversity of public holdings of the remaining shares conferring voting
                                         rights;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





75







| | ● | whether
                                         in the past we had the majority of the voting power participating in the general meetings
                                         of shareholders and, therefore, have in fact had the right to nominate the majority of
                                         the board members;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         absence of a single entity that holds a significant portion of the investee’s shares;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | ● | our
                                         ability to establish policies and guide operations by appointing the remainder of the
                                         investee’s senior management; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | whether
                                         the minority shareholders have participation rights or other preferential rights, excluding
                                         traditional shareholder protective rights.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Entities
we control are fully consolidated in our financial statements. All significant intercompany balances and transactions are eliminated
in consolidation. Non-controlling interests of subsidiaries represent the non-controlling shareholders’ proportionate interest
in the comprehensive income (loss) of the subsidiaries and fair value of the net assets or the net identifiable assets upon the
acquisition of the subsidiaries.



Revenue
Recognition



We
recognize revenues in accordance with International Accounting Standard No. 18, or IAS 18. Under IAS 18 we generate income from
licensing agreements with pharmaceutical companies. These agreements usually comprise license fees, annual license fees, milestone
payments and potential royalty payments.



Revenues
are recognized in profit or loss when the revenues can be measured reliably, it is probable that the economic benefits associated
with the transaction will flow to us and the costs incurred or to be incurred in respect of the transaction can be reliably measured.



Arrangements
with multiple elements:



Revenues
from sale agreements that do not contain a general right of return and that are composed of multiple elements such as licenses
and services are allocated to the various accounting units and recognized for each accounting unit separately. An element constitutes
a separate accounting unit if and only if it has a separate value to the customer. Revenue from the various accounting units is
recognized when the criteria for revenue recognition regarding the elements of that accounting unit have been met according to
their type and only to the extent of the consideration that is not contingent upon completion or performance of the remaining
elements in the contract.



Revenues
from license fees:



As
for revenues from preliminary license fees and annual license fees, we examine whether the license can be separated from our other
performance obligations.



Revenues
from milestone payments:



Revenues
which are contingent on compliance with and attainment of milestones are recognized in profit or loss at the achievement of a
milestone, provided that certain criteria have been met.



Revenues
from royalties:



Revenues
from royalties are recognized as they accrue in accordance with the terms of the relevant agreement.



Share-based
Compensation



We account for share-based
compensation arrangements in accordance with the provisions of IFRS 2. IFRS 2 requires companies to recognize share-based compensation
expense for awards of equity instruments based on the grant-date fair value of those awards. The cost is recognized as compensation
expense over the vesting period, based upon the grant-date fair value of the equity or liability instruments issued. We selected
the binomial option pricing model as the most appropriate method for determining the estimated fair value of our share-based awards
without market conditions. The determination of the grant date fair value of options using an option pricing model is affected
by estimates and assumptions regarding a number of complex and subjective variables. These variables include the expected volatility
of our share price over the expected term of the options, share option exercise and forfeiture rate, risk-free interest rates,
expected dividends and the price of our ordinary shares on the TASE. As our ordinary shares are publicly traded on the TASE, we
do not need to estimate the fair value of our ordinary shares. Rather, we use the actual closing market price of our ordinary
shares on the date of grant, as reported by the TASE although in the future may use the closing market price of our ADSs on the
date of grant, as reported by the NYSE MKT..







76







If
any of the assumptions used in the binomial option pricing model change significantly, share-based compensation for future awards
may differ materially compared with the awards previously granted.



As
for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration
for equity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments
cannot be measured, they are measured by reference to the fair value of the equity instruments granted.



The
cost of equity-settled transactions is recognized in profit or loss, together with a corresponding increase in equity, during
the period which the service are to be satisfied, ending on the date on which the relevant employees or other service providers
become fully entitled to the award.



If
we modify the conditions on which equity-instruments are granted, an additional expense is recognized for any modification that
increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee or other service
provider at the modification date.



Recently
Issued Accounting Pronouncements



IFRS 9-Financial
Instruments:



In
July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial
instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS
9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is
effective for annual periods beginning on or after 1 January 2018, with early application permitted. The adoption of IFRS 9
will have no material effect on the Company’s financial assets on the financial statements.



US
Registered Direct Offering



On
December 8, 2014, we sold to certain institutional investors an aggregate of 1,797,753 ADSs in an at-the-market registered direct
offering at $4.45 per share resulting in gross proceeds of $8,000,000. In addition, we issued to the investors unregistered warrants
to purchase 898,877 ADSs. The warrants may be exercised at any time for a period of five years from issuance and have an exercise
price of $4.45 per ADS, subject to adjustment as set forth therein. The warrants may be exercised on a cashless basis if six months
after issuance there is no effective registration statement registering the ADSs underlying the warrants. In connection with the
private placement we paid an aggregate of $762,500 in placement agent fees and expenses and issued unregistered placement agent
warrants to purchase 89,888 ADS, exercisable for five years from issuance, at an exercise price of $4.45 per ADS, subject to adjustment
as set forth therein.



US
Private Placement



On
March 10, 2014, we sold to accredited investors 982,344 ADSs, at a purchase price of $5.15 per ADS, and warrants to purchase
491,172 additional ADSs in a private placement resulting in gross proceeds of $5,059,072. The warrants may be exercised at
any time after September 10, 2014 for a period of four years from the date of issuance and have an exercise price of $6.43
per ADS, subject to adjustment as set forth therein. The warrants may be exercised on a cashless basis if after September 10,
2014 there is no effective registration statement registering the ADSs underlying the warrants. In connection with the
private placement we paid an aggregate of $509,840 in placement agent fees and expenses and we issued placement agent
warrants to purchase 49,117 ADSs exercisable at $6.43 per ADS for four years. The placement agent warrants may be exercised
on a cashless basis at any time after September 10, 2014.





77







Israeli
Public Offering



On
February 5, 2013, we completed the sale in Israel of 7,477 units, each consisting of 10,000 of our ordinary shares, 5,000 Series
10 Warrants to purchase ordinary shares and 5,000 Series 11 Warrants to purchase ordinary shares, for an aggregate of 74,770,000
ordinary shares, 50,000,000 Series 10 Warrants to purchase ordinary shares and 50,000,000 Series 11 Warrants to purchase ordinary
shares. The purchase price in the offering was NIS 3,544 per unit ($960.17 based on the exchange rate of New Israel Shekels to
U.S. Dollars of NIS 3.691 to $1.00), for an aggregate purchase price for all units of NIS 26,498,488 ($7,179,216.47 using the
same exchange rate). After the payment of sales commissions, we received net proceeds from the offering of NIS 23,926,000 ($6,402,000).



On
October 23, 2013, we completed the sale in Israel of 3,675 units, each consisting of 500 of our ordinary shares and 375 Series
12 Warrants to purchase ordinary shares, for an aggregate of 1,837,500 ordinary shares and 1,378,125 Series 12 Warrants to purchase
ordinary shares. The purchase price in the offering was NIS 5,800 per unit ($1,648 based on the exchange rate of New Israel Shekels
to U.S. Dollars of NIS 3.52 to $1.00), for an aggregate purchase price for all units of NIS 21,315,000 ($6,055,398 using the same
exchange rate). After the payment of sales commissions, we received net proceeds from the offering of NIS 20,138,000 ($5,721,000).



Israeli
Public Warrant Offerings



Series
6 and 7 Warrants



In
connection with our Israeli public offering on November 16, 2011, we issued Series 6 and Series 7 Warrants, which were publicly
traded on the TASE and exercisable into our publicly traded ordinary shares. In accordance with IFRS, we allocated a portion of
the consideration received for such warrants based on their market value at that time. The consideration allocated to such warrants
is generally reflected in non-current liabilities due to the fact that the exercise price of the warrants is linked to the Israeli
consumer price index.



In
the public offering, we issued 4,953,750 Series 6 Warrants exercisable for 198,150 of our ordinary shares. The Series 6
Warrants have an exercise price of 15.75 NIS per ordinary share (which may fluctuate as it is based on the Israeli consumer
price index) and were originally scheduled to expire on May 16, 2012.On August 18, 2012,we filed an application with
the Petah-Tikva District Court in Israel to approve an extension of the Series 6 Warrants until September 1, 2014 and
following a meeting of our shareholders and holders of Series 6 Warrant to approve the extension of the exercise period of
the Series 6 Warrants, on January 27, 2014, the District Court approved the extension until October 30, 2013. The Series 6
Warrants expired on October 30, 2013.



In
the same offering, we issued 9,907,500 Series 7 Warrants exercisable for 396,300 of our ordinary shares. The Series 7
Warrants have an exercise price of 20 NIS per ordinary share (which may fluctuate as it is based on the Israeli consumer
price index) and were originally scheduled to expire on November 16, 2013.On November 7, 2013,we filed an application
with the Petah-Tikva District Court in Israel to approve an extension of the Series 7 Warrants until March 31, 2014 and
following a meeting of our shareholders and holders of Series 7 Warrant to approve the extension of the exercise period of
the Series 7 Warrants, on January 27, 2014, the District Court approved the extension until March 31, 2014. The series 7
warrants expired on March 31, 2014.



Series
8 and 9 Warrants



In
connection with our Israeli public offering on May 1, 2012, we issued Series 8 and Series 9 Warrants, which are publicly traded
on the TASE and exercisable into our publicly traded ordinary shares. In accordance with IFRS, we allocated a portion of the consideration
received for such warrants based on their market value at the time. The consideration allocated to warrants is generally reflected
in non-current liabilities due to the fact that the exercise price of such warrants is linked to the Israeli consumer price index.





78







We
issued 8,112,000 Series 8 Warrants exercisable for 324,480 of our ordinary shares in the offering. Although the Series 8 Warrants
had an exercise price of 13.75 NIS per ordinary share (which may fluctuate as it is based on the Israeli consumer price index)
and were set to expire on June 30, 2013. On June 24, 2013, the Lod District Court in Israel approved a settlement, approved at
a meeting of the shareholders and the Series 8 Warrants holders, according to which the exercise price was increased to 18.75
NIS per ordinary share (which may fluctuate as it is based on the Israeli consumer price index) and the exercise period was extended
until December 31, 2013.The Series 8 Warrants expired on December 31, 2013.



We
also issued 12,168,000 Series 9 Warrants exercisable for 486,720 of our ordinary shares in this offering. In accordance with IFRS,
we allocated a portion of the consideration received from the Series 9 Warrants based on their market value at the time. The consideration
allocated to the Series 9 Warrants is generally reflected in shareholders’ equity due to the fact that the exercise price
of such warrants is fixed. The Series 9 Warrants have a fixed exercise price of 21.25 NIS per ordinary share and are set to expire
on May 1, 2015.



Series
10 and 11 Warrants



In
connection with our Israeli public offering on February 5, 2013, we issued Series 10 and Series 11 Warrants, which are publicly
traded on the TASE and exercisable into our publicly traded ordinary shares. In accordance with IFRS, we allocated a portion of
the consideration received for such warrants based on their market value at the time. The consideration allocated to warrants
is generally reflected in non-current liabilities due to the fact that the exercise price of such warrants is linked to the Israeli
consumer price index.



We
issued 39,067,000 Series 10 Warrants exercisable for 1,562,680 of our ordinary shares in the offering. The Series 10 Warrants
have an exercise price of 0.394 NIS per ordinary share (which may fluctuate as it is based on the Israeli consumer price index)
and are set to expire on October 31, 2015.



We
also issued 37,385,000 Series 11 Warrants exercisable for 1,495,400 of our ordinary shares in the offering. The Series 10 Warrants
have an exercise price of 0.392 NIS per ordinary share (which may fluctuate as it is based on the Israeli consumer price index)
and are set to expire on April 30, 2016.



Our
Board of Directors decided that the exercise price of the Series 10 and Series 11 Warrants will no longer be linked to the Israeli
consumer price index and on August 20, 2013, the Lod District Court approved a settlement, approved at a meeting of the shareholders
and the Series 10 and 11Warrants holders, according to which the exercise price of the Series 10 and 11 Warrants will no longer
be linked to the Israeli consumer price index. As a result, Series 10 and 11 Warrants, were reclassified to equity.



As
of March 23, 2015, other than Series 6, Series 7 and Series 8 Warrants that have been expired, 25,000 Series 10 Warrants exercised
on December 26, 2013 to purchase 1,000 ordinary shares for an aggregate exercise price of NIS 9,850 and 12,500 Series 11 Warrants
exercised on December 26, 2013 to purchase 500 ordinary shares for an aggregate exercise price of NIS 4,900 none of the foregoing
warrants have been exercised.



Jumpstart
Our Business Startups Act of 2012



We
are an emerging growth company within the meaning of the rules under the Securities Act, and we will utilize certain exemptions
from various reporting requirements that are applicable to public companies that are not emerging growth companies. The JOBS Act
permits us, as an “emerging growth company,” to take advantage of an extended transition period to comply with certain
new or revised accounting standards if such standards apply to companies that are not issuers. We are choosing to “opt out”
of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted
by issuers. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.





79







A. Results
of Operations



Comparison
of the Year Ended December 31, 2014 to Year Ended December 31, 2013



Research
and development expenses



Research
and development expenses for the year ended December 31, 2014 were NIS 16.20 million, an increase of NIS 0.81 million, or 5.3%,
compared to NIS 15.39 million for the year ended December 31, 2013. The increase in research and development expenses was primarily
due to the increase in clinical trial expenses. We expect that we will continue to experience increases in research and development
expenses through 2015 and beyond.



General
and administrative expenses



General
and administrative expenses were NIS11.57 million for the year ended December 31, 2014 and NIS 15.92 million for year ended
December 31, 2013. This decrease was primarily due to a decrease in investor relations expenses, share based payments,
salaries and professional services. We expect that general and administrative expenses will remain at the same level through
2015 and beyond.



Financial
income, net



We
recognized net financial income of NIS 3.27 million for year ended December 31, 2014, and NIS 0.51 million for the year ended
December 31, 2013. The increase in the financial income, net is mainly due to a decrease in the fair market value of the
warrants exercisable into shares and also the increase in the exchange rate of the USD against the NIS.



Comparison
of the Year Ended December 31, 2013 to Year Ended December 31, 2012



Research
and development expenses



Research
and development expenses for the year ended December 31, 2013 were NIS 15.39 million, an increase of NIS 2.23 million, or
16.9%, compared to NIS 13.16 million for the year ended December 31, 2012.



The
increase in research and development expenses was primarily due to the increase in clinical trial expenses. We expect that we
will continue to experience increases in research and development expenses through 2015 and beyond.



General
and administrative expenses



General
and administrative expenses were NIS 15.92 million for the year ended December 31, 2013 and NIS 9.3 million for year ended December
31, 2012. The increase in 2013 as compared to 2012 was in investor relations expenses, share based payments, salaries and professional
services.



Financial
income, net



We
recognized net financial income of NIS 0.509 million for year ended December 31, 2013, a decrease of NIS 0.005 million, or 9.7%,
compared to net financial income of NIS 0.514 million for the year ended December 31, 2012. The decrease in net financial income,
net is not material.



B. Liquidity
and Capital Resources



Since
inception, we have funded our operations primarily through public (in Israel) and private offerings of our equity securities
and payments received under our strategic licensing arrangements. At December 31, 2014, we had approximately NIS 36.1 million
in cash and cash equivalents, and have invested most of our available cash funds in short-term bank deposits. As of March 23,
2015, we raised approximately NIS 92 million, after deduction of offering expenses, as a private company until the
consummation of the IPO and approximately NIS 193 million, after deduction of offering expenses, as a public company since
the completion of the IPO. During 2014, we raised an aggregate of NIS 45 million, from a private placement and registered
direct offering conducted in the US.



80







We
may be able to use U.S. taxes withheld as credits against Israeli corporate income tax when we have income, if at all, but
there can be no assurance that we will be able to realize the credits. In addition, we believe that we may be entitled to a
refund of such withholding tax from the U.S. government but there can be no assurance that we will be entitled to such a
refund. For information regarding the revenues and expenses associated with our licensing agreements, see “Item 4.
Information on the Company—Business Overview—Out-Licensing and Distribution Agreements”, “Item 4.
Information on the Company—Business Overview—In-Licensing Agreements” and “Item 5. Operating and
Financial Review and Prospects—Revenues.”



Net
cash used in operating activities was NIS 28.6 million for the year ended December 31, 2014, compared with net cash used in
operating activities of NIS 30.1 million and NIS 16.2 million for the years ended December 31, 2013 and 2012, respectively.
The NIS 1.5 million decrease in the net cash used in operating activities during 2014, compared to 2013, was primarily the
result of a decrease in the loss of the company and also the result of an increase in accounts receivable and decrease in
trade payables and other payable, which increased in the year before. The NIS 13.9 million increase in the net cash used in
operating activities during 2013, compared to 2012, was primarily the result of an increase in the loss of the company and
also the result of decrease in trade payables and an increase in other payable and accounts receivable, which decreased in
the year before.



Net
cash used in investing activities for the year ended December 31, 2014 was NIS 0.04 million compared to net cash used in
investing activities of NIS 0.04 million for the year ended December 31, 2013 and net cash provided by investing activities
of NIS 0.07 million for the year ended December 31, 2012. The changes in cash flows from investing activities are
immaterial.



Net
cash provided by financing activities was NIS 44.7 million for the year ended December 31, 2014, compared to net cash
provided by financing activities of NIS 46 million for the year ended December 31, 2013 and NIS 5.6 million for the
year ended December 31, 2012. The NIS 1.3 million decrease in the net cash provided by financing activities during 2014,
compared to 2013, was primarily due to sale of treasury shares in 2013. The NIS 40.4 million increase in the net cash
provided by financing activities during 2013, compared to 2012, was primarily due to our capital raising transactions in
February and October 2013.



Developing
drugs, conducting clinical trials and commercializing products is expensive and we will need to raise substantial additional funds
to achieve our strategic objectives. Although we believe our existing financial resources as of March 232015, will be sufficient
to fund our projected cash requirements through for the next twelve months, we will require significant additional financing to
fund our operations. Additional financing may not be available on acceptable terms, if at all. Our future capital requirements
will depend on many factors, including:



| | ● | the
    progress and costs of our preclinical studies, clinical trials and other research and development activities;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | ● | the
    scope, prioritization and number of our clinical trials and other research and development programs;
| | - | ------------------------------------------------------------------------------------------------------------



| | ● | the
    amount of revenues we receive under our licensing arrangements;
| | - | -----------------------------------------------------------------------



| | ● | the
    costs of the development and expansion of our operational infrastructure;
| | - | ---------------------------------------------------------------------------------



| | ● | the
    costs and timing of obtaining regulatory approval of our platform and products;
| | - | ---------------------------------------------------------------------------------------



| | ● | the
    ability of us or our collaborators to achieve development milestones, marketing approval and other events or developments
    under our licensing agreements;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
    costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
| | - | -------------------------------------------------------------------------------------------------------------------



| | ● | the
    costs and timing of securing manufacturing arrangements for clinical or commercial production;
| | - | ------------------------------------------------------------------------------------------------------





81







| | ● | the
    costs of contracting with third parties to provide sales and marketing capabilities for us;
| | - | ---------------------------------------------------------------------------------------------------



| | ● | the
    costs of acquiring or undertaking development and commercialization efforts for any future products or platforms;
| | - | -------------------------------------------------------------------------------------------------------------------------



| | ● | the
    magnitude of our general and administrative expenses;
| | - | -------------------------------------------------------------



| | ● | any
    cost that we may incur under current and future licensing arrangements relating to our platform and products; and
| | - | -------------------------------------------------------------------------------------------------------------------------



Until
we can generate significant continuing revenues, we expect to satisfy our future cash needs through payments received under our
license agreements, debt or equity financings, or by out-licensing other product candidates. We cannot be certain that additional
funding will be available to us on acceptable terms, or at all. If funds are not available, we may be required to delay, reduce
the scope of, or eliminate one or more of our research or development programs or our commercialization efforts.



C. Research
and Development, Patents and Licenses, Etc.



For
information concerning our research and development policies and a description of the amount spent during each of the last three
fiscal years on company-sponsored research and development activities, see “Item 5. Operating and Financial Review and Prospects—Operating
Results.”



D. Trend
Information.



We
are a development stage company and it is not possible for us to predict with any degree of accuracy the outcome of our research,
development or commercialization efforts. As such, it is not possible for us to predict with any degree of accuracy any significant
trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net sales or
revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause financial information
to not necessarily be indicative of future operating results or financial condition. However, to the extent possible, certain
trends, uncertainties, demands, commitments and events are identified in the preceding subsections of this Item 5.



E. Off-Balance
Sheet Arrangements.



We
have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.



F. Contractual
Obligations.



The
following table summarizes our significant contractual obligations in NIS at December 31, 2014:



|                                |  | Total |           |  | Less  than
 1 year |  |           | 1 – 3  years |  |  | 3-5  years |  |  | More than 5 years |  
|------------------------------- |  | ----- | --------- |  | ------------------ |  | --------- | ------------ |  |  | ---------- |  |  | ----------------- | -
|Contractual Obligations         |  |       |           |  |                    |  |           |              |  |  |            |  |  |                   |  
|                                |  |       |           |  |                    |  |           |              |  |  |            |  |  |                   |  
|NIH milestones(1)               |  |       | 1,652,825 |  |                    |  | 1,652,825 |              |  |  | -          |  |  |                   | -
|Leiden University milestones(2) |  |       | 377,968   |  |                    |  | 47,246    |              |  |  | 330,722    |  |  |                   | -
|Car lease obligations           |  |       | 212,000   |  |                    |  | 144,000   |              |  |  | 68,000     |  |  |                   | -
|Severance pay                   |  |       | 224,000   |  |                    |  | -         |              |  |  | -          |  |  |                   | -
|                                |  |       |           |  |                    |  |           |              |  |  |            |  |  |                   |  
|Total                           |  |       | 2,466,793 |  |                    |  | 1,844,071 |              |  |  | 398,722    |  |  |                   |  










|(1) | Includes
                                         $425,000 in milestone payments. Does not include a potential milestone payment of $500,000
                                         upon approval by the FDA or any regulatory authority as the NIH Agreement will terminate
                                         in 2015 upon the expiration of the last patent licensed thereunder, which will be prior
                                         to achieving such milestone.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes
                                         a €10,000 annual royalty and €50,000 upon the initiation of a Phase I study.
                                         We will update our milestone payment obligations upon releasing the Phase I data from
                                         such study. As such, the obligations above do not include a potential milestone payment
                                         of €100,000 upon the initiation of a Phase II study, €200,000 upon the initiation
                                         of a Phase III study or €500,000 upon marketing approval by any regulatory authority.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





82







ITEM
6. Directors, Senior Management and Employees



A. Directors
and Senior Management.



The
following table sets forth the members of our senior management and Board of Directors:



|Member                |  | Position                                                    |  | Age
|--------------------- |  | ----------------------------------------------------------- |  | ---
|Ilan Cohn, Ph.D.      |  | Chairman of the Board                                       |  | 59 
|                      |  |                                                             |  |    
|Pnina Fishman, Ph.D.  |  | Chief Executive Officer, Director                           |  | 66 
|                      |  |                                                             |  |    
|Motti Farbstein       |  | Chief Operating and Financial Officer                       |  | 51 
|                      |  |                                                             |  |    
|Guy Regev             |  | Director                                                    |  | 47 
|                      |  |                                                             |  |    
|Abraham Sartani, M.D. |  | Director                                                    |  | 68 
|                      |  |                                                             |  |    
|Gil Oren              |  | Director, Audit Committee and Compensation Committee member |  | 62 
|                      |  |                                                             |  |    
|Israel Shamay         |  | Director, Audit Committee and Compensation Committee member |  | 51 



Ilan
Cohn, Ph.D.   Ilan Cohn, Ph.D. is a patent attorney and senior partner at the patent attorney firm Reinhold
Cohn and Partners, where he has been an attorney since 1986. Dr. Cohn co-founded Can-Fite, served as its Chief Executive Officer
until September 2004, served on our Board of Directors since 1994 and since May 30, 2013 servesas the Chairman of the Can-Fite
Board of Directors. Dr. Cohn has also been a director of OphthaliX since November 21, 2011. Dr. Cohn holds a Ph.D. in biology
and is a patent attorney with many years of experience in the biopharmaceutical field. He has served on the Board of Directors
of a number of life science companies, including Discovery Laboratories Inc. (formerly Ansan Pharmaceuticals), a U.S. public company.
Dr. Cohn has also been involved in the past in management of venture capital funds focused on investments in the life sciences
industry. Dr. Cohn served a number of years as a co-chairman of the Biotech Committee of the US-Israeli Science and Technology
Commission. Dr. Cohen is also currently a member of the Board of Directors of I.C.R.C Management Ltd, Famillion BVI Ltd. and Famillion
Ltd. (a subsidiary of Famillion BVI Ltd.).Dr. Cohn holds a Ph.D. in Biology from the Hebrew University of Jerusalem.



Pnina
Fishman, Ph.D.  Pnina Fishman, Ph.D. co-founded Can-Fite and has served as our Chief Executive Officer and served
on our Board of Directors since September 2005. She has also served as the Chief Executive Officer of OphthaliX from November
21, 2011 through December 31, 2012. Dr. Fishman is the scientific founder of Can-Fite and was previously a professor of Life Sciences
and headed the Laboratory of Clinical and Tumor Immunology at the Felsenstein Medical Research Institute, Rabin Medical Center,
Israel. Dr. Fishman has authored or co-authored over 150 publications and presented the findings of her research at many major
scientific meetings. Her past managerial experience included seven years as Chief Executive Officer of Mor Research Application,
the technology transfer arm of Clalit Health Services, the largest healthcare provider in Israel. Mor Research Application was
also the first clinical research organization in Israel. Dr. Fishman currently also serves as a member of the Board of Directors
of F.D Consulting Ltd., Ultratrend Ltd., EyeFite Ltd. and OphthaliX Inc. Dr. Fishman holds a Ph.D. in Immunology from the Bar
Ilan University in Ramat Gan, Israel.





83







Motti
Farbstein. Motti Farbstein has been with Can-Fite since 2003. Mr. Farbstein served as our Chief Operating Officer from
August 2003 until May 2005 and from that date onwards he served as Chief Operating and Financial Officer. Mr. Farbstein also serves
as a director of EyeFite Ltd. since July 2011. Mr. Farbstein’s past managerial experience includes seven years as Vice President
of Mor Research Application, a company that managed the commercialization of the intellectual property of all hospitals and research
centers affiliated with Clalit Health Services, which is the largest healthcare provider in Israel and was Israel’s first
clinical CRO. Mr. Farbstein also has extensive experience in the data management of clinical trials.



Guy
Regev.Guy Regev has over twelve years of experience in accounting, financial management and control and general management
of commercial enterprises. He has served on our Board of Directors since July 2011 and has served as a member of our Audit Committee
and Compensation Committee since February 2014. Mr. Regev has also been a director of OphthaliX since November 2011. Mr. Regev
is currently the Chief Executive Officer of Gaon Holdings Ltd, a publicly traded Israeli holding company traded on the TASE which
focuses on three areas of operation - Cleantech / Water, Financial Services, Retail/Trading. Mr. Regev is currently also the Chief
Executive Officer of Middle East Tube Company Ltd a publicly traded Israeli company traded on the TASE which focuses on steel
pipe manufacturing and galvanization services. Mr. Regev was the Chief Executive Officer of Shaked Global Group Ltd, a privately-held
equity investment firm that provides value added capital to environmental-related companies and technologies. Prior to joining
Shaked, from 2001 to 2008, Mr. Regev was Vice President of Commercial Business at Housing & Construction Holding, or HCH,
Israel’s largest infrastructure company. His duties included being responsible for the consolidation and financial recovery
of various business units within HCH. Prior to that, Mr. Regev carried several roles within the group including as a Chief Financial
Officer and later the Chief Executive Officer of Blue-Green Ltd., the environmental services subsidiary of HCH. Between 1999 and
2001, Mr. Regev was a manager at Deloitte & Touche, Israel. Mr. Regev holds an LLB degree in Law (Israel) and is a licensed
attorney and has been a licensed CPA since 1999. Mr. Regev is also a director of, The Green Way Ltd, Shtang Construction and Engineering
Ltd, R.I.B.E. Consulting & Investment Ltd., Middle East Tube Company Ltd, Middle East Tube - Industries 2001 Ltd, Middle East
Tubes - Galvanizing (1994) Ltd, I-Solar Greentech Ltd, Plassim Infrastructure Ltd, Plassim Advanced Solutions in Sanitation Ltd,
Hakohav Valves Industries Metal (1987) Ltd, Metzerplas Agriculture Cooperative Ltd, B. Gaon Retail & Trading Ltd, Gaon Agro
- Rimon Management Services Ltd, B. Gaon Business (2004) Ltd, Gaon Antan Investments Ltd, Or Asaf Investments Ltd, Hamashbir Holdings
(1999) Ltd, and AHAVA Holdings  LTD.



Abraham
Sartani, M.D. Abraham Sartani has served on our Board of Directors since 2001. Dr. Sartani has over 30 years of experience
in the pharmaceuticals industry and currently acts as a consultant to pharmaceutical and medical device companies. Dr. Sartani
is a member of a number of scientific and management societies and the author or co-author of numerous publications and patents
in the urology, pain treatment and hypertension fields. Dr. Sartani also currently serves on the Board of Directors of Akkadeas
Pharma Srl and is a co-founding partner. From 1985 until 2008, Dr. Sartani was the Vice-President of R&D and Licensing of
Recordati, a European specialty pharmaceutical company. Prior to joining Recordati, from 1980 until 1985, Dr. Sartani was employed
at Farmitalia-Carlo Erba, serving in a number of capacities, including as the Medical Director for Europe.



Gil
Oren. Gil Oren has served as external director on our Board of Directors since July 2008 and chairs both the Audit
Committee and Compensation Committee since July 2008. Mr. Oren is the founder of a private consulting firm he started in 2008.
Mr. Oren has over 25 years of experience in top managerial positions in various public companies in Israel and the United States
and currently serves on the Board of Directors of Pointer Telocation Ltd. (NASDAQ: PNTR). From 1976 to 1992, Mr. Oren served in
various positions within the Tadiran Group, including serving for five years as the Chief Financial Officer of Tadiran Electronic’s
U.S. subsidiary. After serving in such capacity, Mr. Oren returned to Israel and joined Cargal, first as Vice President of Finance
and then as Chief Executive Officer and General Manager. From 2002 to 2007, Mr. Oren joined SFK, a leading Israeli investment
group, and served in various capacities in its portfolio companies, including as the deputy chief executive office of Urdan Industries,
the chief executive officer of Itong Industries and the chairman of the Board of Directors of Orlite Industries. Mr. Oren has
also served, on behalf of SFK, on the Board of Directors of various other public and private companies, including Nirlat, Aloni
and Scope. Mr. Oren holds a B.A in accounting and economics from Tel Aviv University and a M.B.A from Tel Aviv University. Mr.
Oren is also Certified Public Accountant.





84







Israel
Shamayhas served as external director on our Board of Directors since December 2014 and serves as a member on both
the Audit Committee and Compensation Committee. Since 2012 Mr. Shamay has served as Executive Director, Strategic Initiatives
and Head of the Americas Operations of MATIMOP (Israeli Industry Center for R&D), the International Operations agency
of the Israeli Office of the Chief Scientist, focusing on developing and implementing cooperation platforms for industrial R&D
and innovation projects in the Americas region. From 2006 until 2012 Mr. Shamay served as Executive Director of European Cooperations
at MATIMOP, where he was in charge of architecting, realizing and evaluating industrial innovation cooperation frameworks at bilateral
and European level, making them a major R&D cooperation instrument for Israeli industry with Europe. Between 2010 and 2011,
Mr. Shamay was Head of the Israeli EUREKA Chairmanship Program (EUREKA is Europe's largest innovation network with nearly 40 member
states). The Israeli EUREKA Chairmanship focused on developing new financial instruments for innovative small and medium sized
enterprises and on expanding EUREKA's international dimension. From 2002 Mr. Shamay served as Israel's National Representative
in several international R&D programs, from 2005 as an expert evaluator for the EU Framework Programs for R&D and from
2006 until 2009 managed the Israeli R&D collaboration with the EU Global Satellite Navigation Program – GALILEO.  From
1991 till 2001 Mr. Shamay served in senior technical, marketing and executive positions in Israeli hi-tech companies operating
globally, including the RAD group and Comverse Technologies. Mr. Shamay is an MBA graduate of the Recanati School of Business
at the Tel-Aviv University and a graduate of the Technion in Haifa, faculty of Information Systems Engineering.



B. Compensation.



Compensation of Senior Management and Directors



The following table
presents in the aggregate all compensation we paid to all of our senior management and directors as a group for the year ended
December 31, 2014. This amount does not include business travel, professional and business association dues and expenses reimbursed
to executive officers, and other benefits commonly reimbursed or paid by companies in Israel.





|                                                                        |  | Salaries, fees, commissions and bonuses and options (NIS in Thousands) |      
|----------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | -----
|All senior management and directors as a group, consisting of 7 persons |  |                                                                        | 3,148





85







The
following table sets forth information with respect to the options granted to the members of our senior management and Board of
Directors for the year ended December 31, 2014.



|Name     |  | Date of  Grant |               | Purchase  Price |  |  | Number of Options |  |  | Vesting  Period |        |  | Expiration Date |  | Total Benefit  (in NIS) |  |  | Benefit  recognized in 
    2014 (in NIS) | 
|-------- |  | -------------- | ------------- | --------------- |  |  | ----------------- |  |  | --------------- | ------ |  | --------------- |  | ----------------------- |  |  | ----------------------------------------- | 
|Gil Oren |  |                | July 14, 2014 |                 |  |  | 12                |  |  |                 | 10,000 |  |                 |  | 1/36 per month          |  |  | July 14, 2017                             | 





Although as a public company with shares
listed only on the TASE and NYSE MKT, we are exempt from complying with the requirements of the Israeli law that require the disclosure
of the compensation, on an individual basis, of a company's five most highly compensated senior executive officers, we have elected
to provide such information in our annual reports. Accordingly, the following table presents information regarding compensation
accrued in our financial statements for our five most highly compensated senior executive officers, namely our Chief Executive
Officer, Chief Financial Officer, Vice President, Operations, Vice President, Clinical Development & IP and Vice President,
Research and Development, as of December 31, 2014.





|Name and Position                                                                                                                        |  | Salary             |       |  | Bonus(1) |  |     | Value of Options Granted(2) |  |  | Other(3) |   |  | Total |   
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----- |  | -------- |  | --- | --------------------------- |  |  | -------- | - |  | ----- | --
|                                                                                                                                         |  | (NIS in thousands) |      
|Pnina Fishman Chief Executive Officer                                                                                                    |  |                    | 1,050 |  |          |  | 262 |                             |  |  | 0        |   |  |       | 57
|Motti Farbstein Chief Financial Officer                                                                                                  |  |                    | 814   |  |          |  | 148 |                             |  |  | 8        |   |  |       | 53
|Barak
                                 Singer (4) Former
                                         Vice-President of Business Development |  |                    | 483   |  |          |  | 0   |                             |  |  | (178     | ) |  |       | 34
|Gil Oren Director                                                                                                                        |  |                    | 122   |  |          |  | -   |                             |  |  | 3        |   |  |       | - 
|Guy Regev Director                                                                                                                       |  |                    | 116   |  |          |  | -   |                             |  |  | 5        |   |  |       | - 










|(1) | The
    annual bonus is subject to the fulfillment of certain targets determined for each year by the board of directors (for our
    Chief Executive Officer) and by our Chief Executive Officer (for our other executive officers).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The
    value of options is the expense recorded in our financial statements for the period ended December 31, 2014 with respect to
    all options granted to such executive officer.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Cost
    of use of company car.                                                        
|--- | ---------------------------------------------------------------------------------------
|    |                                                                                        
|(4) | Barak Singer ceased serving as Vice President of Business Development on July 28, 2014.



Employment
and Consulting Agreements



We have or have had written
employment and non-competition agreements with each of Barak Singer, our former Vice President of Business Development, Motti
Farbstein, our Chief Operating and Financial Officer, Sari Furman, our Director of Clinical Operations and written consulting
agreements with each of Reinhold Cohn and Partners, an Israeli partnership, through which Ilan Cohn, Ph.D., our Chairman of the
Board of Directors, is a partner, Abraham Sartani, one of our directors, and BioStrategies Consulting Ltd., a U.S. company, or
BioStrategics, through its President Michael Silverman, our Medical Director. We have also entered into a service management agreement
with F.D. Consulting International and Marketing Ltd., an Israeli limited company, or F.D. Consulting, which is partially owned
by Pnina Fishman, Ph.D., our Chief Executive Officer and director, and master services agreement with Accellient Partners LLC,
a Massachusetts limited liability company, or Accellient Partners, through its Chief Executive Officer William Kerns, our Vice
President of Drug Development. As of March 23, 2015, the foregoing agreements were still in full force and effect, with the exception
of (i) the consulting agreement with Reinhold Cohn and Partners, which expired by its terms in September 2011 and was not subsequently
extended, (ii) the consulting agreement with Abraham Sartani, which we terminated in July 2011, (iii) the consulting agreement
with Avigdor Kaplan, which was terminated in May 2013, and (iv) the employment agreement with Barak Singer.







86







All
of these agreements contain customary provisions regarding noncompetition, confidentiality of information and assignment of proprietary
information and inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law.
The compensation payable under the foregoing agreements consists of share-based awards and/or an hourly rate for services rendered,
reimbursement of certain expenses, and in the case of the employment and non-competition agreements, contributions to study funds.



The
following are summary descriptions of each of the foregoing agreements which are still in force to which we are a party. The descriptions
provided below do not purport to be complete and are qualified in their entirety by the complete agreements, which are attached
as exhibits to this Annual Report on Form 20-F.



Employment
and Non-Competition Agreement with Motti Farbstein:On September 1, 2003 we entered into an employment and non-competition
agreement with Motti Farbstein pursuant to which Mr. Farbstein began serving as our Director of Clinical Operations and Administrative
Affairs on September 1, 2003 and is currently serving as our Chief Operating and Financial Officer. Mr. Farbstein’s current
gross monthly salary is NIS 49,450. Mr. Farbstein is entitled to an allocation to a manager’s insurance policy equivalent
to an amount up to 13-1/3% of his gross monthly salary, up to 2-1/2% of his gross monthly salary for disability insurance and
7-1/2% of his gross monthly salary for a study fund. The foregoing amounts are paid by us. Five percent of his gross monthly salary
is deducted for the manager’s insurance policy and 2-1/2% is deducted for the study fund. Mr. Farbstein is also entitled
to reimbursement for reasonable out-of-pocket expenses, including travel expenses, and use of a company automobile and mobile
phone.



Mr.
Farbstein is also entitled to receive options exercisable into our ordinary shares from time to time. As of March 23, 2015, we
have granted him options to purchase 54,196ordinary shares, of which 1,133 were exercised into shares.



The
term of Mr. Farbstein’s employment and non-competition agreement is indefinite, unless earlier terminated for just cause
by either party, upon the death, disability or retirement age, or without cause by either party, subject to 60 days’ advanced
notice.



Employment and Non-Competition
Agreement with Barak Singer:On February 22, 2011 we entered into an employment and non-competition agreement which was subsequently
amended on February 28, 2013. Barak Singer began serving as our Vice President of Business Development on March 20, 2011 and was
appointed Chief Executive Officer of Ophthalix on February 28, 2013. Mr. Singer’s current gross monthly salary is NIS 45,000
(50% of this amount is consideration for services provided to our company and 50% is for services provided to OphthaliX). Mr.
Singer was entitled to a success performance bonus of one time his monthly salary upon the achievement of certain milestones.
In addition, he was issued options to purchase 104,412 shares of OphthaliX’s common stock of vesting over three years on
a quarterly basis and exercisable at $5.29 per share options as well as options purchase 104,412 shares of OphthaliX’s common
stock exercisable at $5.29 and vesting on the achievement of certain milestones. Mr. Singer was entitled to an allocation to a
manager’s insurance policy equivalent to an amount up to 13-1/3% of his gross monthly salary, up to 2-1/2% of his gross
monthly salary for disability insurance and 7-1/2% of his gross monthly salary for a study fund. The foregoing amounts were paid
by us. Five percent of his gross monthly salary was deducted for the manager’s insurance policy and 2-1/2% is deducted for
the study fund. Mr. Singer was also entitled to reimbursement for reasonable out-of-pocket expenses and use of a company automobile
and mobile phone. Mr. Singer was also entitled to receive options exercisable into our ordinary shares from time to time. On July
28, 2014, Mr. Singer ceased his employment with us. As of the date of termination, he had outstanding options to purchase 17,200
ordinary shares and all options were  forfeited on October 28, 2014.







87







The
term of Mr. Singer’s employment is indefinite, unless earlier terminated for just cause by either party, upon the death,
disability or retirement age, or without cause by either party, subject to 60 days’ advanced notice.



Consulting
Agreement with BioStrategics:On September 27, 2005, we entered into a consulting agreement with BioStrategics through its
President, Michael Silverman pursuant to which Dr. Silverman began serving as our Medical Director. Dr. Silverman has extensive
experience in clinical development acquired through his involvement in clinical development in large pharmaceutical and small
biopharmaceutical companies. He was involved in international clinical research, market-oriented strategic planning, and the challenges
of managing research and development portfolios in various capacities at Sterling Winthrop Research Institute and subsequently
at Sandoz Research Institute.



BioStrategics’
current fee is $325 per hour with a maximum daily fee of $2,600. In addition, BioStrategics is entitled to reimbursement for reasonable
pre-approved expenses. The term of the consulting agreement is currently on a year-to-year basis, unless earlier terminated by
either party upon 30 days’ prior written notice or immediately by either party if such termination is for cause.



Service
Management Agreement with F.D. Consulting:On June 27, 2002, we entered into a Service Management Agreement with F.D. Consulting,
a company partially owned by Pnina Fishman, pursuant to which Dr. Fishman began serving as our Chief Scientific Officer and later
became our Chief Executive Officer and is a member of our Board of Directors and continues to be retained through this agreement.
F.D. Consulting’s current gross monthly fee is NIS 75,000, which is linked to the Israeli CPI and fluctuates accordingly.
Dr. Fishman, through F.D. Consulting, is also entitled to reimbursement for reasonable out-of-pocket expenses and use of a company
automobile and mobile phone.



Dr.
Fishman is also entitled to receive options exercisable into our ordinary shares from time to time. As of March 23, 2015, we have
granted her options to purchase 544,442 ordinary shares, of which 241,612 were exercised into shares.



The
term of F.D. Consulting’s service management agreement is indefinite, unless earlier terminated for cause by us or without
cause by either party, subject to three months’ advanced notice.



Master
Services Agreement with Accellient Partners:On May 10, 2010, we entered into a Master Services Agreement with Accellient
Partners, a company owned by William Kerns, who currently serves as our current Vice President of Drug Development. Dr. Kerns
has over 20 years of experience in Pharmaceutical Research and Development at SmithKline Beecham and Eisai Pharmaceuticals. As
a Senior Executive he has participated in the development of drugs for over 100 Phase I studies and 13 NDA’s and/or Marketing
Authorization Applications. Dr. Kerns has chaired a FDA committee on biomarkers and he is an expert in preclinical development
and regulatory strategy.



According
to the agreement, consulting services are provided by Accellient Partners’ personnel in accordance with individual work
orders that are executed from time to time. Each individual work order defines the scope of work to be provided and sets forth
the fees to be paid to Accellient Partners.



Beginning on May 10, 2012,
the term of the master services agreement is on a month-to-month basis, unless terminated by us upon 30 days’ prior written
notice, by us at any time if Accellient Partners commits a breach and fails to cure, or by Accellient Partners upon 30 days’
prior written notice if we commit a breach and fail to cure.





Reinhold Cohn and Partners:Reinhold
Cohn and Partners, an Israeli partnership, of which Ilan Cohn, Ph.D. is a partner provides intellectual property legal services
to us in the ordinary course of business.





C. Board
Practices



General



According
to the Israeli Companies Law, the management of our business is vested in our Board of Directors. Our Board of Directors may exercise
all powers and may take all actions that are not specifically granted to our shareholders. Our executive officers are responsible
for our day-to-day management and have individual responsibilities established by our Board of Directors. Executive officers are
appointed by and serve at the discretion of our Board of Directors, subject to any applicable employment agreements we have entered
into with the executive officers. See “Item 6—Directors, Senior Management and Employees—Compensation—Employment
and Consulting Agreements.”





88







Election
of Directors and Terms of Office



Our
Board of Directors currently consists of six members. Other than our two external directors, our directors are elected by an ordinary
resolution at the annual general meeting of our shareholders. The nomination of our directors is proposed by the Board of Directors.
Our board has the authority to add additional directors up to the maximum number of 12 directors allowed under our Articles. Such
directors appointed by the board serve until the next annual general meeting of the shareholders. Unless they resign before the
end of their term or are removed in accordance with our Articles of Association, all of our directors, other than our external
directors, will serve as directors until our next annual general meeting of shareholders. On July 14, 2014, at an annual general
meeting of our shareholders, Pnina Fishman, Ilan Cohn, Liora Lev, Avi Sartani, and Guy Regev were re-elected to serve as directors
for a term expiring at our next annual general meeting of shareholders and until his or her respective successor is duly elected.
At the same meeting, Gil Oren was re-elected to serve as one of our external directors for an additional three-year term ending
July 9, 2017. On December 31, 2014, at a special meeting of our shareholders, Israel Shamay was elected to serve for a three-year
term ending December 30, 2017 as one of our external directors, replacing Yechezkel Barenholtz who served the maximum term according
to the provisions of Israeli Companies Law. Israel Shamay may be re-elected for another two three-year terms. Gil Oren may not
be re-elected to serve as an external director as he was elected for three terms, the maximum term according to the provisions
of the Israeli Companies Law. On May 30, 2013, Ilan Cohn was appointed as Chairman of the Board and on January, 2014, Liora Lev
resigned from the Board of Directors.



None
of our directors or officers has any family relationship with any other director or officer. None of our directors have service
contracts that provide for benefits upon termination of his or her directorship with us, other than the payment of salary due,
accrued and unpaid as of and through the date of termination. See “Item 6—Directors, Senior Management and Employees—Compensation—Employment
and Consulting Agreements.”



Chairman
of the Board. Under the Israeli Companies Law, without shareholder approval, a person cannot hold the role of both chairman
of the board of directors and chief executive officer of a company. Furthermore, a person who is directly or indirectly subordinate
to a chief executive officer of a company may not serve as the chairman of the board of directors of that company and the chairman
of the board of directors may not otherwise serve in any other capacity in a company or in a subsidiary of that company other
than as the chairman of the board of directors of such a subsidiary.



The
Israeli Companies Law provides that an Israeli company may, under certain circumstances, exculpate an office holder from liability
with respect to a breach of his duty of care toward the company if appropriate provisions allowing such exculpation are included
in its articles of association. Our Articles of Association permit us to maintain directors’ and officers’ liability
insurance and to indemnify our directors and officers for actions performed on behalf of us, subject to specified limitations.
We maintain a directors and officers insurance policy which covers the liability of our directors and officers as allowed under
the Israeli Companies Law.



The
term office holder is defined in the Israeli Companies Law as a director, general manager, chief business manager, deputy general
manager, vice general manager, executive vice president, vice president, any other manager directly subordinate to the general
manager or any other person assuming the responsibilities of any of the foregoing positions, without regard to such person’s
title. Each person listed above in “Item 6—Directors, Senior Management and Employees—Directors and Senior Management”
is an office holder, as defined in the Israeli Companies Law.



External
and Independent Directors



Under
the Israeli Companies Law, the boards of directors of companies whose shares are publicly traded, either within or outside of
Israel, are required to include at least two members who qualify as external directors.





89







External
directors must be elected by a majority vote of the shares present and voting at a shareholders meeting, provided that either:



| | ● | the
                                         majority of the shares that are voted at the meeting, including at least a majority of
                                         the shares held by non-controlling shareholders who do not have a personal interest in
                                         the election of the external director (other than a personal interest not deriving from
                                         a relationship with a controlling shareholder) who voted at the meeting, excluding abstentions,
                                         vote in favor of the election of the external director; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         total number of shares held by non-controlling, disinterested shareholders (as described
                                         in the preceding bullet point) that are voted against the election of the external director
                                         does not exceed 2% of the aggregate voting rights in the company.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
term controlling shareholder is defined in the Israeli Companies Law as a shareholder with the ability to direct the activities
of the Company, other than by virtue of being an office holder. A person may not serve as an external director of a company if
(i) such person is a relative of a controlling shareholder of a company or (ii) at the date of such person’s appointment
or within the prior two years, such person, such person’s relative, partner, employer or any entity under such person’s
control or anyone to whom such person is subordinate, whether directly or indirectly, has or had any affiliation with (a) the
company, (b) our controlling shareholder at the time of such person’s appointment or (c) any entity that is either controlled
by the company or under common control with the company at the time of such appointment or during the prior two years. If a company
does not have a controlling shareholder or a shareholder who holds company shares entitling him to vote at least 25% of the votes
in a shareholders meeting, then a person may not serve as an external director if, such person or such person’s relative,
partner, employer or any entity under such person’s control, has or had, on or within the two years preceding the date of
the person’s appointment to serve as an external director, any affiliation with the chairman of our board of directors,
chief executive officer, a substantial shareholder who holds at least 5% of the issued and outstanding shares of the company or
voting rights which entitle him to vote at least 5% of the votes in a shareholders meeting, or the chief financial officer of
the company.



The
term affiliation includes:



| | ● | an
                                         employment relationship;
| | - | --------------------------------------------------------------------



| | ● | a
                                         business or professional relationship even if not maintained on a regular basis (excluding
                                         insignificant relationships);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | control;
                                         and
| | - | -----------------------------------------------------



| | ● | service
                                         as an office holder, excluding service as a director in a private company prior to the
                                         first offering of its shares to the public if such director was appointed as a director
                                         of the private company in order to serve as an external director following the public
                                         offering.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
term relative is defined as a spouse, sibling, parent, grandparent or descendant; a spouse’s sibling, parent or descendant;
and the spouse of each of the foregoing persons.



In
addition, no person may serve as an external director if that person’s professional activities create, or may create, a
conflict of interest with that person’s responsibilities as a director or otherwise interfere with that person’s ability
to serve as an external director or if the person is an employee of the Israel Securities Authority, or ISA, or of an Israeli
stock exchange. Furthermore, a person may not continue to serve as an external director if he or she received direct or indirect
compensation from the company for his or her role as a director. This prohibition does not apply to compensation paid or given
in accordance with regulations promulgated under the Israeli Companies Law or amounts paid pursuant to indemnification and/or
exculpation contracts or commitments and insurance coverage. If, at the time an external director is appointed, all current members
of the board of directors not otherwise affiliated with the company are of the same gender, then that external director must be
of the other gender. In addition, a director of a company may not be elected as an external director of another company if, at
that time, a director of the other company is acting as an external director of the first company.





90







Following
the termination of an external director’s service on a board of directors, such former external director and his or her
spouse and children may not be provided with a direct or indirect benefit by the company, its controlling shareholder or any entity
under its controlling shareholder’s control. This includes engagement to serve as an executive officer or director of the
company or a company controlled by its controlling shareholder, or employment by, or providing services to, any such company for
consideration, either directly or indirectly, including through a corporation controlled by the former external director, for
a period of two years (and for a period of one year with respect to relatives of the former external director).



The
Israeli Companies Law provides that an external director must meet certain professional qualifications or have financial and accounting
expertise and that at least one external director must have financial and accounting expertise. However, if at least one of our
other directors (i) meets the independence requirements of the Securities Exchange Act of 1934, as amended, (ii) meets the standards
of the NYSE MKT rules for membership on the audit committee and (iii) has financial and accounting expertise as defined in the
Israeli Companies Law and applicable regulations, then neither of our external directors is required to possess financial and
accounting expertise as long as both possess other requisite professional qualifications. Our Board of Directors is required to
determine whether a director possesses financial and accounting expertise by examining whether, due to the director’s education,
experience and qualifications, the director is highly proficient and knowledgeable with regard to business-accounting issues and
financial statements, to the extent that the director is able to engage in a discussion concerning the presentation of financial
information in our financial statements, among others. The regulations define a director with the requisite professional qualifications
as a director who satisfies one of the following requirements: (i) the director holds an academic degree in either economics,
business administration, accounting, law or public administration; (ii) the director either holds an academic degree in any other
field or has completed another form of higher education in our primary field of business or in an area which is relevant to the
office of an external director; or (iii) the director has at least five years of experience serving in any one of the following,
or at least five years of cumulative experience serving in two or more of the following capacities: (a) a senior business management
position in a corporation with a substantial scope of business; (b) a senior position in our primary field of business; or (c)
a senior position in public administration.



The
Israeli Companies Law defines an independent director as a director who complies with the following and was appointed as such
in accordance with Chapter 1 of Part 56 of the Israeli Companies Law: (1) the director complies with the qualification to serve
as an external director as set out in Sections 240 (b)-(f) of the Israeli Companies Law and the audit committee has approved such
compliance; and (2) the director has not served as a director of the company for more than nine consecutive years (which, for
such purpose, does not include breaks in such service for periods of less than two year).



If
an external directorship becomes vacant and there are less than two external directors on the board of directors at the time,
then the board of directors is required under the Israeli Companies Law to call a shareholders' meeting as soon as possible to
appoint a replacement external director.



Each
committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least
one external director, except that the audit committee and compensation committee must each include all external directors then
serving on the board of directors. Under the Israeli Companies Law, external directors of a company are prohibited from receiving,
directly or indirectly, any compensation for their services as external directors, other than compensation and reimbursement of
expenses pursuant to applicable regulations promulgated under the Companies Law. Compensation of an external director is determined
prior to his or her appointment and may not be changed during his or her term subject to certain exceptions.



Israel
Shamay and Gil Oren serve as external directors on our Board of Directors pursuant to the provisions of the Israeli Companies
Law. They both serve on our audit committee and our compensation committee. Our Board of Directors has determined that Gil Oren
possesses accounting and financial expertise, and that both of our external directors possess the requisite professional qualifications.
Guy Regev and Avi Sartani serve as independent directors on our Board of Directors. Guy Regev also serves on our audit committee
and our compensation committee.





91







Audit
Committee



The
Israeli Companies Law requires public companies to appoint an audit committee. The responsibilities of the audit committee include
identifying irregularities in the management of our business and approving related party transactions as required by law. An audit
committee must consist of at least three directors, including all of its external directors and a majority of independent directors.
The chairman of the board of directors, any director employed by or otherwise providing services to the company, and a controlling
shareholder or any relative of a controlling shareholder, may not be a member of the audit committee. An audit committee may not
approve an action or a transaction with a controlling shareholder, or with an office holder, unless at the time of approval two
external directors are serving as members of the audit committee and at least one of the external directors was present at the
meeting in which an approval was granted.



Our
audit committee is currently comprised of three independent non-executive directors. The audit committee is chaired by Gil Oren,
who serves as the audit committee financial expert, with Israel Shamay and Guy Regev as members. Our audit committee meets at
least four times a year and monitors the adequacy of our internal controls, accounting policies and financial reporting. It regularly
reviews the results of the ongoing risk self-assessment process, which we undertake, and our interim and annual reports prior
to their submission for approval by the full Board of Directors. The audit committee oversees the activities of the internal auditor,
sets its annual tasks and goals and reviews its reports. The audit committee reviews the objectivity and independence of the external
auditors and also considers the scope of their work and fees.



Our
audit committee provides assistance to our Board of Directors in fulfilling its legal and fiduciary obligations in matters involving
our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed
by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control
over financial reporting. Our audit committee also oversees the audit efforts of our independent accountants and takes those actions
that it deems necessary to satisfy itself that the accountants are independent of management.



Under
the Israeli Companies Law, our audit committee is responsible for (i) determining whether there are deficiencies in the business
management practices of our company, including in consultation with our internal auditor or the independent auditor, and making
recommendations to the Board of Directors to improve such practices and amend such deficiencies, (ii) determining whether
certain related party transactions (including transactions in which an office holder has a personal interest) should be deemed
as material or extraordinary, and to approve such transactions (which may be approved according to certain criteria set out by
our audit committee on an annual basis) (see "—Approval of related party transactions under Israeli Law"), (iii) to
establish procedures to be followed in respect of related party transactions with a controlling shareholder (where such are not
extraordinary transactions), which may include, where applicable, the establishment of a competitive process for such transaction,
under the supervision of the audit committee, or individual, or other committee or body selected by the audit committee, in accordance
with criteria determined by the audit committee; (iv) to determine procedures for approving certain related party transactions
with a controlling shareholder, which having been determined by the audit committee not to be extraordinary transactions, were
also determined by the audit committee not to be negligible transactions; (v) where the Board of Directors approves the working
plan of the internal auditor, to examine such working plan before its submission to the Board and propose amendments thereto,
(iv) examining our internal controls and internal auditor's performance, including whether the internal auditor has sufficient
resources and tools to dispose of its responsibilities, (v) examining the scope of our auditor's work and compensation and
submitting a recommendation with respect thereto to our Board of Directors or shareholders, depending on which of them is considering
the appointment of our auditor, and (vi) establishing procedures for the handling of employees' complaints as to the management
of our business and the protection to be provided to such employees.



We
have adopted a written charter for our audit committee, setting forth its responsibilities as outlined by the regulations of the
SEC. In addition, our audit committee has adopted procedures for the receipt, retention and treatment of complaints we may receive
regarding accounting, internal accounting controls or auditing matters and the submission by our employees of concerns regarding
questionable accounting or auditing matters. In addition, SEC rules mandate that the audit committee of a listed issuer consist
of at least three members, all of whom must be independent, as such term is defined by rules and regulations promulgated by the
SEC. We are in compliance with the independence requirements of the SEC rules.





92









Any
person who is not eligible to serve on the audit committee is further restricted from participating in its meetings and votes,
unless the chairman of the audit committee determines that such person’s presence is necessary in order to present a certain
matter; provided, however, that company employees who are not controlling shareholders or relatives of such shareholders may be
present in the meetings, but not for actual voting, and likewise, company counsel and secretary who are not controlling shareholders
or relatives of such shareholders may be present in the meetings and for actual voting if such presence is requested by the audit
committee.



In
addition to the above, all such committee’s members must apply with the following requirements:



| | ● | All
    members shall be members of the board of directors of the company.
| | - | --------------------------------------------------------------------------



| | ● | At
    least one of the committee’s members shall have financial and accounting expertise and the rest of the committee’s
    members must have the ability to read and understand financial statements.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our
company, through our audit committee, is in full compliance with the above requirements.



Financial
Statement Examination Committee



Under
the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee,
which consists of members with accounting and financial expertise or the ability to read and understand financial statements.
According to a resolution of our Board of Directors, the audit committee has been assigned the responsibilities and duties of
a financial statements examination committee, as permitted under relevant regulations promulgated under the Israeli Companies
Law. From time to time as necessary and required to approve our financial statements, the audit committee holds separate meetings,
prior to the scheduled meetings of the entire Board of Directors regarding financial statement approval. The function of a financial
statements examination committee is to discuss and provide recommendations to its board of directors (including the report of
any deficiency found) with respect to the following issues: (i) estimations and assessments made in connection with the preparation
of financial statements; (ii) internal controls related to the financial statements; (iii) completeness and propriety of the disclosure
in the financial statements; (iv) the accounting policies adopted and the accounting treatments implemented in material matters
of the company; (v) value evaluations, including the assumptions and assessments on which evaluations are based and the supporting
data in the financial statements. Our independent auditors and our internal auditors are invited to attend all meetings of audit
committee when it is acting in the role of the financial statements examination committee.



Compensation
Committee



Amendment
no. 20 to the Companies Law was published on November 12, 2012 and became effective on December 12, 2012, or Amendment no. 20.In
general, Amendment no. 20 requires public companies to appoint a compensation committee and to adopt a compensation policy with
respect to its officers, or the Compensation Policy. In addition, Amendment no. 20 addresses the corporate approval process required
for a public company's engagement with its officers (with specific reference to a director, a non-director officer, a chief executive
officer and controlling shareholders and their relatives who are employed by the company).



The
compensation committee shall be nominated by the board of directors and be comprised of its members. The compensation committee
must consist of at least three members. All of the external directors must serve on the compensation committee and constitute
a majority of its members. The remaining members of the compensation committee must be directors who qualify to serve as members
of the audit committee (including the fact that they are independent) and their compensation should be identical to the compensation
paid to the external directors of the company.



Similar
to the rules that apply to the audit committee, the compensation committee may not include the chairman of the board, or any director
employed by the company, by a controlling shareholder or by any entity controlled by a controlling shareholder, or any director
providing services to the company, to a controlling shareholder or to any entity controlled by a controlling shareholder on a
regular basis, or any director whose primary income is dependent on a controlling shareholder, and may not include a controlling
shareholder or any of its relatives. Individuals who are not permitted to be compensation committee members may not participate
in the committee’s meetings other than to present a particular issue; provided, however, that an employee that is not a
controlling shareholder or relative may participate in the committee’s discussions, but not in any vote, and our legal counsel
and corporate secretary may participate in the committee’s discussions and votes if requested by the committee.





93







The
roles of the compensation committee are, among others, to: (i) recommend to the board of directors the Compensation Policy for
office holders and recommend to the board once every three years the extension of a Compensation Policy that had been approved
for a period of more than three years; (ii) recommend to the directors any update of the Compensation Policy, from time to time,
and examine its implementation; (iii) decide whether to approve the terms of office and of employment of office holders that require
approval of the compensation committee; and (iv) decide, in certain circumstances, whether to exempt the approval of terms of
office of a chief executive officer from the requirement of shareholder approval.



The
compensation policy requires the approval of the general meeting of shareholders with a “Special Majority”, which
requires a majority of the shareholders of the company who are not either a controlling shareholder or an "interested party"
in the proposed resolution, or that shareholders holding less than 2% of the voting power in the company voted against the proposed
resolution at such meeting. However, under special circumstances, the board of directors may approve the compensation policy without
shareholder approval, if the compensation committee and thereafter the board of directors decided, based on substantiated reasons
after they have reviewed the compensation policy again, that the compensation policy is in the best interest of the company.



Under
the Israeli Companies Law, our compensation policy must generally serve as the basis for corporate approvals with respect to the
financial terms of employment or engagement of office holders, including exemption, insurance, indemnification or any monetary
payment or obligation of payment in respect of employment or engagement. The compensation policy must relate to certain factors,
including advancement of the company's objective, the company's business plan and its long term strategy, and creation of appropriate
incentives for office holders. It must also consider, among other things, the company's risk management, size and nature of its
operations. The compensation policy must furthermore consider the following additional factors:



| | ● | The
                                         knowledge, skills, expertise, and accomplishments of the relevant office holder;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         office holder's roles and responsibilities and prior compensation agreements with him
                                         or her;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         relationship between the terms offered and the average compensation of the other employees
                                         of the company, including those employed through manpower companies;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         impact of disparities in salary upon work relationships in the company;
| | - | --------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         possibility of reducing variable compensation at the discretion of the board of directors;
                                         the possibility of setting a limit on the exercise value of non-cash variable equity-based
                                         compensation; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ●                                                                   | As
                                         to severance compensation, the period of service of the office holder, the terms of his
                                         or her compensation during such service period, the company's performance during that
                                         period of service, the person's contributions towards the company's achievement of its
                                         goals and the maximization of its profits, and the circumstances under which the person
                                         is leaving the company.
| | ------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The Compensation Policy must also include the following principles:



| | ● | the
                                         link between variable compensation and the long term performance and measurable criteria;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         relationship between variable and fixed compensation, and the ceiling for the value of
                                         variable compensation;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





94







| | ● | the
                                         conditions under which an office holder would be required to repay compensation paid
                                         to him or her if it was later shown that the data upon which such compensation was based
                                         was inaccurate and was required to be restated in the company's financial statements;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         minimum holding or vesting period for variable, equity-based compensation; and
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | ● | maximum
                                         limits for severance compensation.
| | - | -----------------------------------------------------------------------------------



The
Compensation Policy was approved by the general meeting of shareholders after discussions and recommendation of the compensation
committee and approval by the Board of Directors on January 6, 2014. Moreover, the approval of the compensation committee is required
in order to approve terms of office and/or employment of office holders.



Mr.
Gil Oren is the chairman of our compensation committee. Mr. Israel Shamay and Mr. Guy Regev serve as the other members of our
compensation committee.



Approval
of Related Party Transactions under the Israeli Companies Law



Fiduciary
duties of the office holders



The
Israeli Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company. The duty of care of an
office holder is based on the duty of care set forth in connection with the tort of negligence under the Israeli Torts Ordinance
(New Version) 5728-1968. This duty of care requires an office holder to act with the degree of proficiency with which a reasonable
office holder in the same position would have acted under the same circumstances. The duty of care includes a duty to use reasonable
means, in light of the circumstances, to obtain:



| | ● | information
                                         on the advisability of a given action brought for his or her approval or performed by
                                         virtue of his or her position; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | all
                                         other important information pertaining to these action
| | - | ---------------------------------------------------------------------------------------------------



The
duty of loyalty requires an office holder to act in good faith and for the benefit of the company, and includes the duty to:



| | ● | refrain
                                         from any act involving a conflict of interest between the performance of his or her duties
                                         in the company and his or her other duties or personal affairs;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | refrain
                                         from any activity that is competitive with the business of the company;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | ● | refrain
                                         from exploiting any business opportunity of the company for the purpose of gaining a
                                         personal advantage for himself or herself or others; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | disclose
                                         to the company any information or documents relating to our affairs which the office
                                         holder received as a result of his or her position as an office holder.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We
may approve an act performed in breach of the duty of loyalty of an office holder provided that the office holder acted in good
faith, the act or its approval does not harm the company, and the office holder discloses his or her personal interest, as described
below.



Disclosure
of personal interests of an office holder and approval of acts and transactions



The
Israeli Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may
have and all related material information or documents relating to any existing or proposed transaction by the company. An interested
office holder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors
at which the transaction is considered. An office holder is not obligated to disclose such information if the personal interest
of the office holder derives solely from the personal interest of his or her relative in a transaction that is not considered
as an extraordinary transaction.





95







The
term personal interest is defined under the Israeli Companies Law to include the personal interest of a person in an action or
in the business of a company, including the personal interest of such person’s relative or the interest of any corporation
in which the person is an interested party, but excluding a personal interest stemming solely from the fact of holding shares
in the company. A personal interest furthermore includes the personal interest of a person for whom the office holder holds a
voting proxy or the interest of the office holder with respect to his or her vote on behalf of the shareholder for whom he or
she holds a proxy even if such shareholder itself has no personal interest in the approval of the matter. An office holder is
not, however, obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in
a transaction that is not considered an extraordinary transaction.



Under
the Israeli Companies Law, an extraordinary transaction which requires approval is defined as any of the following:



| | ● | a
                                         transaction other than in the ordinary course of business;
| | - | -----------------------------------------------------------------------------------------------------



| | ● | a
                                         transaction that is not on market terms; or
| | - | --------------------------------------------------------------------------------------



| | ● | a
                                         transaction that may have a material impact on our profitability, assets or liabilities.
| | - | -----------------------------------------------------------------------------------------------------------------------------------



Under
the Israeli Companies Law, once an office holder has complied with the disclosure requirement described above, a company may approve
a transaction between the company and the office holder or a third party in which the office holder has a personal interest, or
approve an action by the office holder that would otherwise be deemed a breach of duty of loyalty. However, a company may not
approve a transaction or action that is adverse to our interest or that is not performed by the office holder in good faith.



Under
the Companies Law, unless the articles of association of a company provide otherwise, a transaction with an office holder, a transaction
with a third party in which the office holder has a personal interest, and an action of an office holder that would otherwise
be deemed a breach of duty of loyalty requires approval by the board of directors. Our Articles of Association do not provide
otherwise. If the transaction or action considered is (i) an extraordinary transaction, (ii) an action of an office holder that
would otherwise be deemed a breach of duty of loyalty and may have a material impact on a company’s profitability, assets
or liabilities, (iii) an undertaking to indemnify or insure an office holder who is not a director, or (iv) for matters considered
an undertaking concerning the terms of compensation of an office holder who is not a director, including, an undertaking to indemnify
or insure such office holder, then approval by the audit committee is required prior to approval by the board of directors. Arrangements
regarding the compensation, indemnification or insurance of a director require the approval of the audit committee, board of directors
and shareholders, in that order.



A
director who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee
may generally not be present at the meeting or vote on the matter, unless a majority of the directors or members of the audit
committee have a personal interest in the matter or the chairman of the audit committee or board of directors, as applicable,
determines that he or she should be present to present the transaction that is subject to approval. If a majority of the directors
have a personal interest in the matter, such matter would also require approval of the shareholders of the company.



Disclosure
of personal interests of a controlling shareholder and approval of transactions



Under
the Israeli Companies Law and a recent amendment thereto, the disclosure requirements that apply to an office holder also apply
to a controlling shareholder of a public company. See “— Audit Committee” for a definition of controlling shareholder.
Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including
a private placement in which a controlling shareholder has a personal interest, as well as transactions for the provision of services
whether directly or indirectly by a controlling shareholder or his or her relative, or a company such controlling shareholder
controls, and transactions concerning the terms of engagement of a controlling shareholder or a controlling shareholder’s
relative, whether as an office holder or an employee, require the approval of the audit committee, the board of directors and
a majority of the shares voted by the shareholders of the company participating and voting on the matter in a shareholders’
meeting. In addition, such shareholder approval must fulfill one of the following requirements:



| | ● | at
                                         least a majority of the shares held by shareholders who have no personal interest in
                                         the transaction and are voting at the meeting must be voted in favor of approving the
                                         transaction, excluding abstentions; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                
| | ● | the
    shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no
    more than 2% of the voting rights in the company.                                                                                                                                                      



96









To
the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval is
required once every three years, unless the audit committee determines that the duration of the transaction is reasonable given
the circumstances related thereto.



Duties
of shareholders



Under
the Israeli Companies Law, a shareholder has a duty to refrain from abusing its power in the company and to act in good faith
and in an acceptable manner in exercising its rights and performing its obligations to the company and other shareholders, including,
among other things, voting at general meetings of shareholders on the following matters:



| | ● | an
                                         amendment to the articles of association;
| | - | -------------------------------------------------------------------------------------



| | ● | an
                                         increase in our authorized share capital;
| | - | -------------------------------------------------------------------------------------



| | ● | a
                                         merger;
| | - | --------------------------------------------------



| | ● | an
                                         increase in our authorized share capital; and
| | - | -----------------------------------------------------------------------------------------



| | ● | the
                                         approval of related party transactions and acts of office holders that require shareholder
                                         approval.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A
shareholder also has a general duty to refrain from discriminating against other shareholders.



The
remedies generally available upon a breach of contract will also apply to a breach of the above mentioned duties, and in the event
of discrimination against other shareholders, additional remedies are available to the injured shareholder.



In
addition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote
and any shareholder that, under a company’s articles of association, has the power to appoint or prevent the appointment
of an office holder, or has another power with respect to a company, is under a duty to act with fairness towards the company.
The Israeli Companies Law does not describe the substance of this duty except to state that the remedies generally available upon
a breach of contract will also apply in the event of a breach of the duty to act with fairness, taking the shareholder’s
position in the company into account.



Exculpation,
Insurance and Indemnification of Directors and Officers



Under
the Israeli Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An
Israeli company may exculpate an office holder in advance from liability to us, in whole or in part, for damages caused to us
as a result of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles of association.
Our amended and restated articles of association include such a provision. We may not exculpate in advance a director from liability
arising out of a prohibited dividend or distribution to shareholders.





97







Under
the Israeli Companies Law and the Israeli Securities Law, a company may indemnify, or undertake in advance to indemnify, an office
holder, provided its articles of association include a provision authorizing such indemnification, for the following liabilities
and expenses imposed on an office holder or incurred by office holder due to acts performed by him or her as an office holder:



| | ● | Financial
                                         liability incurred by or imposed on him or her in favor of another person pursuant to
                                         a judgment, including a settlement or arbitrator's award approved by a court. However,
                                         if an undertaking to indemnify an office holder with respect to such liability is provided
                                         in advance, then such an undertaking must be limited to events which, in the opinion
                                         of the board of directors, can be foreseen based on our activities when the undertaking
                                         to indemnify is given, and to an amount or according to criteria determined by the board
                                         of directors as reasonable under the circumstances, and such undertaking shall detail
                                         the abovementioned foreseen events and amount or criteria;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Reasonable
                                         litigation expenses, including attorneys' fees, incurred by the office holder as a result
                                         of an investigation or proceeding instituted against him or her by an authority authorized
                                         to conduct such investigation or proceeding, provided that (i) no indictment was
                                         filed against such office holder as a result of such investigation or proceeding; and
                                         (ii) no financial liability was imposed upon him or her as a substitute for the
                                         criminal proceeding as a result of such investigation or proceeding or, if such financial
                                         liability was imposed, it was imposed with respect to an offense that does not require
                                         proof of criminal intent or as a monetary sanction;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Reasonable
                                         litigation expenses, including attorneys' fees, incurred by the office holder or imposed
                                         by a court in proceedings instituted against him or her by us, on our behalf, or by a
                                         third party, or in connection with criminal proceedings in which the office holder was
                                         acquitted, or as a result of a conviction for an offense that does not require proof
                                         of criminal intent; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Expenses,
                                         including reasonable litigation expenses and legal fees, incurred by an office holder
                                         in relation to an administrative proceeding instituted against such office holder, or
                                         certain compensation payments required to be made to an injured party, pursuant to certain
                                         provisions of the Israeli Securities Law.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under
the Israeli Companies Law, a company may insure an office holder against the following liabilities incurred for acts performed
by him or her as an office holder if and to the extent provided in the Company's articles of association:



| | ● | a
                                         breach of the duty of loyalty to us, provided that the office holder acted in good faith
                                         and had a reasonable basis to believe that the act would not harm us;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a
                                         breach of duty of care to us or to a third party; and
| | - | ------------------------------------------------------------------------------------------------



| | ● | a
                                         financial liability imposed on the office holder in favor of a third party.
| | - | ----------------------------------------------------------------------------------------------------------------------



Subject
to the provisions of the Companies Law and the Securities Law, we may also enter into a contract to insure an office holder, in
respect of expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative
proceeding instituted against such office holder or payment required to be made to an injured party, pursuant to certain provisions
of the Securities Law.





98







Nevertheless,
under the Israeli Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:



| | ● | a
                                         breach of fiduciary duty, except for indemnification and insurance for a breach of the
                                         duty of loyalty to us in the event office holder acted in good faith and had a reasonable
                                         basis to believe that the act would not prejudice us;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a
                                         breach of duty of care committed intentionally or recklessly, excluding a breach arising
                                         out of the negligent conduct of the office holder;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | an
                                         act or omission committed with intent to derive unlawful personal benefit; or
| | - | -------------------------------------------------------------------------------------------------------------------------



| | ● | a
                                         fine, monetary sanction, penalty or forfeit levied against the office holder.
| | - | ------------------------------------------------------------------------------------------------------------------------



Under
the Israeli Companies Law, exculpation, indemnification and insurance of office holders require the approval of the compensation
committee, board of directors and, in certain circumstances, the shareholders. Our amended and restated articles of association
permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted by the Israeli Companies Law.



Approval
of Compensation to Our Officers



The
Israeli Companies Law prescribes that compensation to officers must be approved by a company’s Board of Directors after
obtaining the approval of the compensation committee.



As
detailed above, our compensation committee consists of three independent directors: Israel Shamay, Gil Oren and Guy Regev. The
responsibilities of the compensation committee are to set our overall policy on executive remuneration and to decide the specific
remuneration, benefits and terms of employment for directors, officers and the Chief Executive Officer.



The
objectives of the compensation committee’s policies are that such individuals should receive compensation which is appropriate
given their performance, level of responsibility and experience. Compensation packages should also allow us to attract and retain
executives of the necessary caliber while, at the same time, motivating them to achieve the highest level of corporate performance
in line with the best interests of shareholders. In order to determine the elements and level of remuneration appropriate to each
executive director, the compensation committee reviews surveys on executive pay, obtains external professional advice and considers
individual performance.



Internal
Auditor



Under
the Israeli Companies Law, the board of directors must appoint an internal auditor, nominated by the audit committee. The role
of the internal auditor is to examine, among other matters, whether our actions comply with the law and orderly business procedure.
Under the Israeli Companies Law, an internal auditor may not be:



| | ● | a
    person (or a relative of a person) who holds more than 5% of our shares;
| | - | ------------------------------------------------------------------------------



| | ● | a
    person (or a relative of a person) who has the power to appoint a director or the general manager of the company;
| | - | -----------------------------------------------------------------------------------------------------------------------



| | ● | an
    executive officer or director of the company (or a relative thereof); or
| | - | -------------------------------------------------------------------------------



| | ● | a
    member of our independent accounting firm, or anyone on his or her behalf.
| | - | --------------------------------------------------------------------------------



We
comply with the requirement of the Israeli Companies Law relating to internal auditors. Our internal auditors examine whether
our various activities comply with the law and orderly business procedure. Our internal auditor is Daniel Spira C.P.A.





99







D. Employees.



As of December 31, 2014,
we had eight employees, four of whom were employed in management and administration, three of whom were employed in research and
development and two of whom were employed in management, research and development. All of these employees were located in Israel.
As of December 21, 2013, we had nine employees.





While
none of our employees are party to any collective bargaining agreements, certain provisions of the collective bargaining agreements
between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including
the Industrialists’ Associations) are applicable to our employees by order of the Israel Ministry of Labor. These provisions
primarily concern the length of the workday, minimum daily wages for professional workers, pension fund benefits for all employees,
insurance for work-related accidents, procedures for dismissing employees, determination of severance pay and other conditions
of employment. We generally provide our employees with benefits and working conditions beyond the required minimums. We have never
experienced any employment-related work stoppages and believe our relationship with our employees is good.



E. Share
Ownership.



The
following table sets forth information regarding the beneficial ownership of our outstanding ordinary shares as of March 23, 2015
by the members of our senior management, Board of Directors and 5% or more beneficial owners, individually and as a group. The
beneficial ownership of ordinary shares is based on the 21,316,577 ordinary shares outstanding as of March 23, 2015
(which excludes 446,827 ordinary shares held in treasury) and is determined in accordance with the rules of the SEC and generally
includes any ordinary shares over which a person exercises sole or shared voting or investment power.  For purposes
of the table below, we deem shares subject to options or warrants that are currently exercisable or exercisable within 60 days
of March 23, 2015, to be outstanding and to be beneficially owned by the person holding the options or warrants for the purposes
of computing the percentage ownership of that person but we do not treat them as outstanding for the purpose of computing the
percentage ownership of any other person.



|Name of Beneficial Owner                                |  | Number of Ordinary Shares |           |     | Percentage of Class* | 
|------------------------------------------------------- |  | ------------------------- | --------- | --- | -------------------- | 
|                                                        |  |                           |           |     |                      | 
|Senior Management                                       |  |                           |           |     |                      | 
|Ilan Cohn, PhD. Chairman
of the Board                   |  |                           | 231,652   | (1) |                      | 
|Pnina Fishman, PhD.Chief Executive Officer and Director |  |                           | 569,863   | (2) |                      | 
|Motti FarbsteinChief Operating Officer                  |  |                           | 42,320    | (3) |                      | 
|Guy RegevDirector                                       |  |                           | 55,680    | (4) |                      | 
|Abraham Sartani, Ph.D.Director                          |  |                           | 12,346    | (5) |                      | 
|Gil OrenDirector                                        |  |                           | 2,500     | (6) |                      | 
|                                                        |  |                           |           |     |                      | 
|Directors and Executive Officers as a group (6 persons) |  |                           | 914,361   |     |                      | 
|                                                        |  |                           |           |     |                      | 
|5% or More Shareholders                                 |  |                           |           |     |                      | 
|Empery Asset Management,LP                              |  |                           | 2,890,802 | (7) |                      | 
|Cranshire Capital Advisors LLC                          |  |                           | 2,714,835 | (8) |                      | 










|*   | Denotes
                                         less than 1%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(1) | Includes
                                         (i) 133,567 ordinary shares, (ii) 420,000 registered warrants (Series 9) to purchase
                                         16,800 ordinary shares at an exercise price of NIS 0.85 per warrant and expiring on May
                                         1, 2015, and (iii) 2,032,136 unregistered options to purchase 81,285 ordinary shares
                                         at an exercise price of NIS 1.247 per option and expiring on March 20, 2017. All such
                                         warrants and options are fully vested.





100







|(2) | Includes
                                         (i) 263,433 ordinary shares, (ii) 90,000 registered warrants (Series 9) to purchase 3,600
                                         ordinary shares at an exercise price of NIS 0.85 per warrant and expiring on May 1, 2015,
                                         and (iii) 7,570,761 unregistered options to purchase 302,830 ordinary shares, of which
                                         4,890,761 options have an exercise price of NIS 0.50 per option and expire on August
                                         23, 2016 and 2,680,000 options have an exercise price of NIS 0.644 per option and expire
                                         on January 13, 2021. All such warrants and options are fully vested.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes
                                         (i) 1,133 ordinary shares, (ii) 1,014,062 unregistered options to purchase 40,562 ordinary
                                         shares, of which (1) 322,175 are exercisable into 12,887 ordinary shares at an exercise
                                         price of NIS 0.45 per option and expire on November 29, 2015, (2) 554,387 are exercisable
                                         into 22,175 ordinary shares at an exercise price of NIS 0.307 per option and expire on
                                         November 26, 2018, (3) 81,250 are exercisable into 3,250 ordinary shares at an exercise
                                         price of NIS 0.385 per option and expire on May 2, 2022, and (4) 56,250 are exercisable
                                         into 2,250 ordinary shares at an exercise price of NIS 0.326 per option and expire on
                                         March 20, 2023, and (iii) 625 unregistered options to purchase 625 ordinary shares at
                                         an exercise price of NIS 8.118 per option and expire on March 18, 2025. All such options
                                         are fully vested or will vest within 60 days from March 23, 2015.Excludes 62,500 unregistered
                                         options to purchase 2,500ordinary shares and 9,375 unregistered options to purchase 9,375
                                         ordinary shares that vest in more than 60 days from March 23, 2015..
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Includes
                                         (i) 24,240 ordinary shares, (ii) 36,000 registered warrants (Series 9) to purchase 1,440
                                         ordinary shares at an exercise price of NIS 0.85 per warrant and expiring on May 1, 2015,
                                         (iii) 250,000 registered warrants (Series 10) to purchase 10,000 ordinary shares at an
                                         exercise price of NIS 0.394 per warrant and expiring on October 31, 2015, (iv) 250,000
                                         registered warrants (Series 11) to purchase 10,000 ordinary shares at an exercise price
                                         of NIS 0.392 per warrant and expiring on April 30, 2016, and (v) 250,000 unregistered
                                         options are exercisable into 10,000 ordinary shares at an exercise price of NIS 0.60
                                         per option and expire on May 2, 2023. All such warrants and options are fully vested
                                         or will vest within 60 days from March 23, 2015.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Includes
                                         (i) 613 ordinary shares, and (ii) 293,305 unregistered options to purchase 11,733 ordinary
                                         shares, of which 193,305 are exercisable into 7,732 ordinary shares at an exercise price
                                         of NIS 0.45 per option and expire on August 23, 2016, and 100,000 are exercisable into
                                         4,000 ordinary shares at an exercise price of NIS 0.385 per option and expire on August
                                         14, 2022. All such options are fully vested.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Includes
                                         2,500 unregistered options to purchase 2,500 ordinary shares at an exercise price of
                                         NIS 12 per option and expire on July 14, 2024.Excludes 7,500 unregistered options to
                                         purchase 7,500 ordinary shares that vest in more than 60 days from March 23, 2015.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Represents
(i) 73,298 American Depositary Shares, or ADSs, representing 146,596 ordinary shares held by Empery Tax Efficient, LP (“ETE
I Fund”), (ii) 540,332 ADSs representing 1,080,664 ordinary shares held by Empery Tax Efficient II, LP (“ETE II Fund”),
(iii) 285,246 ADSs representing 570,492 ordinary shares held by Empery Asset Master Ltd (“EAM Fund” and together with
the ETE I Fund and ETE II Fund, the “Empery Funds”), (iv) warrants to purchase 85,193 ADSs representing 170,385 ordinary
shares held by ETE I Fund, (v) warrants to purchase 270,166 ADSs representing 540,332 ordinary shares held by ETE II Fund, and
(vi) warrants to purchase 191,167 ADSs representing 382,333 ordinary shares held by EAM Fund. Empery Asset Management, LP (the
“Investment Manager”), serves as investment manager of the Empery Funds. Each of Ryan M. Lane and Martin D. Hoe is
a Managing Member of Empery AM GP, LLC, the general partner of the Investment Manager. Pursuant to the terms of the foregoing
warrants the holders cannot exercise such warrants if they would beneficially own, after any such exercise, more than 4.99% of
the outstanding ordinary shares. The percentage in the table above does not give effect to the blocker. The foregoing information
is based in part on a Schedule 13G filed with the SEC on December 5, 2014 by ETE II Fund, the Investment Manager, Mr. Lane and
Mr. Hoe.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Represents
                                         (i) 898,877 ADSs representing 1,797,754 ordinary shares held by Equitec Specialists,
                                         LLC (“Equitec”), (ii) warrants to purchase 458,541 ADSs representing 917,081
                                         ordinary shares held by Equitec, and (iii) warrants to purchase 27,306 ADSs representing
                                         54,612 ordinary shares held by Cranshire Capital Master Fund, Ltd. (“Cranshire
                                         Master Fund”).Cranshire Capital Advisors, LLC (“CCA”) is the investment
                                         manager of Cranshire Capital Master Fund. and has voting control and investment discretion
                                         over securities held by Cranshire Master Fund. Mitchell P. Kopin, the sole member and
                                         the sole member of the Board of Managers of CCA, has voting control over CCA. As a result,
                                         each of Mr. Kopin and CCA may be deemed to have beneficial ownership (as determined under
                                         Section 13(d) of the Securities Exchange Act of 1934, as amended) of the securities held
                                         by Cranshire Master Fund. CCA is the investment manager of Equitec and has voting control
                                         and investment discretion over securities held in the managed accounts by Equitec. Mr.
                                         Kopin, the sole member and the sole member of the Board of Managers of CCA, has voting
                                         control over CCA. As a result, each of Mr. Kopin and CCA may be deemed to have beneficial
                                         ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934,
                                         as amended) of the securities held in the managed accounts by Equitec.Pursuant to the
                                         terms of the foregoing warrants the holders cannot exercise such warrants if they would
                                         beneficially own, after any such exercise, more than 4.99% of the outstanding ordinary
                                         shares. The percentage in the table above does not give effect to the blocker. The foregoing information is based
on our information and belief.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



101







Share
Option Plans



We
maintain the following share option plans for our and our subsidiary’s employees, directors and consultants. In addition
to the discussion below, see Note 14b of our consolidated financial statements, included in “Item 18. Financial Statements.”



Our
Board of Directors administers our share option plans and has the authority to designate all terms of the options granted under
our plans including the grantees, exercise prices, grant dates, vesting schedules and expiration dates, which may be no more than
ten years after the grant date. Options may not be granted with an exercise price of less than the fair market value of our ordinary
shares on the date of grant, unless otherwise determined by our Board of Directors.



As
of December 31, 2014, we have granted to employees, directors and consultants options that are outstanding to purchase up to
1,094,732 ordinary shares, par value NIS 0.25, pursuant to the 2003 and 2013 share option plans, or the 2003 and 2013 Plans,
and pursuant to certain grants apart from these plans also discussed below under Non-Plan Share Options.



2003
Share Option Plan



Under
the 2003 Plan we granted options during the period between 2003 and 2013, at exercise prices between NIS 0.25 and NIS 31.175 per
ordinary share, par value NIS 0.25. Options to purchase up to 1,132,514 ordinary shares, par value NIS 0.25, were available to
be granted under the 2003 Plan. As of December 31, 2014, 14,567,790 options to purchase 582,707 ordinary shares were outstanding.
Options granted to Israeli employees were in accordance with section 102 of the Income Tax Ordinance, 1961, or the Tax Ordinance,
under the capital gains option set forth in section 102(b)(2) of the Tax Ordinance. The options are non-transferable.



The
option term is for a period of ten years from the grant date. The options were granted for no consideration. The options vest
over a four or two year period. As of December 31, 2014, options to purchase 564,857 ordinary shares, par value NIS 0.25, were
fully vested.



2013
Share Option Plan



Under the 2013 Plan we
granted options from 2014, at exercise price of NIS 12 per ordinary share, par value NIS 0.25. Options to purchase up to 1,000,000
ordinary shares, par value NIS 0.25, were available to be granted under the 2013 Plan. As of December 31, 2014, 10,000 options
to purchase 10,000 ordinary shares were outstanding. Options granted to Israeli employees were in accordance with section 102
of the Income Tax Ordinance, 1961, or the Tax Ordinance, under the capital gains option set forth in section 102(b)(2) of the
Tax Ordinance. The options are non-transferable.







102







The
option term is for a period of ten years from the grant date. The options were granted for no consideration. The options vest
over a three year period. As of December 31, 2014, options to purchase 833 ordinary shares, par value NIS 0.25, were fully vested.



Non-Plan
Share Options



In
addition to the options granted under our share option plans, at December 31, 2014, there were outstanding and exercisable
options to purchase 502,026 ordinary shares, par value NIS 0.25, which had been granted to an investor, not under the 2003
Plan. The options were granted at exercise price of NIS 15 per ordinary share, par value NIS 0.25. As of December 31,
2014, these options were fully vested. The options were extended by one year till October 21, 2015.



ITEM
7. Major Shareholders and Related Party Transactions



A. Major
Shareholders.



The
beneficial ownership of 5% or more holders is set forth in the beneficial ownership table set forth above under “Item 6
E. Share Ownership.”



On
June 17, 2013, OphthaliX sold 268,095 ordinary shares on the TASE, for aggregate consideration of US$510,714. After such sale,
OphthaliX owns 446,827 ordinary shares of our company.



To
our knowledge, as of March 23,2015 there were approximately three shareholders of record with a United States address which held
102,000 ordinary shares, directly or represented by ADSs, representing in the aggregate approximately 0.5%of our then outstanding
share capital. These numbers are not representative of the number of beneficial holders of our ordinary shares.



B. Related
Party Transactions.



The
following is a description of the transactions with related parties to which we, or our subsidiaries, are party, and which were
in effect within the past three fiscal years. The descriptions provided below are summaries of the terms of such agreements, do
not purport to be complete and are qualified in their entirety by the complete agreements.



We
believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could
have obtained from unaffiliated third parties. We are required by Israeli law to ensure that all future transactions between us
and our officers, directors and principal shareholders and their affiliates are approved by a majority of our Board of Directors,
including a majority of the independent and disinterested members of our Board of Directors, and that they are on terms no less
favorable to us than those that we could obtain from unaffiliated third parties.



Employment
and Consulting Agreements



We
have or have had employment, consulting or related agreements with each member of our senior management. See “Item 6. Directors,
Senior Management and Employees—Compensation—Employment and Consulting Agreements”.



Indemnification
Agreements



Our
Articles of Association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted
by the Israeli Companies Law. We have obtained directors’ and officers’ insurance for each of our officers and directors
and have entered into indemnification agreements with all of our current officers and directors.



Agreements
with Subsidiaries



See
“Item 10. Additional Information—Material Contracts—OphthaliX Agreements” for a description of agreements
with OphthaliX and Eye-Fite.





103







C. Interests
of Experts and Counsel.



Not
applicable.



ITEM
8. Financial Information



A. Consolidated
Financial Statements and Other Financial Information



See
“Item 18. Financial Statements” for a list of all financial statements filed as part of this Annual Report on Form
20-F.



Legal
Matters



We
are not involved in any legal or arbitration proceedings that may have or have had in the recent past, significant effects on
our financial position or profitability.



Dividend
Policy



We
have never declared or paid cash dividends to our shareholders. Currently we do not intend to pay cash dividends. We intend to
reinvest any earnings in developing and expanding our business. Any future determination relating to our dividend policy will
be at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, our financial
condition, operating results, contractual restrictions, capital requirements, business prospects, applicable Israeli law and other
factors our Board of Directors may deem relevant.



B. Significant
Changes



See
“Note 22:-  Subsequent Events” to our consolidated financial statements included in this Annual Report beginning
on page F-1 for a discussion of significant events that have occurred since December 31, 2014.



ITEM
9. The Offer and Listing



A. Offer
and Listing Details



Ordinary
Shares



Our
ordinary shares have been trading on the Tel Aviv Stock Exchange, or TASE, under the symbol “CFBI” since October 2005.



The
following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ordinary shares
on the TASE in NIS and U.S. dollars. U.S. dollar per ordinary share amounts were calculated using the U.S. dollar
representative rate of exchange on the date to which the high or low market price is applicable, as reported by the Bank of
Israel. As of December 31, 2014, we had 21,316,577 ordinary shares outstanding as of (which excludes 446,827 ordinary
shares held in treasury) ordinary shares outstanding. See “Item 10—Additional Information—Memorandum and
Articles of Association” for a detailed description of the rights attaching to the shares.







104







We
effected a 1-for-25 reverse share split with respect to our ordinary shares, options and warrants on May 12, 2013. Reported prices
in the table below have been adjusted to give retroactive effect to the share split.



|                                    |  | NIS                          |        |  | U.S.$                        | 
|----------------------------------- |  | ---------------------------- | ------ |  | ---------------------------- | 
|                                    |  | Price Per Ordinary Share (1) |        |  | Price Per Ordinary Share (1) | 
|                                    |  | High                         |        |  | Low                          | 
|Annual:                             |  |                              |        |  |                              | 
|2014                                |  |                              | 11.140 |  |                              | 
|2013                                |  |                              | 15.600 |  |                              | 
|2012                                |  |                              | 12.400 |  |                              | 
|2011                                |  |                              | 23.000 |  |                              | 
|2010                                |  |                              | 19.000 |  |                              | 
|                                    |  |                              |        |  |                              | 
|Quarterly:                          |  |                              |        |  |                              | 
|Fourth Quarter 2014                 |  |                              | 9.350  |  |                              | 
|Third Quarter 2014                  |  |                              | 7.068  |  |                              | 
|Second Quarter 2014                 |  |                              | 10.480 |  |                              | 
|First Quarter 2014                  |  |                              | 11.140 |  |                              | 
|Fourth Quarter 2013                 |  |                              | 15.600 |  |                              | 
|Third Quarter 2013                  |  |                              | 8.571  |  |                              | 
|Second Quarter 2013                 |  |                              | 8.450  |  |                              | 
|First Quarter 2013                  |  |                              | 10.825 |  |                              | 
|                                    |  |                              |        |  |                              | 
|Most Recent Six Months:             |  |                              |        |  |                              | 
|March 2015 (through March 23, 2015) |  |                              | 10.099 |  |                              | 
|February 2015                       |  |                              | 8.499  |  |                              | 
|January 2015                        |  |                              | 7.728  |  |                              | 
|December 2014                       |  |                              | 9.350  |  |                              | 
|November 2014                       |  |                              | 8.800  |  |                              | 
|October 2014                        |  |                              | 6.042  |  |                              | 
|September 2014                      |  |                              | 7.068  |  |                              | 










|(1) | We
                                         effected a 1-for-25 reverse share split with respect to our ordinary shares, options
                                         and warrants on May 12, 2013. Reported prices in the table below have been adjusted to
                                         give retroactive effect to the share split.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On March 23, 2015, the
last reported sales price of our ordinary shares on the TASE was NIS 10.099 per share, or $2.735 per share. On March 23, 2015,
the exchange rate of the NIS to the dollar was $1.00 = NIS 4.018 as reported by the Bank of Israel.





For
information with respect to our warrants, see “Item 5. Operating and Financial Review and Prospects—Warrants”.



ADSs



On
October 2, 2012, our ADSs began trading over the counter, or OTC, in the United States under the symbol “CANFY” and
on November 19, 2013, our ADSs began trading on the NYSE MKT under the symbol “CANF.” As of December 31, 2014, we
had 4,629,617 ADSs outstanding. One ADS represents two ordinary shares. See “Item 12—Description of Securities Other
Than Equity Securities—American Depositary Shares” for a description of the rights attaching to the ADSs.





105







The
following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs on the OTC and
Nasdaq Capital Market in U.S. dollars.



|                                    |  | U.S.$             |     
|----------------------------------- |  | ----------------- | ----
|                                    |  | Price Per ADS (1) |     
|                                    |  | High              |     
|Annual:                             |  |                   |     
|2014                                |  |                   | 6.50
|2013                                |  |                   | 8.60
|2012 (from October 2, 2012)         |  |                   | 5.50
|                                    |  |                   |     
|Quarterly:                          |  |                   |     
|Fourth Quarter 2014                 |  |                   | 4.80
|Third Quarter 2014                  |  |                   | 4.21
|Second Quarter 2014                 |  |                   | 6.10
|First Quarter 2014                  |  |                   | 6.50
|Fourth Quarter 2013                 |  |                   | 8.60
|Third Quarter 2013                  |  |                   | 5.03
|Second Quarter 2013                 |  |                   | 5.15
|First Quarter 2013                  |  |                   | 5.10
|                                    |  |                   |     
|Most Recent Six Months:             |  |                   |     
|March 2015 (through March 23, 2015) |  |                   | 5.35
|February 2015                       |  |                   | 4.67
|January 2015                        |  |                   | 3.85
|December 2014                       |  |                   | 4.62
|November 2014                       |  |                   | 4.80
|October 2014                        |  |                   | 3.28
|September 2014                      |  |                   | 4.00












|(1) | We
                                         effected a 1-for-25 reverse share split with respect to our ordinary shares, options
                                         and warrants on May 12, 2013. Reported prices in the table below have been adjusted to
                                         give retroactive effect to the share split.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On
March 23, 2015, the last reported sales price of our ADSs on the NYSE MKT was $5.35 per share.



B. Plan
of Distribution.



Not
applicable.



C. Markets.



See
“—Offer and Listing Details” above.



D. Selling
Shareholders.



Not
applicable.



E. Dilution.



Not
applicable.



F. Expenses
of the Issue.



Not
applicable.





106







ITEM
10. Additional Information



A. Share
Capital.



Not
applicable.



B. Memorandum
and Articles of Association.



Our
number with the Israeli Registrar of Companies is 512022153. Our purpose is set forth in Section 3 of our Articles of Association
and includes every lawful purpose.



Our
ordinary shares that are fully paid for are issued in registered form and may be freely transferred under our Articles of Association,
unless the transfer is restricted or prohibited by applicable law or the rules of a stock exchange on which the shares are traded.
The ownership or voting of our ordinary shares by non-residents of Israel is not restricted in any way by our Articles of Association
or the laws of the State of Israel, except for ownership by nationals of some countries that are, or have been, in a state of
war with Israel.



Pursuant
to the Israeli Companies Law and our Articles of Association, our Board of Directors may exercise all powers and take all actions
that are not required under law or under our Articles of Association to be exercised or taken by our shareholders, including the
power to borrow money for company purposes.



Our
Articles of Association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the
Israeli Companies Law and must be approved by a resolution duly passed by our shareholders at a general or special meeting by
voting on such change in the capital. In addition, transactions that have the effect of reducing capital, such as the declaration
and payment of dividends in the absence of sufficient retained earnings and profits and an issuance of shares for less than their
nominal value, require a resolution of our Board of Directors and court approval.



Dividends



We
may declare a dividend to be paid to the holders of our ordinary shares in proportion to their respective shareholdings. Under
the Israeli Companies Law, dividend distributions are determined by the board of directors and do not require the approval of
the shareholders of a company unless such company’s articles of association provide otherwise. Our Articles of Association
do not require shareholder approval of a dividend distribution and provide that dividend distributions may be determined by our
Board of Directors.



Pursuant
to the Israeli Companies Law, we may only distribute dividends from our profits accrued over the previous two years, as defined
in the Israeli Companies Law, according to our then last reviewed or audited financial reports, or we may distribute dividends
with court approval. In each case, we are only permitted to pay a dividend if there is no reasonable concern that payment of the
dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.



Election
of Directors



Our
ordinary shares do not have cumulative voting rights in the election of directors. As a result, the holders of a majority of the
voting power represented at a shareholders meeting have the power to elect all of our directors, subject to the special approval
requirements for external directors described under “Item 6. Directors, Senior Management and Employees — Board Practices
— External Directors.”



Pursuant
to our Articles of Association, other than the external directors, for whom special election requirements apply under the Israeli
Companies Law, our directors are elected at a general or special meeting of our shareholders and serve on the Board of Directors
until the end of the next general meeting or they are removed by the majority of our shareholders at a general or special meeting
of our shareholders or upon the occurrence of certain events, in accordance with the Israeli Companies Law and our Articles of
Association. In addition, our Articles of Association allow our Board of Directors to appoint directors to fill vacancies on the
Board of Directors to serve until the next general meeting or special meeting, or earlier if required by our Articles of Association
or applicable law. We have held elections for each of our non-external directors at each annual meeting of our shareholders since
our initial public offering in Israel. External directors are elected for an initial term of three years and may be removed from
office pursuant to the terms of the Israeli Companies Law. See “Item 6. Directors, Senior Management and Employees —
Board Practices — External Directors.”





107







Shareholder
Meetings



Under
Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year that must be no later
than 15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders
are referred to as special meetings. Our Board of Directors may call special meetings whenever it sees fit, at such time and place,
within or outside of Israel, as it may determine. In addition, the Israeli Companies Law and our Articles of Association provide
that our Board of Directors is required to convene a special meeting upon the written request of (i) any two of our directors
or one quarter of our Board of Directors or (ii) one or more shareholders holding, in the aggregate, either (1) 5% of our outstanding
shares and 1% of our outstanding voting power or (2) 5% of our outstanding voting power.



Subject
to the provisions of the Israeli Companies Law and the regulations promulgated thereunder, shareholders entitled to participate
and vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which may be between
four and forty days prior to the date of the meeting. Furthermore, the Israeli Companies Law and our Articles of Association require
that resolutions regarding the following matters must be passed at a general meeting of our shareholders:



| | ● | amendments
    to our Articles of Association;
| | - | ----------------------------------------------



| | ● | appointment
    or termination of our auditors;
| | - | -----------------------------------------------



| | ● | appointment
    of directors and appointment and dismissal of external directors;
| | - | ---------------------------------------------------------------------------------



| | ● | approval
    of acts and transactions requiring general meeting approval pursuant to the Israeli Companies Law;
| | - | ---------------------------------------------------------------------------------------------------------------



| | ● | director
    compensation, indemnification and change of the principal executive officer;
| | - | -----------------------------------------------------------------------------------------



| | ● | increases
    or reductions of our authorized share capital;
| | - | ------------------------------------------------------------



| | ● | a
    merger; and
| | - | -----------------



| | ● | the
    exercise of our Board of Director’s powers by a general meeting, if our Board of Directors is unable to exercise its
    powers and the exercise of any of its powers is required for our proper management.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
Israeli Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior
to the meeting and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions
with office holders or interested or related parties, or an approval of a merger, notice must be provided at least 35 days prior
to the meeting.



The
Israeli Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent.
Consequently, our Articles of Association does not allow shareholders to approve corporate matters by written consent.



Pursuant
to our Articles of Association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted
to a vote before the shareholders at a general meeting.





108







Quorum



The
quorum required for our general meetings of shareholders consists of at least two shareholders present in person, by proxy or
written ballot who hold or represent between them at least 25% of the total outstanding voting rights.



A
meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later
date if so specified in the summons or notice of the meeting. At the reconvened meeting, any number of our shareholders present
in person or by proxy shall constitute a lawful quorum.



Resolutions



Our
Articles of Association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required
by applicable law.



Israeli
law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot
in which the shareholder indicates how he or she votes on resolutions relating to the following matters:



| | ● | an
    appointment or removal of directors;
| | - | -------------------------------------------



| | ● | an
    approval of transactions with office holders or interested or related parties;
| | - | -------------------------------------------------------------------------------------



| | ● | an
    approval of a merger or any other matter in respect of which there is a provision in the articles of association providing
    that decisions of the general meeting may also be passed by written ballot;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | authorizing
    the chairman of the board of directors or his relative to act as our chief executive officer or act with such authority; or
    authorize our chief executive officer or his relative to act as the chairman of the board of directors or act with such authority;
    and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | other
    matters which may be prescribed by Israel’s Minister of Justice.
| | - | --------------------------------------------------------------------------



The
provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient
to determine the vote. Our Articles of Association provides that our Board of Directors may prevent voting by means of a written
ballot and this determination is required to be stated in the notice convening the general meeting.



The
Israeli Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward
the company and its other shareholders, must act in good faith and in a customary manner, and avoid abusing his or her power.
This is required when voting at general meetings on matters such as changes to the articles of association, increasing our registered
capital, mergers and approval of related party transactions. A shareholder also has a general duty to refrain from depriving any
other shareholder of its rights as a shareholder. In addition, any controlling shareholder, any shareholder who knows that its
vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association,
can appoint or prevent the appointment of an office holder, is required to act with fairness towards the company. The Israeli
Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach
of contract will also apply to a breach of the duty to act with fairness, and, to the best of our knowledge, there is no binding
case law that addresses this subject directly.



Under
the Israeli Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders
meeting requires approval by a simple majority of the voting rights represented at the meeting, in person, by proxy or written
ballot, and voting on the resolution. A resolution for the voluntary winding up of the company requires the approval of holders
of 75% of the voting rights represented at the meeting, in person, by proxy or by written ballot and voting on the resolution.



In
the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of
our ordinary shares in proportion to their shareholdings. This right, as well as the right to receive dividends, may be affected
by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that
may be authorized in the future.





109







Access
to Corporate Records



Under
the Israeli Companies Law, all shareholders of a company generally have the right to review minutes of our general meetings, its
shareholders register and principal shareholders register, articles of association, financial statements and any document it is
required by law to file publicly with the Israeli Companies Registrar and the ISA. Any of our shareholders may request access
to review any document in our possession that relates to any action or transaction with a related party, interested party or office
holder that requires shareholder approval under the Israeli Companies Law. We may deny a request to review a document if we determine
that the request was not made in good faith, that the document contains a commercial secret or a patent or that the document’s
disclosure may otherwise prejudice our interests.



Acquisitions
under Israeli Law



Full
Tender Offer



A
person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of the target company’s
issued and outstanding share capital is required by the Israeli Companies Law to make a tender offer to all of our shareholders
for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli
company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required
to make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and
outstanding shares of the same class. If the shareholders who do not accept the offer hold less than 5% of the issued and outstanding
share capital of the company or of the applicable class, all of the shares that the acquirer offered to purchase will be transferred
to the acquirer by operation of law (provided that a majority of the offerees that do not have a personal interest in such tender
offer shall have approved the tender offer except that if the total votes to reject the tender offer represent less than 2% of
the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not
have a personal interest in such tender offer is not required to complete the tender offer). However, a shareholder that had its
shares so transferred may petition the court within six months from the date of acceptance of the full tender offer, whether or
not such shareholder agreed to the tender or not, to determine whether the tender offer was for less than fair value and whether
the fair value should be paid as determined by the court unless the acquirer stipulated in the tender offer that a shareholder
that accepts the offer may not seek appraisal rights. If the shareholders who did not accept the tender offer hold 5% or more
of the issued and outstanding share capital of the company or of the applicable class, the acquirer may not acquire shares of
the company that will increase its holdings to more than 90% of our issued and outstanding share capital or of the applicable
class from shareholders who accepted the tender offer.



Special
Tender Offer



The
Israeli Companies Law provides that an acquisition of shares of a public Israeli company must be made by means of a special tender
offer if as a result of the acquisition the purchaser would become a holder of 25% or more of the voting rights in the company,
unless one of the exemptions in the Israeli Companies Law is met. This rule does not apply if there is already another holder
of at least 25% of the voting rights in the company. Similarly, the Israeli Companies Law provides that an acquisition of shares
in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a holder
of 45% or more of the voting rights in the company, if there is no other shareholder of the company who holds 45% or more of the
voting rights in the company, unless one of the exemptions in the Israeli Companies Law is met.



A
special tender offer must be extended to all shareholders of a company but the offeror is not required to purchase shares representing
more than 5% of the voting power attached to our outstanding shares, regardless of how many shares are tendered by shareholders.
A special tender offer may be consummated only if (i) at least 5% of the voting power attached to our outstanding shares will
be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected
to the offer.



110









If
a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the
purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target
company and may not enter into a merger with the target company for a period of one year from the date of the offer, unless the
purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.



Merger



The
Israeli Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements
described under the Israeli Companies Law are met, a majority of each party’s shares voted on the proposed merger at a shareholders’
meeting called with at least 35 days’ prior notice.



For
purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the
shares represented at the shareholders meeting that are held by parties other than the other party to the merger, or by any person
who holds 25% or more of the outstanding shares or the right to appoint 25% or more of the directors of the other party, vote
against the merger. If the transaction would have been approved but for the separate approval of each class or the exclusion of
the votes of certain shareholders as provided above, a court may still approve the merger upon the request of holders of at least
25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking into account the value
of the parties to the merger and the consideration offered to the shareholders.



Upon
the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that
there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations
of any of the parties to the merger, and may further give instructions to secure the rights of creditors.



In
addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the
merger was filed by each party with the Israeli Registrar of Companies and 30 days have passed from the date the merger was approved
by the shareholders of each party.



Antitakeover
Measures



The
Israeli Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares,
including shares providing certain preferred rights, distributions or other matters and shares having preemptive rights. As of
the date of this annual report, we do not have any authorized or issued shares other than our ordinary shares. In the future,
if we do create and issue a class of shares other than ordinary shares, such class of shares, depending on the specific rights
that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential
premium over the market value of their ordinary shares. The authorization of a new class of shares will require an amendment to
our Articles of Association which requires the prior approval of the holders of a majority of our shares at a general meeting.
In addition, the rules and regulations of the TASE also limit the terms permitted with respect to a new class of shares and prohibit
any such new class of shares from having voting rights. Shareholders voting in such meeting will be subject to the restrictions
provided in the Israeli Companies Law as described above.



Borrowing
Powers



Under
the Israeli Companies Law and our amended and restated articles of association, our Board of Directors may exercise all powers
and take all actions that are not required under law or under our amended and restated articles of association to be exercised
or taken by our shareholders or other corporate bodies, including the power to borrow money for company purposes.



Changes
in Capital



Our
amended and restated articles of association enable us to increase or reduce our share capital. Any such changes are subject to
the provisions of the Israeli Companies Law and must be approved by a resolution duly passed by our shareholders at a general
meeting by voting on such change in the capital. In addition, transactions that have the effect of reducing capital, such as the
declaration and payment of dividends in the absence of sufficient retained earnings or profits and, in certain circumstances,
an issuance of shares for less than their nominal value, require the approval of both our Board of Directors and an Israeli court.





111







C. Material
Contracts.



The
following are summary descriptions of certain material agreements to which we are a party. The descriptions provided below do
not purport to be complete and are qualified in their entirety by the complete agreements, which are attached as exhibits to this
Annual Report on Form 20-F.



OphthaliX
Agreements



On
November 21, 2011, we consummated a series of transactions resulting in the acquisition of 82.3% of the issued and outstanding
share capital of OphthaliX, Inc., a Delaware corporation (formerly, Denali Concrete Management Inc., a Nevada corporation), whose
common shares are traded in the United States on the OTC under the symbol “OPLI”.



The
transactions were consummated pursuant to a series of agreements that we executed on November 21, 2011 with OphthaliX to spin-off
our activity in the ophthalmology field to OphthaliX, or the Spin-Off Agreements. Prior to entering into the Spin-Off Agreements,
we obtained a pre-ruling from the Israeli Tax Authority which prohibits us from selling more than 10% of the OphthaliX common
stock that we hold until at least November 21, 2013. If we sell any of such shares prior to such date, we will be subject to a
significant tax by the Israeli Tax Authority. As of December 31, 2014, we did not sell any of such shares.



Spin-Off
Agreements



Pursuant
to the Spin-Off Agreements, we formed Eye-Fite as a wholly-owned subsidiary of ours and transferred to all of the issued and
outstanding share capital of Eye-Fite to OphthaliX, such that Eye-Fite became a wholly-owned subsidiary of OphthaliX. In
consideration for the transfer of Eye-Fite, OphthaliX issued us 8,000,000 shares of OphthaliX common stock, which represented
86.7% of the issued and outstanding share capital of OphthaliX. In addition to the 8,000,000 shares of OphthaliX common stock
that were issued to us in consideration for the transfer of Eye-Fite, we also acquired (i) 466,139 shares of OphthaliX common
stock that were issued to us in exchange for 714,922 of our ordinary shares, which reflected a price of $5.148 per share of
OphthaliX common stock, and (ii) 97,113 shares of OphthaliX common stock that were issued to us as consideration for our
investment of $500,000 in OphthaliX, also at a price of $5.148 per share of OphthaliX common stock. We were also granted
1,267,316 warrants exercisable for 281,626 shares of OphthaliX common stock. Such warrants have an exercise price of US$7.74
per share and expire on November 20, 2016. As of March 23, 2015, none of the warrants had been exercised.



As
a result of the Spin-Off Agreements, we appointed all of the members of the OphthaliX board of directors. According to the terms
of the Spin-Off Agreements, OphthaliX will continue the development processes, clinical trials and registration of the ophthalmic
indications of CF101.



As
part of the acquisition transactions, OphthaliX raised approximately $3.33 million from a group of investors in a private placement
of 646,776 shares of OphthaliX common stock, which represented approximately 6.2% of the issued and outstanding share capital
of OphthaliX. As part of the private placement, Pnina Fishman, our Chief Executive Officer, invested $50,000 in OphthaliX and
Guy Regev purchased shares of OphthaliX common stock from former OphthaliX shareholders for $75,000, each after approval by our
audit committee and Board of Directors.



The
acquisition transactions valued OphthaliX at approximately $50 million.



In
connection with the acquisition transactions, we agreed not to withdraw any money from Eye-Fite or OphthaliX, except for the payments
under the Services Agreement pursuant to which we are reimbursed for our costs plus 15%. See “—OphthaliX Agreements—Service
Agreement”.





112







For
additional information with respect to the Spin-Off Agreements, see “—OphthaliX Agreements—Service Agreement”
and “Item 4. Information on the Company—Business Overview—Out-Licensing and Distribution Agreements—Eye-Fite
Agreement”.



Services
Agreement



On
November 21, 2011, we entered into a services agreement, or the Services Agreement, with OphthaliX and Eye-Fite, pursuant to which
we provide management services to OphthaliX and Eye-Fite with respect to (i) all pre-clinical and clinical research studies of
CF101 in the ophthalmic field, (ii) drug manufacturing and supply with respect to the compounds related to the Eye-Fite Agreement,
(iii) QT studies in human beings, and (iv) payments to consultants that are listed in the Services Agreement for their involvement
in the clinical trials and in all other activities necessary to launch CF101 for the treatment of ophthalmic diseases. As consideration
for the foregoing services, we will be reimbursed by OphthaliX for our costs and expenses incurred in rendering such services
plus 15% (not including VAT, if applicable) and in relation to expenses and costs of intellectual property maintenance, we will
“pass through” any such payments and expenses made to third parties and will receive reimbursement for such costs
and expenses from OphthaliX. In addition, OphthaliX must abide by all current ongoing clinical trial agreements that we are party
to and OphthaliX must pay all payments under those agreements from November 21, 2011 onwards. Further, we are entitled to an additional
payment of 2.5%, or the additional payment, of any revenues received by OphthaliX and Eye-Fite in connection with the use of CF101
in the ophthalmic field.



During
the five-year period following the date of the execution of the Services Agreement, we are entitled to convert our right to the
additional payment into a warrant to purchase 480,022 shares of OphthaliX common stock exercisable at $5.148 per share, representing
approximately 5% of the shares of OphthaliX common stock on a fully diluted basis as of the date of closing of the Spin-Off Agreements
and the Services Agreement. The Services Agreement is for an unlimited duration. However, following the first anniversary of the
execution of the Services Agreement, each party is entitled to terminate the agreement if at least six months’ prior notice,
or less with respect to termination for “cause”, as defined in the Services Agreement, is provided to the counterparty.



In
February 2013, we sent a formal letter to OphthaliX, which has been updated periodically (most recently in March 2015), agreeing
to defer payments owed to us under the Services Agreement beginning on January 31, 2013 for the performance of the clinical trials
of CF101 in ophthalmic indications until the completion of fundraising by OphthaliX sufficient to cover such deferred payments.
As of December 31, 2014, the deferred payments to Can-Fite totaled approximately $2,457,000. In addition, in March 2015, we issued
a financial support letter pursuant to which we committed to cover any shortfall in OphthaliX’s costs and expenses of the
operations which are in excess of its available cash to finance its operations, including cash generated from any future sale
of Can-Fite shares held by OphthaliX. Both letters remain in effect for a period of at least 14 months from March 2015 and any
related balance bears interest at a rate of 3% per annum.



License
Agreement



See
“Item 4. Information on the Company—Business Overview—Out-Licensing and Distribution Agreements—Eye-Fite
Agreement”.



Employment
and Consulting Agreements



See
“Item 6. Directors, Senior Management and Employees—Compensation—Employment and Consulting Agreements”.



D. Exchange
Controls



There
are no Israeli government laws, decrees or regulations that restrict or that affect our export or import of capital or the remittance
of dividends, interest or other payments to non-resident holders of our securities, including the availability of cash and cash
equivalents for use by us and our wholly-owned subsidiaries, except or otherwise as set forth under “Item 10.E. Additional
Information — Taxation.”





113









E. Taxation



Certain
Israeli Tax Considerations



The
following is a summary of the material Israeli tax laws applicable to us. This section also contains a discussion of material
Israeli tax consequences concerning the ownership and disposition of our ordinary shares. This summary does not discuss all the
aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances
or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include residents
of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. Because certain parts
of this discussion are based on new tax legislation that has not yet been subject to judicial or administrative interpretation,
we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion. The
discussion does not cover all possible tax consequences.



You
are urged to consult your own tax advisor as to the Israeli and other tax consequences of the purchase, ownership and disposition
of our ADSs, including, in particular, the effect of any non-Israeli, state or local taxes.



General
Corporate Tax Structure in Israel



Israeli
companies are generally subject to a corporate tax at the rate of 25% of their taxable income in 2013 and thereafter. Capital
gains derived by an Israeli company are generally subject to tax at a rate of 25%, or at the prevailing corporate tax rate, whichever
is lower.



In
2006, transfer pricing regulations came into force, following the introduction of Section 85A of the Israeli Tax Ordinance under
Amendment 132. The transfer pricing rules require that cross-border transactions between related parties be carried out implementing
an arms’ length principle and reported and taxed accordingly.



In
2008, the Knesset passed an amendment to the Income Tax (Inflationary Adjustments) Law, 1985, which limits the scope of the law
starting in 2008 and thereafter. Starting in 2008, the revenues for tax purposes are measured in nominal values, excluding certain
adjustments for changes in the consumer price index carried out in the period up to December 31, 2007. The amended law includes,
among other provisions, the elimination of the inflationary additions and deductions and the additional deduction for depreciation
for the period starting in 2008.



Pre-Ruling
from the Israeli Income Tax Authorities



In
connection with the Spin-Off, we received a pre-ruling decision from the Israeli Income Tax Authority which confirms: (i) that
the grant of the license to Eye-Fite is not liable for tax pursuant to the provisions of section 104a to the Income Tax Ordinance
(New Version), 1961, or the Ordinance; (ii) that OphthaliX is considered the receiving company pursuant to section 103c(7)(b)
to the Ordinance; (iii) that the sale of Eye-Fite shares to OphthaliX as consideration for OphthaliX shares does not create liability
for tax pursuant to the provisions of section 103t to the Ordinance, or change in structure; and (iv) the date for the change
in structure was determined. According to the tax pre-ruling, the date of change in structure shall also be the date of exchange
of shares with respect to the spin-off and notification to the tax assessor. We and Eye-Fite presented to the tax assessor and
the merger and spin-off department of the tax assessor the forms required by the Ordinance and the regulations thereunder. The
tax pre-ruling further provides that the grant of a license to Eye-Fite as consideration for the issuance of Eye-Fite shares to
us does not create liability for tax pursuant to the provisions of section 104a to the Ordinance.



According
to the pre-ruling, we must not sell more than 10% of our common stock holdings in OphthaliX issued in connection with the change
in structure for at least two years from the date of the change (i.e., November 21, 2011), OphthaliX must not sell more than 10%
of its ordinary share holdings in Eye-Fite received in connection with the change in structure for at least two years from the
date of the change and Eye-Fite must retain the assets received from us in connection with the change in structure for at least
two years from the date of the change.





114







The
shares of Eye-Fite which were transferred to OphthaliX in connection with the change in structure will be held in escrow. The
sale of these shares will be deemed as a sale by an Israeli company and will be taxed accordingly. The trustee will withhold tax
at the source.



The
shares of OphthaliX which were transferred to us in connection with the change in structure will be held in escrow. The sale of
these shares will be deemed as a sale by an Israeli company and will be taxed accordingly. The trustee will withhold tax at the
source.



Any
dividend distributed by Eye-Fite to OphthaliX will be taxed in Israel in accordance with paragraph 125(b)5 of the Israeli Tax
Ordinance.



A
description of the terms of the pre-ruling is also included in the notes to the financial statements.



Tax Benefits
and Grants for Research and Development



Israeli
tax law allows, under certain conditions, a tax deduction for research and development expenditures, including capital expenditures,
for the year in which they are incurred. These expenses must relate to scientific research and development projects and must be
approved by the Office of the Chief Scientist, or the OCS, of the relevant Israeli government ministry, determined by the field
of research. Furthermore, the research and development must be for the promotion of the company and carried out by or on behalf
of the company seeking such tax deduction. The amount of such deductible expenses is reduced by the sum of any funds received
through government grants for the funding of the scientific research and development projects. No deduction under these research
and development deduction rules is allowed if such deduction is related to an expense invested in an asset depreciable under the
general depreciation rules of the Tax Ordinance. Expenditures not so approved are deductible in equal amounts over three years.



On
a yearly basis, we evaluate the applicability of the above tax deduction for research and development expenditures and, based
on our evaluation, determine whether to apply to the OCS for approval of a tax deduction. There can be no assurance that any application
for a tax deduction will be accepted.



Taxation
of our Shareholders



Capital
Gains Taxes Applicable to Non-Israeli Resident Shareholders.  Shareholders that are not Israeli residents are generally
exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our shares, provided that
such shareholders did not acquire their shares prior to our initial public offering on the TASE and such gains were not derived
from a permanent establishment or business activity of such shareholders in Israel. However, non-Israeli corporations will not
be entitled to the foregoing exemptions if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli
corporation or (ii) is the beneficiary of or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation,
whether directly or indirectly.



In
addition, under the U.S.-Israel Income Tax Treaty, 1995, or the U.S.-Israel Tax Treaty, the sale, exchange or disposition of our
shares by a shareholder who is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty) holding the shares as a capital asset
is exempt from Israeli capital gains tax unless either (i) the shareholder holds, directly or indirectly, shares representing
10% or more of our voting capital during any part of the 12-month period preceding such sale, exchange or disposition or (ii)
the capital gains arising from such sale are attributable to a permanent establishment of the shareholder located in Israel. In
either case, the sale, exchange or disposition of the shares would be subject to Israeli tax, to the extent applicable; however,
under the U.S.-Israel Tax Treaty, the U.S. resident would be permitted to claim a credit for the tax against the U.S. federal
income tax imposed with respect to the sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign
tax credits. The U.S.-Israel Tax Treaty does not relate to U.S. state or local taxes.



Shareholders
may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at
the time of sale.





115







Taxation
of Non-Israeli Shareholders on Receipt of Dividends.  Non-residents of Israel are generally subject to Israeli income
tax on the receipt of dividends paid on our shares at the rate of 20%, which tax will be withheld at the source, unless a different
rate is provided in a tax treaty between Israel and the shareholder’s country of residence. With respect to a person who
is a “substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date,
the applicable tax rate is 25%. A “substantial shareholder” is generally a person who alone, or together with his
relative or another person who collaborates with him on a permanent basis, holds, directly or indirectly, at least 10% of any
of the “means of control” of the corporation. “Means of control” generally include the right to vote,
receive profits, nominate a director or an officer, receive assets upon liquidation, or order someone who holds any of the aforesaid
rights how to act, and all regardless of the source of such right. Under the U.S.-Israel Tax Treaty, the maximum rate of tax withheld
in Israel on dividends paid to a holder of our ordinary shares who is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty)
is 25%. However, generally, the maximum rate of withholding tax on dividends that are paid to a U.S. corporation holding 10% or
more of our outstanding voting capital throughout the tax year in which the dividend is distributed as well as the previous tax
year is 12.5%.



A
non-resident of Israel who receives dividends from which tax was withheld is generally exempt from the duty to file returns in
Israel in respect of such income, provided such income was not derived from a business conducted in Israel by the taxpayer, and
the taxpayer has no other taxable sources of income in Israel.



Taxation
of Israeli Shareholders on Receipt of Dividends



Residents
of Israel are generally subject to Israeli income tax on the receipt of dividends paid on our shares at the rate of 25%, which
tax will be withheld at the source. With respect to a person who is a “substantial shareholder” at the time of receiving
the dividend or on any date within the 12 months preceding such date, the applicable tax rate is 30%.



U.S.
Federal Income Tax Consequences



The
following is a general summary of what we believe to be material U.S. federal income tax consequences relating to the purchase,
ownership and disposition of our ordinary shares and ADSs by U.S. Investors (as defined below) that hold such shares or ADSs as
capital assets. This summary is based on the Internal Revenue Code, or the Code, the regulations of the U.S. Department of the
Treasury issued pursuant to the Code, or the Treasury Regulations, and administrative and judicial interpretations thereof, all
as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect, or to different interpretation.
No ruling has been sought from the IRS with respect to any United States federal income tax consequences described below, and
there can be no assurance that the IRS or a court will not take a contrary position. This summary does not address all of the
tax considerations that may be relevant to specific U.S. Investors in light of their particular circumstances or to U.S. Investors
subject to special treatment under U.S. federal income tax law (such as banks, insurance companies, tax-exempt entities, retirement
plans, regulated investment companies, partnerships, dealers in securities, brokers, real estate investment trusts, certain former
citizens or residents of the United States, persons who acquire our shares or ADSs as part of a straddle, hedge, conversion transaction
or other integrated investment, persons that have a “functional currency” other than the U.S. dollar, persons that
own (or are deemed to own, indirectly or by attribution) 10% or more of our shares or ADSs or persons that generally mark their
securities to market for U.S. federal income tax purposes). This summary does not address any U.S. state or local or non-U.S.
tax considerations or any U.S. federal estate, gift or alternative minimum tax considerations or any U.S. federal tax consequences
other than U.S. federal income tax consequences.



As
used in this summary, the term “U.S. Investor” means a beneficial owner of our shares or ADSs that is, for U.S. federal
income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation, or other entity taxable as
a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state
thereof, or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of
its source or (iv) a trust with respect to which a court within the United States is able to exercise primary supervision over
its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or that has a
valid election in effect under applicable Treasury Regulations to be treated as a “United States person.”





116







If
an entity treated as a partnership for U.S. federal income tax purposes holds our shares or ADSs, the tax treatment of such partnership
and each partner thereof will generally depend upon the status and activities of the partnership and such partner. A holder that
is treated as a partnership for U.S. federal income tax purposes should consult its own tax advisor regarding the U.S. federal
income tax considerations applicable to it and its partners of the purchase, ownership and disposition of its shares or ADSs.



Prospective
investors should be aware that this summary does not address the tax consequences to investors who are not U.S. Investors. Prospective
investors should consult their own tax advisors as to the particular tax considerations applicable to them relating to the purchase,
ownership and disposition of their shares or ADSs, including the applicability of U.S. federal, state and local tax laws and non-U.S.
tax laws.



Taxation
of U.S. Investors



The
discussions under “— Distributions” and under “— Sale, Exchange or Other Disposition of Ordinary
Shares and ADSs” below assumes that we will not be treated as a passive foreign investment company, or PFIC, for U.S. federal
income tax purposes. We believe that we may be a PFIC during 2014 although we have not determined whether we will be a PFIC in
2015, or in any subsequent year,our operating results for any such years may cause us to be a PFIC.For a discussion of the rules
that would apply if we are treated as a PFIC, see the discussion under “— Passive Foreign Investment Company.”



Distributions.We
have no current plans to pay dividends. To the extent we pay any dividends, a U.S. Investor will be required to include in gross
income as a taxable dividend the amount of any distributions made on the shares or ADSs, including the amount of any Israeli taxes
withheld, to the extent that those distributions are paid out of our current or accumulated earnings and profits as determined
for U.S. federal income tax purposes. Any distributions in excess of our earnings and profits will be applied against and will
reduce the U.S. Investor’s tax basis in its shares or ADSs and to the extent they exceed that tax basis, will be treated
as gain from the sale or exchange of those shares or ADSs. If we were to pay dividends, we expect to pay such dividends in NIS
with respect to the shares and in U.S. dollars with respect to ADSs. A dividend paid in NIS, including the amount of any Israeli
taxes withheld, will be includible in a U.S. Investor’s income as a U.S. dollar amount calculated by reference to the exchange
rate in effect on the date such dividend is received, regardless of whether the payment is in fact converted into U.S. dollars.
If the dividend is converted to U.S. dollars on the date of receipt, a U.S. Investor generally will not recognize a foreign currency
gain or loss. However, if the U.S. Investor converts the NIS into U.S. dollars on a later date, the U.S. Investor must include,
in computing its income, any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the
difference between (i) the U.S. dollar value of the amount included in income when the dividend was received and (ii) the amount
received on the conversion of the NIS into U.S. dollars. Such gain or loss will generally be ordinary income or loss and United
States source for U.S. foreign tax credit purposes. U.S. Investors should consult their own tax advisors regarding the tax consequences
to them if we pay dividends in NIS or any other non-U.S. currency.





Subject
to certain significant conditions and limitations, including potential limitations under the U.S.-Israel Tax Treaty, any Israeli
taxes paid on or withheld from distributions from us and not refundable to a U.S. Investor may be credited against the investor’s
U.S. federal income tax liability or, alternatively, may be deducted from the investor’s taxable income. This election is
made on a year-by-year basis and applies to all foreign taxes paid by a U.S. Investor or withheld from a U.S. Investor that year.
Dividends paid on the shares generally will constitute income from sources outside the United States and be categorized as “passive
category income” or, in the case of some U.S. Investors, as “general category income” for U.S. foreign tax credit
purposes.



Because
the rules governing foreign tax credits are complex, U.S. Investors should consult their own tax advisor regarding the availability
of foreign tax credits in their particular circumstances. In addition, the U.S. Treasury Department has expressed concerns that
parties to whom ADSs are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits by
U.S. holders of ADSs. Accordingly, the creditability of Israeli taxes could be affected by future actions that may be taken by
the U.S. Treasury Department or parties to whom ADSs are pre-released.



Dividends
paid on the shares and ADSs will not be eligible for the “dividends-received” deduction generally allowed to corporate
U.S. Investors with respect to dividends received from U.S. corporations.





117







For
taxable years beginning after December 31, 2012, certain distributions treated as dividends that are received by an individual
U.S. Investor from “qualified foreign corporations” generally qualify for a 20% reduced maximum tax rate so long as
certain holding period and other requirements are met. A non-US. corporation (other than a corporation that is treated as a PFIC
for the taxable year in which the dividend is paid or the preceding taxable year) generally will be considered to be a qualified
foreign corporation (i) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary
of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information
program, or (ii) with respect to any dividend it pays on stock (or ADSs in respect of such stock) which is readily tradable on
an established securities market in the United States. Dividends paid by us in a taxable year in which we are not a PFIC and with
respect to which we were not a PFIC in the preceding taxable year are expected to be eligible for the 20% reduced maximum tax
rate, although we can offer no assurances in this regard. However, any dividend paid by us in a taxable year in which we are a
PFIC or were a PFIC in the preceding taxable year will be subject to tax at regular ordinary income rates. As mentioned above,
we have not determined whether we are currently a PFIC or not.



Sale,
Exchange or Other Disposition of Ordinary Shares and ADSs.Subject to the discussion under “— Passive
Foreign Investment Company” below, a U.S. Investor generally will recognize capital gain or loss upon the sale, exchange
or other disposition of our shares or ADSs in an amount equal to the difference between the amount realized on the sale, exchange
or other disposition and the U.S. Investor’s adjusted tax basis in such shares. This capital gain or loss will be long-term
capital gain or loss if the U.S. Investor’s holding period in our shares exceeds one year. Preferential tax rates for long-term
capital gain (currently, with a maximum rate of 20% for taxable years beginning after December 31, 2012) will apply to individual
U.S. Investors. The deductibility of capital losses is subject to limitations. The gain or loss will generally be income or loss
from sources within the United States for U.S. foreign tax credit purposes, subject to certain exceptions in U.S.-Israel Tax Treaty.



U.S.
Investors should consult their own tax advisors regarding the U.S. federal income tax consequences of receiving currency other
than U.S. dollars upon the disposition of their shares or ADSs.



Passive
Foreign Investment Company



In
general, a corporation organized outside the United States will be treated as a PFIC for U.S. federal income tax purposes in any
taxable year in which either (i) at least 75% of its gross income is “passive income” or (ii) on average at least
50% of its assets by value produce passive income or are held for the production of passive income. Passive income for this purpose
generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities
transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts
derived by reason of the temporary investment of funds, including those raised in the public offering. In determining whether
a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly
or indirectly, at least a 25% interest (by value) is taken into account.



Under
the tests described above, whether or not we are a PFIC will be determined annually based upon the composition of our income and
the composition and valuation of our assets, all of which are subject to change.



We
believe that we may be a PFIC during 2014 although we have not determined whether we will be a PFIC in 2015, or in any subsequent
year,our operating results for any such years may cause us to be a PFIC.



U.S.
Investors should be aware of certain tax consequences of investing directly or indirectly in us if we are a PFIC. A U.S. Investor
is subject to different rules depending on whether the U.S. Investor makes an election to treat us as a “qualified electing
fund,” known as a QEF election, for the first taxable year that the U.S. Investor holds shares or ADSs, which is referred
to in this disclosure as a “timely QEF election,” makes a “mark-to-market” election with respect to the
shares or ADSs (if such election is available), or makes neither election.



QEF
Election.A U.S. Investor who makes a timely QEF election, referred to in this disclosure as an “Electing
U.S. Investor,” with respect to us must report for U.S. federal income tax purposes his pro rata share of our ordinary earnings
and net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing U.S. Investor. The
“net capital gain” of a PFIC is the excess, if any, of the PFIC’s net long-term capital gains over its net short-term
capital losses. The amount so included in income generally will be treated as ordinary income to the extent of such Electing U.S.
Investor’s allocable share of the PFIC’s ordinary earnings and as long-term capital gain to the extent of such Electing
U.S. Investor’s allocable share of the PFIC’s net capital gains. Such Electing U.S. Investor generally will be required
to translate such income into U.S. dollars based on the average exchange rate for the PFIC’s taxable year with respect to
the PFIC’s functional currency. Such income generally will be treated as income from sources outside the United States for
U.S. foreign tax credit purposes. Amounts previously included in income by such Electing U.S. Investor under the QEF rules generally
will not be subject to tax when they are distributed to such Electing U.S. Investor. The Electing U.S. Investor’s tax basis
in our shares or ADSs generally will increase by any amounts so included under the QEF rules and decrease by any amounts not included
in income when distributed.





118







An
Electing U.S. Investor will be subject to U.S. federal income tax on such amounts for each taxable year in which we are a PFIC,
regardless of whether such amounts are actually distributed to such Electing U.S. Investor. However, an Electing U.S. Investor
may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an
interest charge. If an Electing U.S. Investor is an individual, any such interest will be treated as non-deductible “personal
interest.”



Any
net operating losses or net capital losses of a PFIC will not pass through to the Electing U.S. Investor and will not offset any
ordinary earnings or net capital gain of a PFIC recognized by Electing U.S. Investors in subsequent years.



So
long as an Electing U.S. Investor’s QEF election with respect to us is in effect with respect to the entire holding period
for our shares or ADSs, any gain or loss recognized by such Electing U.S. Investor on the sale, exchange or other disposition
of such shares or ADSs generally will be long-term capital gain or loss if such Electing U.S. Investor has held such shares or
ADSs for more than one year at the time of such sale, exchange or other disposition. Preferential tax rates for long-term capital
gain (currently, a maximum rate of 20% for taxable years beginning after December 31, 2012) will apply to individual U.S. Investors.
The deductibility of capital losses is subject to limitations.



In
general, a U.S. Investor must make a QEF election on or before the due date for filing its income tax return for the first year
to which the QEF election is to apply. A U.S. Investor makes a QEF election by completing the relevant portions of and filing
IRS Form 8621 in accordance with the instructions thereto. Upon request, we will annually furnish U.S. Investors with information
needed in order to complete IRS Form 8621 (which form would be required to be filed with the IRS on an annual basis by the U.S.
Investor) and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries that we control is
a PFIC. There is no assurance, however, that we will have timely knowledge of our status as a PFIC, or that the information that
we provide will be adequate to allow U.S. Investors to make a QEF election. A QEF election will not apply to any taxable year
during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable year in which we become a PFIC.
Each U.S. Investor should consult its own tax advisor with respect to the advisability of, the tax consequences of, and the procedures
for making a QEF election with respect to us.



Mark-to-Market
Election.  Alternatively, if our shares or ADSs are treated as “marketable stock,” a U.S. Investor would
be allowed to make a “mark-to-market” election with respect to our shares or ADSs, provided the U.S. Investor completes
and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made,
the U.S. Investor generally would include as ordinary income in each taxable year the excess, if any, of the fair market value
of our shares or ADSs at the end of the taxable year over such holder’s adjusted tax basis in such shares or ADSs. The U.S.
Investor would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Investor’s adjusted tax
basis in our shares or ADSs over their fair market value at the end of the taxable year, but only to the extent of the net amount
previously included in income as a result of the mark-to-market election. A U.S. Investor’s tax basis in our shares or ADSs
would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our shares
or ADSs would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of our shares or
ADSs would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included
in income by the U.S. Investor, and any loss in excess of such amount will be treated as capital loss. Amounts treated as ordinary
income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains.





119







Generally,
stock will be considered marketable stock if it is “regularly traded” on a “qualified exchange” within
the meaning of applicable Treasury Regulations. A class of stock is regularly traded on an exchange during any calendar year during
which such class of stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter.
To be marketable stock, our shares and ADSs must be regularly traded on a qualifying exchange (i) in the United States that is
registered with the SEC or a national market system established pursuant to the Exchange Act. or (ii) outside the United States
that is properly regulated and meets certain trading, listing, financial disclosure and other requirements. Our shares should
constitute “marketable stock” as long as they remain listed on the OTC and/or the NYSE MKT and are regularly traded.
Our ADSs will be listed on the OTC and/or the NYSE MKT. While we believe that our ADSs may be treated as marketable stock for
purposes of the PFIC rules so long as they are listed on the OTC and/or the NYSE MKT and are regularly traded, the IRS has not
provided a list of the exchanges that meet the foregoing requirements and thus no assurance can be provided that our ADSs will
be (or will remain) treated as marketable stock for purposes of the PFIC rules.



A
mark-to-market election will not apply to our shares or ADSs held by a U.S. Investor for any taxable year during which we are
not a PFIC, but will remain in effect with respect to any subsequent taxable year in which we become a PFIC. Such election will
not apply to any PFIC subsidiary that we own. Each U.S. Investor is encouraged to consult its own tax advisor with respect to
the availability and tax consequences of a mark-to-market election with respect to our shares and ADSs.



Default
PFIC Rules.  A U.S. Investor who does not make a timely QEF election or a mark-to-market election, referred to in
this disclosure as a “Non-Electing U.S. Investor,” will be subject to special rules with respect to (i) any “excess
distribution” (generally, the portion of any distributions received by the Non-Electing U.S. Investor on the shares or ADSs
in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing U.S. Investor in the three
preceding taxable years, or, if shorter, the Non-Electing U.S. Investor’s holding period for the shares or ADSs), and (ii)
any gain realized on the sale or other disposition of such shares or ADSs. Under these rules:



| | ● | the
    excess distribution or gain would be allocated ratably over the Non-Electing U.S. Investor’s holding period for such
    shares or ADSs;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
    amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
    amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable
    class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the
    resulting tax attributable to each such other taxable year.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If
a Non-Electing U.S. Investor who is an individual dies while owning our shares or ADSs, the Non-Electing U.S. Investor’s
successor would be ineligible to receive a step-up in tax basis of such shares or ADSs. Non-Electing U.S. Investors should consult
their tax advisors regarding the application of the PFIC rules to their specific situation.



A
Non-Electing U.S. Investor who wishes to make a QEF election for a subsequent year may be able to make a special “purging
election” pursuant to Section 1291(d) of the Code. Pursuant to this election, a Non-Electing U.S. Investor would be treated
as selling his or her shares or ADSs for fair market value on the first day of the taxable year for which the QEF election is
made. Any gain on such deemed sale would be subject to tax under the rules for Non-Electing U.S. Investors as discussed above.
Non-Electing U.S. Investors should consult their tax advisors regarding the availability of a “purging election” as
well as other available elections.



To
the extent a distribution on our shares or ADSs does not constitute an excess distribution to a Non-Electing U.S. Investor, such
Non-Electing U.S. Investor generally will be required to include the amount of such distribution in gross income as a dividend
to the extent of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) that are
not allocated to excess distributions. The tax consequences of such distributions are discussed above under “— Taxation
of U.S. Investors — Distributions.” Each U.S. Holder is encouraged to consult its own tax advisor with respect
to the appropriate U.S. federal income tax treatment of any distribution on our shares.





120







If
we are treated as a PFIC for any taxable year during the holding period of a Non-Electing U.S. Investor, we will continue to be
treated as a PFIC for all succeeding years during which the Non-Electing U.S. Investor is treated as a direct or indirect Non-Electing
U.S. Investor even if we are not a PFIC for such years. A U.S. Investor is encouraged to consult its tax advisor with respect
to any available elections that may be applicable in such a situation, including the “deemed sale” election of Code
Section 1298(b)(1) (which will be taxed under the adverse tax rules described above). In addition, U.S. Investors should consult
their tax advisors regarding the IRS information reporting and filing obligations that may arise as a result of the ownership
of shares in a PFIC.



We
may invest in the equity of foreign corporations that are PFICs or may own subsidiaries that own PFICs. If we are classified as
a PFIC, under attribution rules U.S. Investors will be subject to the PFIC rules with respect to their indirect ownership interests
in such PFICs, such that a disposition of the shares of the PFIC or receipt by us of a distribution from the PFIC generally will
be treated as a deemed disposition of such shares or the deemed receipt of such distribution by the U.S. Investor, subject to
taxation under the PFIC rules. There can be no assurance that a U.S. Investor will be able to make a QEF election or a mark-to-market
election with respect to PFICs in which we invest. Each U.S. Investor is encouraged to consult its own tax advisor with respect
to tax consequences of an investment by us in a corporation that is a PFIC.



The
U.S. federal income tax rules relating to PFICs, QEF elections, and mark-to market elections are complex. U.S. Investors are urged
to consult their own tax advisors with respect to the purchase, ownership and disposition of our shares or ADSs, any elections
available with respect to such shares or ADSs and the IRS information reporting obligations with respect to the purchase, ownership
and disposition of our shares or ADSs.



Certain
Reporting Requirements



Certain
U.S. Investors are required to file IRS Form 926, Return by U.S. Transferor of Property to a Foreign Corporation, and certain
U.S. Investors may be required to file IRS Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations,
reporting transfers of cash or other property to us and information relating to the U.S. Investor and us. Substantial penalties
may be imposed upon a U.S. Investor that fails to comply.



In
addition, recently enacted legislation requires certain U.S. Investors to report information on IRS Form 8938 with respect to
their investments in certain “foreign financial assets,” which under certain circumstances would include an investment
in our shares and ADSs, to the IRS.



Investors
who fail to report required information could become subject to substantial penalties. U.S. Investors should consult their tax
advisors regarding the possible implications of these reporting requirements on their investment in our shares and ADSs.



Backup
Withholding Tax and Information Reporting Requirements



Generally,
information reporting requirements will apply to distributions on our shares or ADSs or proceeds on the disposition of our shares
or ADSs paid within the United States (and, in certain cases, outside the United States) to U.S. Investors other than certain
exempt recipients, such as corporations. Furthermore, backup withholding (currently at 28%) may apply to such amounts if the U.S.
Investor fails to (i) provide a correct taxpayer identification number, (ii) report interest and dividends required to be shown
on its U.S. federal income tax return, or (iii) make other appropriate certifications in the required manner. U.S. Investors who
are required to establish their exempt status generally must provide such certification on IRS Form W-9.



Backup
withholding is not an additional tax. Amounts withheld as backup withholding from a payment may be credited against a U.S. Investor’s
U.S. federal income tax liability and such U.S. Investor may obtain a refund of any excess amounts withheld by filing the appropriate
claim for refund with the IRS and furnishing any required information in a timely manner.





121







New Legislative
Developments



With
respect to taxable years beginning after December 31, 2012, certain U.S. persons, including individuals, estates and trusts, will
be subject to an additional 3.8% Medicare tax on unearned income. For individuals, the additional Medicare tax applies to the
lesser of (i) “net investment income” or (ii) the excess of “modified adjusted gross income” over $200,000
($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net investment income” generally
equals the taxpayer’s gross investment income reduced by the deductions that are allocable to such income. Investment income
generally includes passive income such as interest, dividends, annuities, royalties, rents, and capital gains. U.S. Investors
are urged to consult their own tax advisors regarding the implications of the additional Medicare tax resulting from their ownership
and disposition of our shares or ADSs.



U.S.
Investors should consult their own tax advisors concerning the tax consequences relating to the purchase, ownership and disposition
of our shares or ADSs.



F. Dividends
and Paying Agents.



Not
applicable.



G. Statements
by Experts.



Not
applicable.



H. Documents
on Display.



We
are subject to the information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those
requirements will file reports with the SEC. Those other reports or other information and this Annual Report may be inspected
without charge at 10 Bareket Street, Kiryat Matalon, Petah-Tikva 4951778, Israel, and inspected and copied at the public reference
facilities of the SEC located at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of the documents at prescribed
rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. The SEC also maintains a website at http://www.sec.govfrom which certain filings may be accessed.



As
a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements,
and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly
and current reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities
are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscal year,
or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent
registered public accounting firm, and will submit to the SEC, on a Form 6-K, unaudited quarterly financial information.



In
addition, because our ordinary shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with,
and furnish information to, the TASE and the ISA, as required under Chapter Six of the Israel Securities Law. Copies of our filings
with the ISA can be retrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and
the TASE website (www.maya.tase.co.il).



We
maintain a corporate website at www.canfite.com. Information contained on, or that can be accessed through, our website
does not constitute a part of this Annual Report on Form 20-F. We have included our website address in this Annual Report on Form
20-F solely as an inactive textual reference.





122







I. Subsidiary
Information.



Not
applicable.



ITEM
11. Quantitative and Qualitative Disclosures About Market Risk



Market
risk is the risk of loss related to changes in market prices, including interest rates and foreign exchange rates, of financial
instruments that may adversely impact our consolidated financial position, results of operations or cash flows.



Interest
Rate Risk



We
do not anticipate undertaking any significant long-term borrowings. At present, our investments consist primarily of cash and
cash equivalents. We may invest in investment-grade marketable securities with maturities of up to three years, including commercial
paper, money market funds, and government/non-government debt securities. The primary objective of our investment activities is
to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and
loss. Our investments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and
the fair market value of our investments, if any. We manage this exposure by performing ongoing evaluations of our investments.
Due to the short-term maturities, if any, of our investments to date, their carrying value has always approximated their fair
value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold such investments
to maturity in order to limit our exposure to interest rate fluctuations.



Foreign
Currency Exchange Risk



Our
foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting
currency, mainly against the dollar and the euro. Although the NIS is our functional currency, a significant portion of our expenses
are denominated in both dollars and Euros and currently all of our revenues are denominated in dollars. Our U.S. dollar and euro
expenses consist principally of payments made to sub-contractors and consultants for preclinical studies, clinical trials and
other research and development activities. We anticipate that a sizable portion of our expenses will continue to be denominated
in currencies other than the NIS. If the NIS fluctuates significantly against either the U.S. dollar or the euro, it may have
a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results
of operations or financial condition for the periods under review.



To
date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease
the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures,
however, may not adequately protect us from the material adverse effects of such fluctuations.



ITEM
12. Description of Securities Other Than Equity Securities



A. Debt
Securities.



Not
applicable.



B. Warrants
and Rights.



Not
applicable.



C. Other
Securities.



Not
applicable.



D. American
Depositary Shares



The
Bank of New York Mellon, as Depositary, has registered and delivered American Depositary Shares, or ADSs. Each ADS represents
two (2) ordinary shares (or a right to receive two (2) ordinary shares) deposited with the principal Tel Aviv office of Bank Hapoalim,
as custodian for the Depositary. Each ADS also represents any other securities, cash or other property which may be held by the
Depositary. The Depositary’s corporate trust office at which the ADSs are administered is located at 101 Barclay Street,
New York, New York 10286. The Bank of New York Mellon’s principal executive office is located at One Wall Street, New York,
New York 10286.





123







The
form of the deposit agreement for the ADSs and the form of American Depositary Receipt that represents an ADS have been incorporated
by reference as exhibits to this Annual Report on Form 20-F.



Fees
and Expenses



|Persons
    depositing or withdrawing shares orADS holders must pay:                                                                                                                               |  | For:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|$5.00
    (or less) per 100 ADSs (or portion of 100 ADSs)                                                                                                                                          |  | ●   
|                                                                                                                                                                                                   |  |     
|                                                                                                                                                                                                   |  | ●   
|                                                                                                                                                                                                   |  |     
|$.05
    (or less) per ADS                                                                                                                                                                         |  | ●   
|                                                                                                                                                                                                   |  |     
|A
    fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited
    for issuance of ADSs                                  |  | ●   
|                                                                                                                                                                                                   |  |     
|$.05
    (or less) per ADSs per calendar year                                                                                                                                                      |  | ●   
|                                                                                                                                                                                                   |  |     
|Registration
    or transfer fees                                                                                                                                                                  |  | ●   
|                                                                                                                                                                                                   |  |     
|Expenses
    of the Depositary                                                                                                                                                                     |  | ●   
|                                                                                                                                                                                                   |  |     
|                                                                                                                                                                                                   |  | ●   
|                                                                                                                                                                                                   |  |     
|Taxes
    and other governmental charges the Depositary or the custodian have to pay on any ADS or share underlying an ADS, for example,
    stock transfer taxes, stamp duty or withholding taxes |  | ●   
|                                                                                                                                                                                                   |  |     
|Any
    charges incurred by the Depositary or its agents for servicing the deposited securities                                                                                                    |  | ●   



The
Depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs
for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to
investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees.
The Depositary may collect its annual fee for depositary services by deduction from cash distributions, by directly billing investors
or by charging the book-entry system accounts of participants acting for them. The Depositary may generally refuse to provide
fee-attracting services until its fees for those services are paid.



From
time to time, the Depositary may make payments to us to reimburse us for expenses and/or share revenue with us from the fees collected
from ADS holders, or waive fees and expenses for services provided, generally relating to costs and expenses arising out of the
establishment and maintenance of the ADS program. In performing its duties under the Deposit Agreement, the Depositary may use
brokers, dealers or other service providers that are affiliates of the Depositary and that may earn or share fees or commissions.





124







PART
II



ITEM
13. Defaults, Dividend Arrearages and Delinquencies



Not
applicable.



ITEM
14. Material Modifications to the Rights of Security Holders and Use of Proceeds



Registered
Direct Offering



The
effective date of the registration statement, File No. 333-199033, on Form F-3 was October 21, 2014. In an at-the-market
registered direct offering that closed on December 8, 2014, we sold an aggregate of 1,797,753 ADSs at $4.45 per share for aggregate
gross proceeds of $8,000,000. In addition, the investors received unregistered warrants to purchase 898,877 ADSs. The warrants
may be exercised at any time for a period of five years from issuance and have an exercise price of $4.45 per ADS, subject to
adjustment as set forth therein. The warrants may be exercised on a cashless basis if six months after issuance there is no effective
registration statement registering the ADSs underlying the warrants.





H.C.
Wainwright & Co., LLC acted as placement agent and Roth Capital Partners LLC acted as a financial advisor in connection
with the offering.



The
total expenses of the offering, including placement agent fees were approximately $0.8 million. The net proceeds that we received
from the offering were approximately $7.2 million.



From
the closing until December 31, 2014, we have used existing cash and the net proceeds from the offering, in the amount of approximately
$0.6 million for working capital and other general corporate purposes. The balance is held in cash and cash equivalents.





None
of the net proceeds of the offering was paid directly or indirectly to any director, officer, general partner of ours or to their
associates, persons owning ten percent or more of any class of our equity securities, or to any of our affiliates, except as employee/consultant
compensation and general and administrative expenses.



ITEM
15. Controls and Procedures



Disclosure
controls and procedures



Our
management, including our chief executive officer, or CEO, and our chief financial officer, or CFO, are responsible for establishing
and maintaining our disclosure controls and procedures (within the meaning of Rule 13a-15(e) of the Exchange Act). These controls
and procedures were designed to ensure that information required to be disclosed in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC
and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow
timely decisions regarding required disclosure. We evaluated these disclosure controls and procedures under the supervision of
our CEO and CFO as of December 31, 2014. Based upon that evaluation, our management, including our CEO and CFO, concluded that
our disclosure controls and procedures as of December 31, 2014 were effective.





125







Management's
annual report on internal control over financial reporting



Our
management, including our CEO, and our CFO, are responsible for establishing and maintaining adequate internal control over our
financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act of 1934, as amended. Our internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting includes policies and procedures that:



| | ● | pertain
    to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;                                                                
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                           
| | ● | provide
    reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in
    accordance with generally accepted accounting principles;       
| |   |                                                                                                                                                                                                           
| | ● | provide
    reasonable assurance that receipts and expenditures are made only in accordance with authorizations of our management and
    board of directors (as appropriate); and                        
| |   |                                                                                                                                                                                                           
| | ● | provide
    reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets
    that could have a material effect on our financial statements.





Due
to its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. In addition,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



Under
the supervision and with the participation of our management, including our CEO, and our CFO, we assessed the effectiveness of
our internal control over financial reporting as of December 31, 2014 based on the framework for Internal Control-Integrated Framework
set forth by The Committee of Sponsoring Organizations of the Treadway Commission (COSO)(2013).



Based
on our assessment and this framework, our management concluded that our internal control over financial reporting were effective
as of December 31, 2014



Attestation
Report of Registered Public Accounting Firm



Not
applicable.



Changes
in internal control over financial reporting



There
were no changes in our internal control over financial reporting, other than as described above, that occurred during the year
ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.



ITEM
16. [RESERVED]



ITEM
16A. Audit Committee Financial Expert



Our
Board of Directors has determined that Gil Oren is an audit committee financial expert, as defined by applicable SEC regulations.
Gil Oren qualified as an "independent director," as that term is defined under NYSE MKT rules.



ITEM
16B. Code of Ethics



We
have adopted a code of ethics, referred to as a Code of Business Conduct, applicable to our directors, officers and all other
employees. Our code of ethics is publicly available on our website at www.canfite.com. If we make any amendment to the code of
ethics or grant any waivers, including any implicit waiver, from a provision of the code of ethics, which applies to our chief
executive officer, chief financial officer, chief accounting officer or controller, or persons performing similar functions, we
will disclose the nature of such amendment or waiver on our website.





126







ITEM
16C. Principal Accountant Fees and Services



The
following table sets forth, for each of the years indicated, the fees billed by our independent registered public accounting firm.





|                       |  | Year Ended  December 31, |    
|---------------------- |  | ------------------------ | ---
|                       |  | 2013                     |    
|Services Rendered      |  | (in thousands of NIS)    |    
|Audit (1)              |  |                          | 370
|Audit related services |  |                          | -  
|Tax                    |  |                          | -  
|All Other fees         |  |                          | -  
|Total                  |  |                          | 370










|(1) | Audit
    fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements,
    including services that generally only the independent accountant can reasonably provide.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Audit
Committee Pre-Approval Policies and Procedures



Our
audit committee’s specific responsibilities in carrying out its oversight of the quality and integrity of the accounting,
auditing and reporting practices of us include the approval of audit and non-audit services to be provided by the external auditor.
The audit committee approves in advance the particular services or categories of services to be provided to us during the following
yearly period and also sets forth a specific budget for such audit and non-audit services. Additional non-audit services may be
pre-approved by the audit committee.



ITEM
16D. Exemptions from the Listing Standards for Audit Committees



Not
applicable.



ITEM
16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers



Not
applicable.



ITEM
16F. Change in Registrant’s Certifying Accountant



Not
applicable.





127







ITEM
16G. Corporate Governance



We
are a foreign private issuer whose ordinary shares are listed on the NYSE MKT. As such, we are required to comply with U.S. federal
securities laws, including the Sarbanes-Oxley Act, and the NYSE MKT rules, including the NYSE MKT corporate governance requirements.
The NYSE MKT rules provide that foreign private issuers may follow home country practice in lieu of certain qualitative listing
requirements subject to certain exceptions and except to the extent that such exemptions would be contrary to U.S. federal securities
laws, so long as the foreign issuer discloses that it does not follow such listing requirement and describes the home country
practice followed in its reports filed with the SEC. Below is a concise summary of the significant ways in which our corporate
governance practices differ from the corporate governance requirements of NYSE MKT applicable to domestic U.S. listed companies:



| | ● | The
                                         NYSE MKT rules recommend that an issuer have a quorum requirement for shareholders meetings
                                         of at least one-third of the outstanding shares of the issuer’s common voting stock.
                                         We have chosen to follow home country practice with respect to the quorum requirements
                                         of our shareholders meeting and our adjourned shareholders meeting. Our articles of association,
                                         as permitted under the Israeli Companies Law and Israeli practice, provide that the quorum
                                         requirements for a shareholders meeting are the presence of at least two shareholders
                                         who represent at least 25%of the outstanding shares of the issuer’s common voting
                                         stock, and in the event of an adjourned meeting, the presence of a minimum of two shareholders
                                         present in person.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | We
                                         have chosen to follow our home country practice in lieu of the requirements of the NYSE
                                         MKT rules relating to an issuer’s furnishing of its annual report to shareholders.
                                         However, we post our Annual Report on Form 20-F on our web site (www.canfite.com) as
                                         soon as practicable following the filing of the Annual Report on Form 20-F with the SEC.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | We
                                         have chosen to follow our home country practice in lieu of the requirements of the NYSE
                                         MKT rules relating to shareholder approval required prior to the issuance of securities
                                         (i) when a stock option or purchase plan is to be established or materially amended or
                                         other equity compensation arrangement made or materially amended, pursuant to which stock
                                         may be acquired by any of controlling shareholders, our directors or the Chief Executive
                                         Officer and (ii) in connection with a transaction, other than a public offering, involving
                                         the issuance or potential issuance by the Company of common stock equal to 20% or more
                                         of the common stock or 20% or more of the voting power outstanding before the issuance,
                                         in any consecutive 12 months period. We follow the provisions of the Israeli Companies
                                         Law with regard to transactions with our affiliates, i.e., our controlling shareholder
                                         and our directors and officers, including private placement transactions.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM
16H. Mine Safety Disclosure



Not
applicable.



PART
III



ITEM
17. Financial Statements



We
have responded to Item 18 in lieu of responding to this item.



ITEM
18. Financial Statements



Please
refer to the financial statements beginning on page F-1.



|                                                                                                                                                     |  |  | Page | 
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Report of Independent Registered Public Accounting Firm                                                                                              |  |  | F-2  | 
|Audited Consolidated Financial Statements as of December 31, 2013 and 2014 and for each of the three years in the period
    ended December 31, 2014 |  |  |      | 
|Consolidated Statements of Financial Position                                                                                                        |  |  | F-3  | 
|Consolidated Statements of Comprehensive Loss                                                                                                        |  |  | F-5  | 
|Consolidated Statements of Changes in Equity (Deficiency)                                                                                            |  |  | F-8  | 
|Consolidated Statements of Cash Flows                                                                                                                |  |  | F-10 | 
|Notes to Consolidated Financial Statements                                                                                                           |  |  | F-12 | 



The
following financial statements and financial statement schedules are filed as part of this Annual Report on Form 20-F, together
with the report of the independent registered public accounting firm.





128





CAN-FITE
                                         BIOPHARMA LTD. AND ITS SUBSIDIARIES



CONSOLIDATED
FINANCIAL STATEMENTS



AS
OF DECEMBER 31, 2014



INDEX



|                                                        | Page           
|------------------------------------------------------- | ---------------
|                                                        |                
|Report of Independent Registered Public Accounting Firm | F-2            
|                                                        |                
|Consolidated Statements of Financial Position           | F-3
    - F-4  
|                                                        |                
|Consolidated Statements of Comprehensive Loss           | F-5            
|                                                        |                
|Consolidated Statements of Changes in Equity            | F-6
    - F-9  
|                                                        |                
|Consolidated Statements of Cash Flows                   | F-10
    - F-11
|                                                        |                
|Notes to Consolidated Financial Statements              | F-12
    - F-47



- - - - - - - - - - -



F-1









| | Kost Forer Gabbay & Kasierer
        3 Aminadav St.
        Tel-Aviv 6706703, Israel | Tel: +972-3-6232525
        Fax: +972-3-5622555
        ey.com
| | ------------------------------------------------------------------------------------ | --------------------------------------------------------------



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



To the Shareholders and Board of Directors
of



CAN-FITE BIOPHARMA LTD. AND ITS
SUBSIDIARIES



We have audited the accompanying
consolidated statements of financial position of Can-Fite Biopharma Ltd. and its subsidiaries (the “Company”) as of
December 31, 2014 and 2013, and the related consolidated statements of comprehensive loss, changes in equity and cash flows for
each of the three years in the period ended December 31, 2014. These consolidated financial statements are the responsibility of
the Company's board of directors and management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.



We conducted our audits
in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
We were not engaged to perform an audit of the Company's and its subsidiaries internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company's and its subsidiaries
internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.



In our opinion, based
on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2014 and 2013, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31, 2014, in conformity with International Financial
Reporting Standards as issued by the International Accounting Standards Board.







|                 | /s/ Kost Forer Gabbay & Kasierer
|---------------- | --------------------------------
|Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER    
|March 27, 2015   | A Member of Ernst & Young Global









F-2







CAN-FITE BIOPHARMA LTD.AND ITS SUBSIDIARIES



CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION

In thousands (except for share and
per share data)



|                                         |  |      |  | December 31, |       
|---------------------------------------- |  | ---- |  | ------------ | ------
|                                         |  |      |  | 2014         |       
|                                         |  | Note |  | USD          |       
|                                         |  |      |  | Note 2.c.2   |       
|ASSETS                                   |  |      |  |              |       
|                                         |  |      |  |              |       
|CURRENT ASSETS:                          |  |      |  |              |       
|Cash and cash equivalents                |  |      |  |              | 9,280 
|Accounts receivable and prepaid expenses |  | 6    |  |              | 879   
|                                         |  |      |  |              |       
|Total current assets                     |  |      |  |              | 10,159
|                                         |  |      |  |              |       
|NON-CURRENT ASSETS:                      |  |      |  |              |       
|Lease deposit                            |  |      |  |              | 7     
|Property, plant and equipment, net       |  | 7    |  |              | 34    
|                                         |  |      |  |              |       
|Total long-term assets                   |  |      |  |              | 41    
|                                         |  |      |  |              |       
|Total assets                             |  |      |  |              | 10,200



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



F-3







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION




In thousands (except for share and
per share data)



|                                                      |  |      |  | December 31, |        
|----------------------------------------------------- |  | ---- |  | ------------ | -------
|                                                      |  |      |  | 2014         |        
|                                                      |  | Note |  | USD          |        
|                                                      |  |      |  | Note 2.c.2   |        
|LIABILITIES AND SHAREHOLDERS' EQUITY                  |  |      |  |              |        
|                                                      |  |      |  |              |        
|CURRENT LIABILITIES:                                  |  |      |  |              |        
|Trade payables                                        |  | 8    |  |              | 264    
|Other accounts payable                                |  | 9    |  |              | 1,221  
|Warrants exercisable into shares (Series 7)           |  | 14   |  |              | -      
|                                                      |  |      |  |              |        
|Total current liabilities                             |  |      |  |              | 1,485  
|                                                      |  |      |  |              |        
|NON-CURRENT LIABILITIES:                              |  |      |  |              |        
|Warrants exercisable into shares                      |  | 14   |  |              | 1,792  
|Severance pay, net                                    |  | 11   |  |              | 58     
|                                                      |  |      |  |              |        
|Total Long-term liabilities                           |  |      |  |              | 1,850  
|                                                      |  |      |  |              |        
|CONTIGENT LIABILITIES AND COMMITMENTS                 |  | 12   |  |              |        
|                                                      |  |      |  |              |        
|EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY: |  | 13   |  |              |        
|Share capital                                         |  |      |  |              | 1,399  
|Share premium                                         |  |      |  |              | 77,600 
|Capital reserve from share-based payment transactions |  |      |  |              | 4,411  
|Warrants exercisable into shares (Series 9-12)        |  |      |  |              | 2,481  
|Treasury shares, at cost                              |  |      |  |              | (933   
|Accumulated other comprehensive loss                  |  |      |  |              | (261   
|Accumulated deficit                                   |  |      |  |              | (78,207
|                                                      |  |      |  |              |        
|Totalequityattributabletoequityholdersofthecompany    |  |      |  |              | 6,490  
|                                                      |  |      |  |              |        
|Non-controlling interests                             |  |      |  |              | 375    
|                                                      |  |      |  |              |        
|Total shareholders' equity                            |  |      |  |              | 6,865  
|                                                      |  |      |  |              |        
|Total liabilities and shareholders' equity            |  |      |  |              | 10,200 



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



F-4







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS

In thousands (except for share and
per share data)



|                                                                                |  |      |  | Year ended December 31, |       
|------------------------------------------------------------------------------- |  | ---- |  | ----------------------- | ------
|                                                                                |  |      |  | 2014                    |       
|                                                                                |  | Note |  | USD                     |       
|                                                                                |  |      |  | Note 2.c.2              |       
|                                                                                |  |      |  |                         |       
|Research and development expenses                                               |  | 15   |  |                         | 4,165 
|General and administrative expenses                                             |  | 16   |  |                         | 2,976 
|                                                                                |  |      |  |                         |       
|Operating loss                                                                  |  |      |  |                         | 7,141 
|                                                                                |  |      |  |                         |       
|Financial expenses                                                              |  | 17   |  |                         | 316   
|Financial income                                                                |  | 17   |  |                         | (1,157
|                                                                                |  |      |  |                         |       
|Loss before taxes on income                                                     |  |      |  |                         | 6,300 
|Taxes on income                                                                 |  | 19   |  |                         | 6     
|                                                                                |  |      |  |                         |       
|Net loss                                                                        |  |      |  |                         | 6,306 
|                                                                                |  |      |  |                         |       
|Other comprehensive loss (income):                                              |  |      |  |                         |       
|                                                                                |  |      |  |                         |       
|Adjustments arising from translating financial statements of foreign operations |  |      |  |                         | 241   
|Remeasurement loss (gain) from defined benefit plans                            |  |      |  |                         | 24    
|                                                                                |  |      |  |                         |       
|Total other comprehensive loss (income)                                         |  |      |  |                         | 265   
|                                                                                |  |      |  |                         |       
|Total comprehensive loss                                                        |  |      |  |                         | 6,571 
|                                                                                |  |      |  |                         |       
|Net loss Attributable to:                                                       |  |      |  |                         |       
|Equity holders of the Company                                                   |  |      |  |                         | 6,109 
|Non-controlling interests                                                       |  |      |  |                         | 197   
|                                                                                |  |      |  |                         |       
|                                                                                |  |      |  |                         | 6,306 
|                                                                                |  |      |  |                         |       
|Total comprehensive loss attributable to:                                       |  |      |  |                         |       
|Equity holders of the Company                                                   |  |      |  |                         | 6,331 
|Non-controlling interests                                                       |  |      |  |                         | 240   
|                                                                                |  |      |  |                         |       
|                                                                                |  |      |  |                         | 6,571 
|                                                                                |  |      |  |                         |       
|Net loss per share attributable to equity holders of the Company:               |  |      |  |                         |       
|Basic and diluted net loss per share                                            |  | 18   |  |                         | 0.35  



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



F-5







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY

In thousands (except for share and
per share data)



|                                                                                                 |  | Attributable
    to equity holders of the Company |       |  |                   |  |         |                                                           | 
|------------------------------------------------------------------------------------------------ |  | ------------------------------------------------- | ----- |  | ----------------- |  | ------- | --------------------------------------------------------- | 
|                                                                                                 |  | Share
    capital                                 |       |  | Share
    premium |  |         | Capital
    reserve from share-based payment transactions | 
|                                                                                                 |  | NIS                                               |      
|                                                                                                 |  |                                                   |       |  |                   |  |         |                                                           | 
|Balance
    as of January 1, 2012                                                                |  |                                                   | 2,606 |  |                   |  | 229,299 |                                                           | 
|                                                                                                 |  |                                                   |       |  |                   |  |         |                                                           | 
|Net loss                                                                                         |  |                                                   | -     |  |                   |  | -       |                                                           | 
|Adjustments
    arising from translating financial statements of foreign operations              |  |                                                   | -     |  |                   |  | -       |                                                           | 
|Remeasurement
    gain (loss) from defined benefit plans                                         |  |                                                   | -     |  |                   |  | -       |                                                           | 
|                                                                                                 |  |                                                   |       |  |                   |  |         |                                                           | 
|Total
    comprehensive loss                                                                     |  |                                                   | -     |  |                   |  | -       |                                                           | 
|                                                                                                 |  |                                                   |       |  |                   |  |         |                                                           | 
|Exercise
    of unlisted share options                                                           |  |                                                   | 5     |  |                   |  | 171     |                                                           | 
|Exercise
    of warrants (Series 5)                                                              |  |                                                   | 1     |  |                   |  | 75      |                                                           | 
|Issuance
    of share capital and warrants (Series 9 net of issue expenses of NIS 491  thousand) |  |                                                   | 122   |  |                   |  | 4,209   |                                                           | 
|Share-based
    payments                                                                         |  |                                                   | -     |  |                   |  | -       |                                                           | 
|                                                                                                 |  |                                                   |       |  |                   |  |         |                                                           | 
|Balance
    as of December 31, 2012                                                              |  |                                                   | 2,734 |  |                   |  | 233,754 |                                                           | 



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



F-6







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY

In thousands (except for share and
per share data)





|                                                                                                     |  | Attributable
    to equity holders of the Company |       |  |                   |  |         |                                                           | 
|---------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ----- |  | ----------------- |  | ------- | --------------------------------------------------------- | 
|                                                                                                     |  | Share
    capital                                 |       |  | Share
    premium |  |         | Capital
    reserve from share-based payment transactions | 
|                                                                                                     |  | NIS                                               |      
|                                                                                                     |  |                                                   |       |  |                   |  |         |                                                           | 
|Balance as
    of January 1, 2013                                                                    |  |                                                   | 2,734 |  |                   |  | 233,754 |                                                           | 
|                                                                                                     |  |                                                   |       |  |                   |  |         |                                                           | 
|Net loss                                                                                             |  |                                                   | -     |  |                   |  | -       |                                                           | 
|Adjustments
    arising from translating financial statements of foreign operations                  |  |                                                   | -     |  |                   |  | -       |                                                           | 
|Remeasurement
    gain (loss) from defined benefit plans                                             |  |                                                   | -     |  |                   |  | -       |                                                           | 
|                                                                                                     |  |                                                   |       |  |                   |  |         |                                                           | 
|Total comprehensive
    loss                                                                         |  |                                                   | -     |  |                   |  | -       |                                                           | 
|                                                                                                     |  |                                                   |       |  |                   |  |         |                                                           | 
|Exercise
    of unlisted share options                                                               |  |                                                   | 87    |  |                   |  | -       |                                                           | 
|Exercise
    of warrants (Series 8, Series 10 and Series 11)                                         |  |                                                   | 1     |  |                   |  | 41      |                                                           | 
|Issuance
    of share capital and warrants (Series  12) net of issue expenses of NIS 3,749 thousands |  |                                                   | 1,206 |  |                   |  | 34,083  |                                                           | 
|Reclassification
    of  warrants (Series 10 and Series 11)                                          |  |                                                   | -     |  |                   |  | -       |                                                           | 
|Sale of treasury
    shares                                                                          |  |                                                   | -     |  |                   |  | (277    | )                                                         | 
|Share-based
    payments                                                                             |  |                                                   | 9     |  |                   |  | 345     |                                                           | 
|                                                                                                     |  |                                                   |       |  |                   |  |         |                                                           | 
|Balance as
    of December 31, 2013                                                                  |  |                                                   | 4,037 |  |                   |  | 267,946 |                                                           | 



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



F-7







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY (DEFICIENCY)

In thousands (except for share and
per share data)



|                                                                                    |  | Attributable
    to equity holders of the Company |       |   |                   |  |         |                                                           | 
|----------------------------------------------------------------------------------- |  | ------------------------------------------------- | ----- | - | ----------------- |  | ------- | --------------------------------------------------------- | 
|                                                                                    |  | Share
    capital                                 |       |   | Share
    premium |  |         | Capital
    reserve from share-based payment transactions | 
|                                                                                    |  | NIS                                               |      
|                                                                                    |  |                                                   |       |   |                   |  |         |                                                           | 
|Balance
    as of January 1, 2014                                                   |  |                                                   | 4,037 |   |                   |  | 267,946 |                                                           | 
|                                                                                    |  |                                                   |       |   |                   |  |         |                                                           | 
|Net loss                                                                            |  |                                                   | -     |   |                   |  | -       |                                                           | 
|Adjustments
    arising from translating financial statements of foreign operations |  |                                                   | -     |   |                   |  | -       |                                                           | 
|Remeasurement
    gain (loss) from defined benefit plans                            |  |                                                   | -     |   |                   |  | -       |                                                           | 
|                                                                                    |  |                                                   |       |   |                   |  |         |                                                           | 
|Total
    comprehensive loss                                                        |  |                                                   | -     |   |                   |  | -       |                                                           | 
|                                                                                    |  |                                                   |       |   |                   |  |         |                                                           | 
|Issuance
    of share capital and warrants, net of issue expenses of NIS 3,845      |  |                                                   | 1,390 |   |                   |  | 33,522  |                                                           | 
|Share-based
    payments                                                            |  |                                                   | 14    |   |                   |  | 319     |                                                           | 
|Exercise
    of unlisted share options                                              |  |                                                   | *     | ) |                   |  | *       | )                                                         | 
|                                                                                    |  |                                                   |       |   |                   |  |         |                                                           | 
|Balance
    as of December 31, 2014                                                 |  |                                                   | 5,441 |   |                   |  | 301,787 |                                                           | 



| | *) | Represent an amount lower than NIS 1.
| | -- | -------------------------------------



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





F-8











CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY

In thousands (except for share and
per share data)



|                                                                                       |  | Attributable
    to equity holders of the Company |       |   |                   |   |        |                                                           | 
|-------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ----- | - | ----------------- | - | ------ | --------------------------------------------------------- | 
|                                                                                       |  | Share
    capital                                 |       |   | Share
    Premium |   |        | Capital
    reserve from share-based payment transactions | 
|                                                                                       |  | USD
    (Note 2.c.2)                              |      
|                                                                                       |  |                                                   |       |   |                   |   |        |                                                           | 
|Balance
    as of January 1, 2014                                                      |  | $                                                 | 1,038 |   |                   | $ | 68,898 |                                                           | 
|                                                                                       |  |                                                   |       |   |                   |   |        |                                                           | 
|Net loss                                                                               |  |                                                   | -     |   |                   |   | -      |                                                           | 
|Adjustments
    arising from translating financial statements of foreign operations    |  |                                                   | -     |   |                   |   | -      |                                                           | 
|Remeasurement
    gain (loss) from defined benefit plans                               |  |                                                   | -     |   |                   |   | -      |                                                           | 
|                                                                                       |  |                                                   |       |   |                   |   |        |                                                           | 
|Total
    comprehensive loss                                                           |  |                                                   | -     |   |                   |   | -      |                                                           | 
|                                                                                       |  |                                                   |       |   |                   |   |        |                                                           | 
|Exercise
    of unlisted share options                                                 |  |                                                   | *     | ) |                   |   | *      | )                                                         | 
|Issuance
    of share capital and warrants, net of issue expenses of USD 989 thousands |  |                                                   | 357   |   |                   |   | 8,620  |                                                           | 
|Share-based
    payments                                                               |  |                                                   | 4     |   |                   |   | 82     |                                                           | 
|                                                                                       |  |                                                   |       |   |                   |   |        |                                                           | 
|Balance
    as of December 31, 2014                                                    |  | $                                                 | 1,399 |   |                   | $ | 77,600 |                                                           | 



| | *) | Represent an amount lower than $1.
| | -- | ----------------------------------



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



F-9







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



CONSOLIDATED
STATEMENTS OF CASH FLOWS

In
thousands (except for share and per share data)



|                                                                               |  | Year ended December 31, |       
|------------------------------------------------------------------------------ |  | ----------------------- | ------
|                                                                               |  | 2014                    |       
|                                                                               |  | USD                     |       
|                                                                               |  | Note 2.c.2              |       
|Cash flows from operating activities:                                          |  |                         |       
|                                                                               |  |                         |       
|Net loss                                                                       |  |                         | (6,306
|Adjustments to reconcile loss to net cash used:                                |  |                         |       
|                                                                               |  |                         |       
|Depreciation of property, plant and equipment                                  |  |                         | 12    
|Share-based payment                                                            |  |                         | 213   
|Issuance expenses related to warrants exercisable into shares                  |  |                         | 301   
|Gain from sale of property, plant and equipment                                |  |                         | -     
|Increase (decrease)  in severance pay, net                                     |  |                         | *     
|Changes in fair value of warrants exercisable into shares                      |  |                         | (794  
|Exchange differences on balances of cash and cash equivalents                  |  |                         | 201   
|                                                                               |  |                         |       
|                                                                               |  |                         | (67   
|Working capital adjustments:                                                   |  |                         |       
|                                                                               |  |                         |       
|Decrease (increase) in accounts receivable, prepaid expenses and lease deposit |  |                         | (304  
|Increase (decrease) in trade payable                                           |  |                         | (275  
|Increase (decrease) in other accounts payable                                  |  |                         | (385  
|                                                                               |  |                         |       
|                                                                               |  |                         | (964  
|                                                                               |  |                         |       
|Net cash used in operating activities                                          |  |                         | (7,337



| | *) | Represent an amount lower than $1.
| | -- | ----------------------------------



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



F-10







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



CONSOLIDATED
STATEMENTS OF CASH FLOWS

In thousands (except for share and
per share data)



|                                                                 |  | Year ended December 31, |       
|---------------------------------------------------------------- |  | ----------------------- | ------
|                                                                 |  | 2014                    |       
|                                                                 |  | USD                     |       
|                                                                 |  | Note 2.c.2              |       
|Cash flows from investing activities:                            |  |                         |       
|                                                                 |  |                         |       
|Purchase of property, plant and equipment                        |  |                         | (10   
|Proceeds from sale of property, plant and equipment              |  |                         | -     
|                                                                 |  |                         |       
|Net cash provided by (used in) investing activities              |  |                         | (10   
|                                                                 |  |                         |       
|Cash flows from financing activities:                            |  |                         |       
|                                                                 |  |                         |       
|Issuance of share capital and warrants, net of issuance expenses |  |                         | 11,488
|Exercise of unlisted share options                               |  |                         | **)   
|Exercise of share warrants (Series 5, 8, 10 and 11)              |  |                         | -     
|Sale of treasury shares                                          |  |                         | -     
|                                                                 |  |                         |       
|Net cash provided by financing activities                        |  |                         | 11,488
|                                                                 |  |                         |       
|Exchange differences on balances of cash and cash equivalents    |  |                         | (201  
|                                                                 |  |                         |       
|Increase (decrease) in cash and cash equivalents                 |  |                         | 3,940 
|Cash and cash equivalents at the beginning of the year           |  |                         | 5,340 
|                                                                 |  |                         |       
|Cash and cash equivalents at the end of the year                 |  |                         | 9,280 
|                                                                 |  |                         |       
|Supplemental disclosure of cash flow information:                |  |                         |       
|                                                                 |  |                         |       
|Cash paid during the year for income taxes                       |  |                         | 2     
|                                                                 |  |                         |       
|Cash received during the year for interest                       |  |                         | 11    



| | *) | Represent an amount lower than NIS 1.
| | -- | -------------------------------------

| | **) | Represent an amount lower than $1.
| | --- | ----------------------------------



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



F-11







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 1:- | GENERAL
|-------- | -------



| | a. | Company description:
| | -- | --------------------



Can-Fite Biopharma Ltd. was
incorporated and started to operate in September 1994 as a private Israeli company. The Company is engaged in the development of
drugs and medical diagnosis tools and is in the development stage of its products and has no sales yet (except exclusive license
agreements, see Note 12). On October 6, 2005, the Company conducted an initial offering of securities to the public in Israel
pursuant to a prospectus which it had published (TASE: CFBI).



On October 4, 2012, the Company
announced the beginning of Level 1 OTC trading of its American Depository Shares (“ADSs”) in the U.S. On September
12, 2013, the Company started to trade in level 2 ADSs in the OTC US. On November 19, 2013 the Company’s level 2 ADSs began
trading on the NYSE MKT under the symbol CANF.



| | b. | During 2006, the Company founded a subsidiary in the UK under the name of Ultratrend Limited whose
main purpose is to focus on coordinating the logistics for the multi-national PHASE IIb clinical studies. As of the reporting date,
Ultratrend Limited has not commenced its operations.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | The Company has a U.S. based subsidiary, OphthaliX Inc., owned 82% by the Company, which is developing
the CF101 drug for treatment of ophthalmic indications. The license to develop this drug was transferred from the Company to OphthaliX
Inc. in the context of the ophthalmic activity spinoff transaction, see Note 5
below. OphthaliX Inc. is traded over the counter in the U.S. (OTCQB: OPLI).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | During the year ended December 31, 2014, the Company incurred losses of NIS 24,524 thousand
and it has negative cash flows from operating activities in the amount of NIS 28,532 thousand as well as accumulated losses
from previous years. The Company has not yet generated any material revenues from the sale of its own developed products and has
financed its activities by raising capital and by collaborating with multinational companies in the industry. In March, 2014 and
December, 2014, the Company raised a net total of NIS 15,772 thousand (approximately $4,545 thousand) and NIS 28,903 thousand
(approximately $7,237 thousand) respectively, see Note 13d). Furthermore, the Company is continuing to finance its operating activities
by raising capital and collaborating with multinational companies in the industry. The Company has other alternative plans for
financing its ongoing activities, if necessary, such as improving the Company's flexibility in the patient recruitment rate of
its clinical trials and/or the sale of assets.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In February 2013, as updated
in March 2015, the Company issued a formal letter to OphthaliX, pursuant to which it agrees that OphthaliXwill defer payments to Company under the services agreement from January 31, 2013 for the performance of the clinical trials
of CF101 in ophthalmic indications until the completion of a fundraising by OphthaliXthat will allow such payment. In addition, in March 2015 the Company issued a financial support letter, pursuant to which
it is committed to cover any shortfall in the costs and expenses of operations of OphthaliXwhich are in excess of the OphthaliX's available cash to finance its operations, including cash generated from any future
sale of the Can-Fite shares. Both letters are for a period of at least 14 months from March 2015 and any related balance bears
interest at a rate of 3% per annum.



F-12





CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 1:- | GENERAL (Cont.)
|-------- | ---------------



| |    | The Company's management and board of directors are of the opinion that these financial resources
will be used for operating activities for at least twelve months. There are no assurances that the Company will have an adequate
level of financing needed for its long-term research and development activities. If the Company will not have sufficient liquidity
resources, the Company may not be able to continue the development of all of its products or may be required to delay part of the
development programs.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | e. | Definitions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | In
these consolidated financial statements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



| | The Company     | - | Can-Fite Biopharma Ltd.                                                                                                                  
| | --------------- | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |                 |   |                                                                                                                                          
| | The Group       | - | The Company and its subsidiaries (as defined below).                                                                                     
| |                 |   |                                                                                                                                          
| | Subsidiaries    | - | Companies that are controlled by the Company (as defined in IAS 27 (2008)) and whose accounts are consolidated with those of the Company.
| |                 |   |                                                                                                                                          
| | OphthaliX       | - | OphthaliXInc.                                                                                                                            
| |                 |   |                                                                                                                                          
| | Eye-Fite        | - | Eye-Fite Ltd. (OphthaliX Inc.’s wholly owned subsidiary).                                                                                
| |                 |   |                                                                                                                                          
| | Related parties | - | As defined in IAS 24.                                                                                                                    
| |                 |   |                                                                                                                                          
| | NIS             | - | New Israeli Shekel                                                                                                                       
| |                 |   |                                                                                                                                          
| | USD             | - | U.S. dollar.                                                                                                                             
| |                 |   |                                                                                                                                          
| | €               | - | European Union Euro                                                                                                                      
| |                 |   |                                                                                                                                          
| | CDN$            | - | Canadian dollar                                                                                                                          



|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES
|-------- | -------------------------------



The following accounting policies
have been applied consistently in the financial statements for all periods presented, unless otherwise stated.



| | a. | Basis of presentation of the financial statements
| | -- | -------------------------------------------------



These financial statements
have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board. The Company's financial statements have been prepared on a cost basis, except for financial assets
and liabilities (including warrants) which are presented at fair value through statement of comprehensive loss.



The preparation of the financial
statements requires management to make critical accounting estimates as well as exercise judgment in the process of adopting significant
accounting policies. The matters which required the exercise of significant judgment and the use of estimates, which have a material
effect on amounts recognized in the financial statements, are specified in Note 3.



F-13







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|-------- | ---------------------------------------



| | b. | Consolidated financial
statements
| | -- | ---------------------------------



The consolidated financial
statements comprise the financial statements of companies that are controlled by the Company (i.e., subsidiaries). Control exists
when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The effect
of potential voting rights that are exercisable at the end of the reporting period is considered when assessing whether an entity
has control. The consolidation of the financial statements commences on the date on which control is obtained and ends when such
control ceases.



The financial statements of
the Company and of the subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared
using uniform accounting policies by all companies in the Group. Significant intragroup balances and transactions and gains or
losses resulting from intragroup transactions are eliminated in full in the consolidated financial statements.



Non-controlling interests
of subsidiaries represent the non-controlling shareholders' share of the total comprehensive loss of the subsidiaries and their
share of the net assets. The non-controlling interests are presented in equity separately from the equity attributable to the equity
holders of the Company. Losses are attributed to non-controlling interests even if they result in a negative balance of non-controlling
interests in the consolidated statement of financial position.



| | c. | Functional currency, presentation currency and foreign currency:
| | -- | ----------------------------------------------------------------



| | 1. | Functional currency and presentation currency:
| | -- | ----------------------------------------------



The functional currency of
the Company and presentation currency of the financial statements is the NIS.



When a subsidiary’s
functional currency differs from the Company's functional currency, the subsidiary financial statements are translated into the
Company's functional currency so that they can be included in the consolidated financial statements.



Assets and liabilities are
translated at the closing rate at the end of each reporting period.



Comprehensive loss items
are translated at average exchange rates for all the relevant periods. All resulting translation differences are recognized as
a separate component of other comprehensive loss in equity under “adjustments arising from translating financial statements”.



| | 2. | Convenience translation:
| | -- | ------------------------



For the convenience of the
reader, the reported NIS amounts as of December 31, 2014 have been translated into U.S. dollars, at the representative rate of
exchange on December 31, 2014 (U.S. $1 = NIS 3.889). The U.S. dollar amounts presented in these financial statements should
not be construed as representing amounts that are receivable or payable in dollars or convertible into U.S. dollars, unless otherwise
indicated. The U.S. dollar amounts were rounded to whole numbers for convenience.



F-14







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|-------- | ---------------------------------------



| | 3. | Transactions, assets and liabilities in foreign currency:
| | -- | ---------------------------------------------------------



Transactions denominated in
foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition,
monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting period into the functional
currency at the exchange rate at that date. Exchange rate differences are recognized in statement of comprehensive loss. Non-monetary
assets and liabilities measured at cost in foreign currency are translated 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.



| | 4. | Index-linked monetary items:
| | -- | ----------------------------



Monetary assets and liabilities
linked to the changes in the Israeli Consumer Price Index (“Israeli CPI”) are adjusted at the relevant index at the
end of each reporting period according to the terms of the agreement. Linkage differences arising from the adjustment, as above,
are recognized in statement of comprehensive loss.



| | d. | Cash equivalents
| | -- | ----------------



Cash equivalents are considered
as highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less
from the investment date.



| | e. | Account receivables and prepaid expenses
| | -- | ----------------------------------------



Prepaid
expenses are composed mainly from active pharmaceutical ingredients and clinical trials drug-kits which expense based on a percentage
of completion method of the related clinical trials.



| | f. | Property, plant and equipment
| | -- | -----------------------------



Property, plant and equipment
are measured at cost, including directly attributable costs, less accumulated depreciation, 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:



| |                                                 |  | % |        |  | Mainly % | 
| | ----------------------------------------------- |  | - | ------ |  | -------- | 
| |                                                 |  |   |        |  |          | 
| | Laboratory equipment and Leasehold improvements |  |   | 10     |  |          | 
| |                                                 |  |   |        |  |          | 
| | Computers, office furniture and equipment       |  |   | 6 - 33 |  |          | 



The useful life, depreciation
method and residual value of an asset are reviewed at least each year-end and any changes are accounted for prospectively as a
change in accounting estimates. 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 comprehensive
loss when the asset is derecognized.



F-15







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|-------- | ---------------------------------------



| | g. | Research and development expenditures
| | -- | -------------------------------------



Research expenditures are
recognized in the statement of comprehensive loss when incurred.



| | h. | Impairment of non-financial assets
| | -- | ----------------------------------



The Group
evaluates the need to record an impairment of the carrying amount of property, plant and equipment whenever events or changes
in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of property, plant and equipment
exceeds their recoverable amount, the property, plant and equipment are reduced to their recoverable amount. The recoverable amount
is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are
discounted using a pre-tax discount rate that reflects the risks specific to the asset. As of December 31, 2014 and 2013, no impairment
losses have been identified.



| | i. | Financial
instruments
| | -- | ---------------------



| | 1. | Financial liabilities
| | -- | ---------------------



Financial liabilities within
the scope of IAS 39 are classified as either financial liabilities at fair value through statement of comprehensive loss.



The Group determines the classification
of the liability on the date of initial recognition. All liabilities are initially recognized at fair value. After initial recognition,
the accounting treatment of financial liabilities is based on their classification as follows:



Financial liabilities at
fair value throughstatement of comprehensive loss



Financial liabilities at fair
value through profit or loss include financial liabilities designated upon initial recognition as at fair value through statement
of comprehensive loss.



A liability may be designated
upon initial recognition at fair value through profit or loss, subject to the provisions of IAS 39.



| | 2. | Fair value
| | -- | ----------



The fair value of financial
instruments that are traded in an active market is determined by reference to market prices at the end of the reporting period.
For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques
include using recent arm's length market transactions, reference to the current market value of another instrument which is substantially
the same, discounted cash flow and other valuation models. A detailed analysis of the fair value measurement of financial instruments
is provided in Note 10 below.



F-16





CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|-------- | ---------------------------------------



| | 3. | Issue of a unit of securities
| | -- | -----------------------------



The issue of a unit of securities
involves the allocation of the proceeds received (before issue expenses) to the components of the securities issued in the unit
based on the following order: financial derivatives and other financial instruments measured at fair value in each period. Then
fair value is determined for financial liabilities and compound instruments that are presented at amortized cost. The consideration
allocated to the equity instruments is determined as the residual value. The issuance costs are allocated to each component based
on the amounts allocated to each component in the unit.



| | 4. | Derecognition of financial instruments
| | -- | --------------------------------------



Financial liabilities:



A financial liability is derecognized
when it is extinguished, that is when the obligation is discharged, realized, cancelled or expires. A financial liability is extinguished
when the debtor (i.e., the Group) discharges the liability by paying in cash, other financial assets, goods or services or shares,
or is legally released from the liability.



When an existing financial
liability is exchanged with another liability from the same lender on substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or modification is accounted for as an extinguishment of the original liability
and the recognition of a new liability. The difference between the carrying amount of the above liabilities is recognized in statement
of comprehensive loss. If the exchange or modification is not substantial, it is accounted for as a change in the terms of the
original liability and no gain or loss is recognized on the exchange.



| | j. | Treasury shares
| | -- | ---------------



Company shares held by OphthaliX
are recognized at cost and deducted from equity. Any gain or loss arising from a purchase, sale, issuance or cancellation of treasury
shares is recognized directly in equity.



| | k. | Provisions
| | -- | ----------



A provision in accordance with
IAS 37 is recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can
be made of the amount of the obligation. If the Group expects part or all of the expense to be reimbursed to the Company, such
as in an insurance contract, the reimbursement is recognized as a separate asset only when it is virtually certain that it will
be received by the Company. The expense is recognized in the income statement net of the reimbursed amount.



No provisions pursuant to
IAS 37 have been identified.



F-17





CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|-------- | ---------------------------------------



| | l. | Employee benefit liabilities
| | -- | ----------------------------



The
Group has several employee benefit plans:



| | 1. | Short-term employee benefits:
| | -- | -----------------------------



Short-term employee benefits
include salaries and social security contributions are recognized as expenses as the services are rendered. A liability in respect
of a cash bonus is recognized when the Group has a legal or constructive obligation to make such payment as a result of past service
rendered by an employee and a reliable estimate of the amount can be made.



| | 2. | Post-employment benefits:
| | -- | -------------------------



The post-employment benefit
plans are normally financed by contributions to insurance companies and classified as defined benefit plans.



The Company operates a defined
benefit plan in respect of severance pay pursuant to the Severance Pay Law. According to the Severance Pay Law, employees are entitled
to severance pay upon dismissal or retirement. The liability for termination of employment is measured using the projected unit
credit method. The actuarial assumptions include rates of employee turnover and future salary increases based on the estimated
timing of payment. The amounts are presented based on discounted expected future cash flows using a discount rate determined by
reference to yields on government bonds with a term that matches the estimated term of the benefit obligation.



In respect of its severance
pay obligation to certain of its employees, the Company makes current deposits in pension funds and insurance companies (the “Plan
Assets”). Plan Assets comprise assets held by a long-term employee benefit fund or qualifying insurance policies. Plan Assets
are not available to the Company's own creditors and cannot be returned directly to the Company.



The liability for employee
benefits shown in the statement of financial position reflects the present value of the defined benefit obligation less the fair
value of the plan assets, less past service costs.



Actuarial gains and losses
are recognized in other comprehensive loss.



As for effects of the change
in the type of bonds used in determining the discount rate,see Note 1 q below.



| | m. | Share-based payment transactions
| | -- | --------------------------------



The Company's employees and
other service providers are entitled to remuneration in the form of equity-settled share-based payment transactions and certain
employee and other service providers are entitled to remuneration in the form of share-based payment transactions that are measured
based on the increase in the Company's share price.



F-18







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|-------- | ---------------------------------------



The cost of equity-settled
transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fair value is determined
using the Binomial option pricing model.



As for other service providers,
the cost of the transactions is measured at the fair value of the goods or services received as consideration for equity instruments.
In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured, they
are measured by reference to the fair value of the equity instruments granted using Black-Scholes-Merton
option pricing model.



The cost of equity-settled
transactions is recognized in statement of comprehensive loss, together with a corresponding increase in equity, during the period
which the performance and/or service conditions are to be satisfied, ending on the date on which the relevant employees become
fully entitled to the award (the “Vesting Period”). The cumulative expense recognized for equity-settled transactions
at the end of each reporting period until the vesting date reflects the extent to which the Vesting Period has expired and the
Group's best estimate of the number of equity instruments that will ultimately vest. The expense or income recognized in statement
of comprehensive loss represents the change between the cumulative expense recognized at the end of the reporting period and the
cumulative expense recognized at the end of the previous reporting period.



If the Company modifies the
conditions on which equity-instruments were granted, an additional expense is recognized for any modification that increases the
total fair value of the share-based payment arrangement or is otherwise beneficial to the employee/other service provider at the
modification date.



| | n. | Taxes on income
| | -- | ---------------



As it is not likely that taxable
income will be generated in the foreseeable future, deferred tax assets due to accumulated losses is not recognized in the Group's
financial statements.



| | o. | Loss per share
| | -- | --------------



Losses per share are calculated
by dividing the net loss attributable to equity holders of the Company by the weighted number of ordinary shares outstanding during
the period. Potential ordinary shares (warrants and unlisted options) are only included in the computation of diluted loss per
share when their conversion increases loss per share from continuing operations. Potential ordinary shares that are converted during
the period are included in diluted loss per share only until the conversion date and from that date in basic loss per share. The
Company's share of loss of subsidiary is included based on the loss per share of OphthaliX multiplied by the number of shares held
by the Company.



| | p. | Reclassification:
| | -- | -----------------



| |  | Certain amounts in prior years have been reclassified to conform to the current year's presentation.
| |  | ----------------------------------------------------------------------------------------------------





F-19







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|-------- | ---------------------------------------



| | q. | Changes in estimates:
| | -- | ---------------------



In November
2014, the staff of the Israel Securities Authority issued Accounting Position Paper No. 21-1 regarding the existence in Israel
of a deep market in high quality corporate bonds (the “Position Paper”) for the purpose of determining, in accordance
with IAS 19, the discount rate to be used for defined benefit obligations and other long-term benefits in the Israeli currency.
According to the Position Paper, the transition from the use of yields based on Government bonds (2.34%) to market yields based
on high quality corporate bonds linked to the Consumer Price Index (3.11%) should be accounted for prospectively as a change in
accounting estimate.



The
effects of the change in the above mentioned discount rate are immaterial.



|NOTE 3:- | SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUPMTIONS USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS
|-------- | ---------------------------------------------------------------------------------------------------------------



In the process of applying
the significant accounting policies, the Group has made the following judgments which have the most significant effect on the amounts
recognized in the financial statements:



| | a. | Judgments
| | -- | ---------



Determining the fair value
of share-based payment transactions



The fair value of share-based
payment transactions is determined using an acceptable option-pricing model. The model includes data as to the share price and
exercise price, and assumptions regarding expected volatility, expected life, expected dividend and risk-free interest rate.



| | b. | Estimates and assumptions
| | -- | -------------------------



The preparation of the financial
statements requires management to make estimates and assumptions that have an effect on the application of the accounting policies
and on the reported amounts of assets, liabilities and expenses.



Changes in accounting estimates
are reported in the period of the changes in estimates.



The key assumptions made in
the financial statements concerning uncertainties at the end of the reporting period and the critical estimates computed by the
Group that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year
are discussed below.



Post-employment
benefits



The liability in respect
of post-employment defined benefit plans is determined using actuarial valuations. The actuarial valuation involves making assumptions
about, among others, discount rates, expected rates of return on assets, future salary increases and mortality rates. The carrying
amount of the liability may be significantly affected by changes in such estimates.



F-20









CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS









|NOTE 4:- | DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION
|-------- | -----------------------------------------------------------------



IFRS 9-Financial Instruments:



In July 2014, the IASB issued
the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces
IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements
for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after
1 January 2018, with early application permitted.



The adoption of IFRS 9 will have
no material effect on the Company’s financial assets on the financial statements.



|NOTE 5:- | OPHTHALIX SPIN OFF
|-------- | ------------------



| | a. | Purchase agreement
| | -- | ------------------



On November 21, 2011, the
Company consummated the acquisition of 82% of the issued and outstanding share capital of OphthaliXInc.



The spin-off was consummated
pursuant to an agreement dated June 5, 2011 (the “Spin-Off Agreement”) to spin-off the Company's activity in the
ophthalmology field to OphthaliX and, based on its conditions, the following agreements were signed:



1.         The Spin-Off Agreement



According to the Spin-Off
Agreement, the Company transferred to OphthaliX 100% of the issued and outstanding capital of Eye-Fite, the Company's former wholly-owned
subsidiary, such that Eye-Fite became the wholly-owned subsidiary of OphthaliX in exchange for 8,000,000 shares of OphthaliX common
stock, representing 86.7% of OphthaliX’s issued and outstanding capital. In addition, the Company received 466,139 shares
of OphthaliX common stock in exchange for 714,922ordinary shares of the
Company pursuant to the terms of a material private placement that the Company effected on November 21, 2011 at a price of
$5.148 per share, which reflected a value for OphthaliX of approximately $50 million before the transfer of the Company’s
ordinary shares, described above, and before the material private placement fundraising for OphthaliX (the key elements of which
are described below). The Company purchased 97,113 shares of OphthaliX common stock in the same private placement at the same price
per share, or a purchase price of $5.148 per share.



Upon the closing of the transactions
contemplated by the spin-off agreement, the Company appointed all of the members of OphthaliX’s board of directors (three
members of which are also members of the Company’s board of directors). According to the spin-off agreement, OphthaliX will,
among other things, continue the development processes, clinical trials and registration of the ophthalmic indications for CF101.
The Company will provide certain services to OphthaliX under the services agreement detailed below.



F-21









CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE 5:- | OPHTHALIX SPIN OFF (Cont.)
|-------- | --------------------------



The transaction was accounted
for in the consolidated financial statements of Can-Fite as a continuation of the financial statements of Eye-Fite, together with
a deemed issuance of shares to the pre-acquisition shareholders of Ophthalix. The deemed issuance of shares was in consideration
for the listing of Eye-Fite in the U.S, and therefore it is in effect a share-based payment transaction.



The share-based payment transaction
was accounted for in accordance with IFRS 2 “Share based payment”. Consequently, the financial statements include a
charge of NIS 11,060 thousand that represents the value of OphthaliX shares before the transaction. Additional issuance expenses
in an amount of NIS 436 thousand were recorded in the consolidated statements of comprehensive loss report.



| | 2. | Eye-Fite License agreement
| | -- | --------------------------



A license agreement was entered
into between the Company and Eye-Fite (the “Eye-Fite License Agreement”) according to which the Company granted Eye-Fite
a non-transferrable exclusive license, as set forth in the Eye-Fite License Agreement, for the use of the Company's know-how solely
in the field of ophthalmic diseases for research, development, commercialization and marketing throughout the world. Eye-Fite is
permitted to sublicense subject to the Eye-Fite License Agreement. As consideration for the grant of the license according to the
Eye-Fite License Agreement, the Company received 1,000 ordinary shares of Eye-Fite, par value NIS 0.01 per share, representing
100% of the issued and outstanding share capital of Eye-Fite.



According to the Eye-Fite
License Agreement with the U.S. National Institute of Health, the Centers for Disease Control and Prevention (“NIH”),
Eye-Fite is obligated to make royalty payments to NIH.



All inventions resulting from
the indication that is licensed thereunder shall belong to the Company whether it was invented solely by it, solely by Eye-Fite
or by both in cooperation. However, the Company granted Eye-Fite an exclusive license to use these inventions in the field of ophthalmic
diseases around the world at no consideration. The license will remain in effect until the expiration of the last patent licensed
thereunder unless it is terminated sooner by a mutual agreement in writing or by one of the parties according to the clauses of
the Eye-Fite License Agreement.



| | 3. | Services agreement
| | -- | ------------------



In addition to the Eye-Fite
License Agreement, the Company, OphthaliX and Eye-Fite entered into a services agreement (the “Services Agreement”)
pursuant to which the Company provides management services with respect to all pre-clinical and clinical research studies, production
and supply of the compounds related to the Eye-Fite License Agreement and payment for consultants that are listed in the agreement
for their involvement in the clinical trials and in all the activities leading up to, and including, the commercialization of CF101
for ophthalmic indications.





F-22









CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS









|NOTE 5:- | OPHTHALIX SPIN OFF (Cont.)
|-------- | --------------------------



As consideration for the rendering
of services, as above, the Company will be paid only for its costs and expenses incurred in rendering the services plus 15%, as
well as reimbursed for the expenses actually charged for the maintenance of patents underlying the license to Eye-Fite.



In February
2013, the Company sent a formal letter to OphthaliX, which has been updated periodically (most recently in March 2015), agreeing
to defer payments owed to the Company under the Services Agreement beginning on January 31, 2013 for the performance of the clinical
trials of CF101 in ophthalmic indications until the completion of fundraising by OphthaliX sufficient to cover such deferred payments.
The letter remains in effect for a period of at least 14 months from March 2015 and any related balance bears interest at a rate
of 3% per annum.



Further, the Company will be entitled to an additional payment of 2.5% of any revenues received by the Group for
the rights to use the transferred know-how (the “Additional Payment”).



The Company is entitled during
a 5-year period from the date of the approval of the Services Agreement, to convert its right to the Additional Payment into 480,023
shares of OphthaliX (representing about 5% of OphthaliX shares on a fully diluted basis as of the date of closing the spin-off
agreement) in consideration for the exercise price set forth in the services agreement. The Services Agreement shall remain in
force for an unlimited period of time.



| | 4. | Pre-ruling from the Income Tax
| | -- | ------------------------------



The Company received a pre-ruling
decision from the Israeli Income Tax Authority which confirms (1) that the grant of the license to Eye-Fite is not liable for
tax pursuant to the provisions of section 104a to the Income Tax Ordinance (New Version), 1961 (“the Ordinance”);
(2) that OphthaliX is considered the receiving company pursuant to section 103c(7)(b) to the Ordinance; (3) that the sale of Eye-Fite
shares to OphthaliX as consideration for OphthaliX shares does not create liability for tax pursuant to the provisions of section
103t to the Ordinance (“Change in Structure”); and (4) the date for the Change in Structure was determined. According
to the tax pre-ruling, the date of Change in Structure shall also be the date of exchange of shares with respect to the spin-off
and notification to the tax assessor. The Company and Eye-Fite presented to the tax assessor and the merger and spin-off department
of the tax assessor the forms required by the Ordinance and the regulations thereunder. The tax pre-ruling further provides that
the grant of a license to Eye-Fite as consideration for the issuance of Eye-Fite shares to the Company does not create liability
for tax pursuant to the provisions of section 104a to the Ordinance.



|NOTE 6:- | ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
|-------- | ----------------------------------------



| |                             |  | December 31,     |      
| | --------------------------- |  | ---------------- | -----
| |                             |  | 2014             |      
| |                             |  | NIS in thousands |      
| |                             |  |                  |      
| | Government authorities      |  |                  | 272  
| | Prepaid expenses and others |  |                  | 3,145
| |                             |  |                  |      
| |                             |  |                  | 3,417





F-23









CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE 7:- | PROPERTY, PLANT AND EQUIPMENT, NET
|-------- | ----------------------------------



Balance as of December 31,
2014:



| |                                           |  | Laboratory
    equipment |     |  | Computers,office furniture andequipment |  |       | Leaseholdimprovements |  |  | Total | 
| | ----------------------------------------- |  | ------------------------ | --- |  | --------------------------------------- |  | ----- | --------------------- |  |  | ----- | 
| |                                           |  | NIS
    in thousands     |    
| | Cost:                                     |  |                          |     |  |                                         |  |       |                       |  |  |       | 
| |                                           |  |                          |     |  |                                         |  |       |                       |  |  |       | 
| | Balance at
    January 1, 2014            |  |                          | 880 |  |                                         |  | 1,052 |                       |  |  | 646   | 
| | Purchases
    during the year             |  |                          | 3   |  |                                         |  | 34    |                       |  |  | -     | 
| |                                           |  |                          |     |  |                                         |  |       |                       |  |  |       | 
| | Balance
    at December 31, 2014          |  |                          | 883 |  |                                         |  | 1,086 |                       |  |  | 646   | 
| |                                           |  |                          |     |  |                                         |  |       |                       |  |  |       | 
| | Accumulated depreciation:                 |  |                          |     |  |                                         |  |       |                       |  |  |       | 
| |                                           |  |                          |     |  |                                         |  |       |                       |  |  |       | 
| | Balance at January 1,
    2014            |  |                          | 844 |  |                                         |  | 959   |                       |  |  | 632   | 
| | Depreciation
    during the year          |  |                          | 7   |  |                                         |  | 38    |                       |  |  | 2     | 
| |                                           |  |                          |     |  |                                         |  |       |                       |  |  |       | 
| | Balance
    at December 31, 2014          |  |                          | 851 |  |                                         |  | 997   |                       |  |  | 634   | 
| |                                           |  |                          |     |  |                                         |  |       |                       |  |  |       | 
| | Depreciated
    cost at December 31, 2014 |  |                          | 32  |  |                                         |  | 89    |                       |  |  | 12    | 



Balance as of December 31,
2013:



| |                                       |  | Laboratory equipment |     |   | Computers, office furniture and equipment |  |       | Leasehold improvements |  |  | Total | 
| | ------------------------------------- |  | -------------------- | --- | - | ----------------------------------------- |  | ----- | ---------------------- |  |  | ----- | 
| |                                       |  | NIS in thousands     |    
| | Cost:                                 |  |                      |     |   |                                           |  |       |                        |  |  |       | 
| |                                       |  |                      |     |   |                                           |  |       |                        |  |  |       | 
| | Balance at January 1, 2013            |  |                      | 930 |   |                                           |  | 1,026 |                        |  |  | 646   | 
| | Purchases during the year             |  |                      | 17  |   |                                           |  | 26    |                        |  |  | -     | 
| | Disposals during the year             |  |                      | (67 | ) |                                           |  | -     |                        |  |  | -     | 
| |                                       |  |                      |     |   |                                           |  |       |                        |  |  |       | 
| | Balance at December 31, 2013          |  |                      | 880 |   |                                           |  | 1,052 |                        |  |  | 646   | 
| |                                       |  |                      |     |   |                                           |  |       |                        |  |  |       | 
| | Accumulated depreciation:             |  |                      |     |   |                                           |  |       |                        |  |  |       | 
| |                                       |  |                      |     |   |                                           |  |       |                        |  |  |       | 
| | Balance at January 1, 2013            |  |                      | 902 |   |                                           |  | 909   |                        |  |  | 632   | 
| | Depreciation during the year          |  |                      | 8   |   |                                           |  | 50    |                        |  |  | -     | 
| | Disposals during the year             |  |                      | (66 | ) |                                           |  | -     |                        |  |  | -     | 
| |                                       |  |                      |     |   |                                           |  |       |                        |  |  |       | 
| | Balance at December 31, 2013          |  |                      | 844 |   |                                           |  | 959   |                        |  |  | 632   | 
| |                                       |  |                      |     |   |                                           |  |       |                        |  |  |       | 
| | Depreciated cost at December 31, 2013 |  |                      | 36  |   |                                           |  | 93    |                        |  |  | 14    | 



F-24









CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 8:- | TRADE PAYABLES
|-------- | --------------





| |                |  | December 31,     |      
| | -------------- |  | ---------------- | -----
| |                |  | 2014             |      
| |                |  | NIS in thousands |      
| |                |  |                  |      
| | Trade Payables |  |                  | 995  
| | Checks payable |  |                  | 29   
| |                |  |                  |      
| |                |  |                  | 1,024



|NOTE 9:- | OTHER ACCOUNTS PAYABLE
|-------- | ----------------------



| |                                |  | December 31,     |      
| | ------------------------------ |  | ---------------- | -----
| |                                |  | 2014             |      
| |                                |  | NIS in thousands |      
| |                                |  |                  |      
| | Employees and payroll accruals |  |                  | 969  
| | Accrued expenses               |  |                  | 3,781
| |                                |  |                  |      
| |                                |  |                  | 4,750



|NOTE 10:- | FINANCIAL INSTRUMENTS
|--------- | ---------------------



| | a. | Classification of financial assets and liabilities
| | -- | --------------------------------------------------



| |  | The financial assets and financial liabilities in the statement of financial position are classified
by groups of financial instruments pursuant to IAS 39:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |                                  |  | December 31,     |       
| | -------------------------------- |  | ---------------- | ------
| |                                  |  | 2014             |       
| |                                  |  | NIS in thousands |       
| | Financial assets:                |  |                  |       
| | Account receivables              |  |                  | 272   
| |                                  |  |                  |       
| | Financial liabilities:           |  |                  |       
| | Trade payable                    |  |                  | 1,024 
| | Other account payable            |  |                  | 4,750 
| | Warrants exercisable into shares |  |                  | 6,969 
| |                                  |  |                  |       
| |                                  |  |                  | 12,743



| | b. | Financial
risks factors
| | -- | -----------------------



The Group's activities expose
it to foreign exchange risk. The Group's comprehensive risk management plan focuses on activities that reduce to a minimum any
possible adverse effects on the Group's financial performance.



The Company's management identifies
and manages financial risks.



F-25











CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 10:- | FINANCIAL INSTRUMENTS
(Cont.)
|--------- | -----------------------------



| | c. | Foreign exchange risk
| | -- | ---------------------



The Group is exposed to foreign
exchange risk resulting from the exposure to different currencies, mainly the U.S. dollar. Foreign exchange risk arises on recognized
assets and liabilities that are denominated in a foreign currency other than the functional currency.

The Group acts to reduce the
foreign exchange risk by managing an adequate part of the available liquid sources in or linked to the dollar.



| | d. | Fair value
| | -- | ----------



The carrying amount of cash
and cash equivalents, accounts receivable, trade payables and other accounts payable approximate their fair value.



Fair value
is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes
the inputs to valuation methodologies used to measure fair value:



| |  | Level
                                         1 - | Valuations based on unadjusted
    quoted prices for identical assets and liabilities in active markets.                                                                                                                                                                                                                                                       
| |  | -------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                    |                                                                                                                                                                                                                                                                                                                                                                
| |  | Level
                                         2 - | Valuations based on observable
    inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets,
    quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable
    or can be corroborated by observable market data.
| |  |                                                    |                                                                                                                                                                                                                                                                                                                                                                
| |  | Level
                                         3 - | Valuations based on unobservable
    inputs reflecting assumptions, consistent with reasonably available assumptions made by other market participants. These valuations
    require significant judgment.                                                                                                                                                     



The company’s
warrants exercisable into shares are classified as level 3 in the fair value hierarchy.



| | e. | Linkage terms of financial instruments
| | -- | --------------------------------------



| |                                  |  | December 31, 2014       |       
| | -------------------------------- |  | ----------------------- | ------
| |                                  |  | In or 
linked to dollar |       
| |                                  |  | NIS in thousands        |       
| | Assets:                          |  |                         |       
| |                                  |  |                         |       
| | Cash and cash equivalents        |  |                         | 31,412
| | Accounts receivable              |  |                         | -     
| |                                  |  |                         |       
| |                                  |  |                         | 31,412
| | Liabilities:                     |  |                         |       
| |                                  |  |                         |       
| | Trade payables                   |  |                         | 767   
| | Other accounts payable           |  |                         | 2,509 
| | Warrants exercisable into shares |  |                         | 6,969 
| |                                  |  |                         |       
| |                                  |  |                         | 10,245
| |                                  |  |                         |       
| | Financial instruments, net       |  |                         | 21,167



F-26









CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 10:- | FINANCIAL INSTRUMENTS
(Cont.)
|--------- | -----------------------------



| |                                             |  | December 31, 2013       |      
| | ------------------------------------------- |  | ----------------------- | -----
| |                                             |  | In or  linked to dollar |      
| |                                             |  | NIS in thousands        |      
| | Assets:                                     |  |                         |      
| |                                             |  |                         |      
| | Cash and cash equivalents                   |  |                         | 9,609
| | Accounts receivable                         |  |                         | -    
| |                                             |  |                         |      
| |                                             |  |                         | 9,609
| | Liabilities:                                |  |                         |      
| |                                             |  |                         |      
| | Trade payables                              |  |                         | 1,568
| | Other accounts payable                      |  |                         | 2,339
| | Warrants exercisable into shares (Series 7) |  |                         | -    
| |                                             |  |                         |      
| |                                             |  |                         | 3,907
| |                                             |  |                         |      
| | Financial instruments, net                  |  |                         | 5,702





| | e. | Sensitivity tests relating to changes in market factors
| | -- | -------------------------------------------------------



| |                                                                       |  | December 31,     |       
| | --------------------------------------------------------------------- |  | ---------------- | ------
| |                                                                       |  | 2014             |       
| |                                                                       |  | NIS in thousands |       
| | Sensitivity test to changes in the U.S. dollar exchange rate:         |  |                  |       
| |                                                                       |  |                  |       
| | Gain (loss) from the change on financial instruments:                 |  |                  |       
| | Increase of 10% in exchange rate                                      |  |                  | 2,117 
| | Decrease of 10% in exchange rate                                      |  |                  | (2,117
| |                                                                       |  |                  |       
| | Sensitivity test to changes in the market price of listed securities: |  |                  |       
| |                                                                       |  |                  |       
| | Gain (loss) from the change:                                          |  |                  |       
| | Increase of 10% in market price                                       |  |                  | (1,213
| | Decrease of 10% in market price                                       |  |                  | 1,155 



| | * | According to binomial model 10% increase in the market price of listed securities will increase
the price of warrants exercisable into shares by approximately 17% and 10% decrease in the market price of listed securities will
decrease the price of warrants exercisable into shares by approximately 17%.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Sensitivity tests and the
main work assumptions:



The selected changes in the
relevant risk variables were determined based on management's estimate as to reasonable possible changes in these risk variables.





F-27







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 10:- | FINANCIAL INSTRUMENTS
(Cont.)
|--------- | -----------------------------



The Group has performed sensitivity
tests of principal market risk factors that are liable to affect its reported operating results or financial position. The sensitivity
tests present the statement of comprehensive loss in respect of each financial instrument for the relevant risk variable chosen
for that instrument as of each reporting date. The test of risk factors was determined based on the materiality of the exposure
of the operating results or financial condition of each risk with reference to the functional currency and assuming that all the
other variables are constant.



Based on the Group's policy,
the Group generally mitigates the currency risk arising from recognized assets and recognized liabilities denominated in foreign
currency other than the functional currency by maintaining part of the available liquid sources in deposits in foreign currency.
Accordingly, the main currency exposures presented in the sensitivity tables are for those deposits.



|NOTE 11:- | EMPLOYEE BENEFIT LIABILITIES, NET
|--------- | ---------------------------------



Employee benefits consist of
short-term benefits and post-employment benefits.



Post-employment
benefits



According to the labor laws
and Severance Pay Law in Israel, the Company is required to pay compensation to an employee upon dismissal or retirement or to
make current contributions in defined contribution plans pursuant to section 14 to the Severance Pay Law, as specified below. The
Company's liability is accounted for as a post-employment benefit. The computation of the Company's employee benefit liability
is made in accordance with a valid employment contract based on the employee's salary and employment term which establish the entitlement
to receive the compensation.



In 2009, management accepted
a decision according to which although section 14 applies, as above, the Company would pay all compensation upon dismissal of employees
pursuant to the conditions of the Severance Pay Law.



In accordance with the above
mentioned, since 2009, the Group does not contribute to defined contribution plans, but only to defined benefit plans.



The post-employment employee
benefits are financed by contributions classified as a defined benefit plan as follows:



A defined benefit plan:



The Company accounts for the
part of the compensation payments as a defined benefit plan for which an employee benefits liability is recognized and for which
the Company deposits amounts in qualifying insurance policies.



F-28







CAN-FITE
BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 11:- | EMPLOYEE BENEFIT LIABILITIES, NET (Cont.)
|--------- | -----------------------------------------



| | a. | Expenses recognized in statement of comprehensive loss:
| | -- | -------------------------------------------------------



| |                                     |  | Year ended December 31, |    
| | ----------------------------------- |  | ----------------------- | ---
| |                                     |  | 2014                    |    
| |                                     |  | NIS in thousands        |    
| |                                     |  |                         |    
| | Current service cost                |  |                         | 134
| | Interest cost on benefit obligation |  |                         | 39 
| | Expected return on plan assets      |  |                         | (37
| |                                     |  |                         |    
| | Total employee benefit expenses     |  |                         | 136
| |                                     |  |                         |    
| | Actual return on plan assets        |  |                         | 23 



| | b. | The plan liabilities, net:
| | -- | --------------------------



| |                            |  | December 31,     |       
| | -------------------------- |  | ---------------- | ------
| |                            |  | 2014             |       
| |                            |  | NIS in thousands |       
| |                            |  |                  |       
| | Defined benefit obligation |  |                  | (1,238
| | Fair value of plan assets  |  |                  | 1,014 
| |                            |  |                  |       
| | Total liabilities, net     |  |                  | (224  



| | c. | Changes in the present value of defined benefit obligation:
| | -- | -----------------------------------------------------------



| |                                                |  | 2014             |        |   | 2013 | 
| | ---------------------------------------------- |  | ---------------- | ------ | - | ---- | 
| |                                                |  | NIS in thousands |       
| |                                                |  |                  |        |   |      | 
| | Balance at beginning of year                   |  |                  | (1,120 | ) |      | 
| | Recognized in statement of comprehensive loss: |  |                  |        |   |      | 
| | Interest cost                                  |  |                  | (39    | ) |      | 
| | Current service cost                           |  |                  | (134   | ) |      | 
| | Recognized in other comprehensive loss:        |  |                  |        |   |      | 
| | Net actuarial loss                             |  |                  | (80    | ) |      | 
| | Other:                                         |  |                  |        |   |      | 
| | Benefits paid                                  |  |                  | 135    |   |      | 
| |                                                |  |                  |        |   |      | 
| | Balance at end of year                         |  |                  | (1,238 | ) |      | 



| | d. | Plan assets:
| | -- | ------------



| | 1) | Plan assets comprise assets held by a long-term employee benefit fund and qualifying insurance
policies.
| | -- | --------------------------------------------------------------------------------------------------------



F-29







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 11:- | EMPLOYEE BENEFIT LIABILITIES, NET (Cont.)
|--------- | -----------------------------------------



| | 2) | The movement in the fair value of the plan assets:
| | -- | --------------------------------------------------



| |                                                |  | 2014             |       |   | 2013 | 
| | ---------------------------------------------- |  | ---------------- | ----- | - | ---- | 
| |                                                |  | NIS in thousands |      
| |                                                |  |                  |       |   |      | 
| | Balance at beginning of year                   |  |                  | 991   |   |      | 
| | Recognized in statement of comprehensive loss: |  |                  |       |   |      | 
| | Expected return                                |  |                  | 37    |   |      | 
| | Recognized in other comprehensive loss:        |  |                  |       |   |      | 
| | Net actuarial loss                             |  |                  | (14   | ) |      | 
| | Other:                                         |  |                  |       |   |      | 
| | Contributions by employer                      |  |                  | 135   |   |      | 
| | Withdrawals from the plan                      |  |                  | (135  | ) |      | 
| |                                                |  |                  |       |   |      | 
| | Balance at end of year                         |  |                  | 1,014 |   |      | 



| | e. | The principal assumptions underlying the defined benefit plan:
| | -- | --------------------------------------------------------------



| |                                        |  | December 31, |     
| | -------------------------------------- |  | ------------ | ----
| |                                        |  | 2014         |     
| |                                        |  | %            |     
| |                                        |  |              |     
| | Discount rate of the plan liability    |  |              | 3.11
| |                                        |  |              |     
| | Expected rate of return on plan assets |  |              | 3.52
| |                                        |  |              |     
| | Future salary increases                |  |              | 3.50



| | f. | Sensitivitytests to
significant changes of:
| | -- | -------------------------------------------



| |                    |  |                |     |  | Increase (decrease) of the plan liabilities, net | 
| | ------------------ |  | -------------- | --- |  | ------------------------------------------------ | 
| |                    |  |                |     |  | December 31, 2014                                | 
| |                    |  |                |     |  | Increase in                                      | 
| |                    |  | Rate of change |     |  | Rate of change                                   | 
| |                    |  | %              |     |  | NIS in thousands                                 | 
| | Salary             |  |                | 1   |  |                                                  | 
| | Interest           |  |                | 0.5 |  |                                                  | 
| | Israeli CPI        |  |                | 0.5 |  |                                                  | 
| | Employees turnover |  |                | 20  |  |                                                  | 



F-30







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 12:- | CONTINGENT LIABILITIES AND COMMITMENTS
|--------- | --------------------------------------



| | a. | Liabilities to pay royalties:
| | -- | -----------------------------



| | 1. | According to the license agreement signed on January 29, 2003 with the U.S. National Institute
of Health (“NIH”) (through the US Public Health Service, “PHS”) (the “PHS Agreement”), the
Company is committed to pay royalties as follows:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) | A minimum annual payment of $50 thousand, which is non-refundable.
| | -- | ------------------------------------------------------------------



| | b) | 4%-5.5% of the Company's total net revenues from sales of licensed products or from conducting
tests, as defined in the PHS Agreement, on a consolidated basis, out of which 1.75%-2.75% may be offset against royalties that
the Company is required to pay another third party. As of December 31, 2014, no accrual or payment has been made hereunder.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Royalties in a total of up to $700 thousand per indication, subject to meeting certain drug development
milestones as defined in the PHS Agreement as follows: (i) $25 thousand upon first Phase I initiation per indication; (ii) $75
thousand upon first Phase II initiation per indication; (iii) $100 thousand upon first Phase III initiation per indication; and
(iv) $500 thousand upon approval by the FDA or any other regulatory authority. As of December 31, 2014, the Company accrued additional
amount of NIS 1,653 thousand ($ 425 thousand).
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | Additional payments totaling 20% of total payments received from any sub-licensee, out of which
2% may be offset against royalties that the Company is required to pay another third party. As of December 31, 2014, no accrual
or payment has been made hereunder.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The agreement will remain
in effect until the expiration of the last patent, unless it is terminated sooner by one of the parties, according to the PHS Agreement.



On February 4, 2013, a second
revised agreement was signed for updating the milestone dates. These revised agreements have no effect on the original license
terms.



| | 2. | According to the patent license agreement signed on November 2, 2009 with the Leiden University
in the Netherlands, which is affiliated with the NIH, the Company is committed to pay royalties as follows:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) | A one-time concession commission of € 25 thousand;
| | -- | --------------------------------------------------

| | b) | Annual royalties of € 10 thousand until the clinical trials commence;
| | -- | ---------------------------------------------------------------------

| | c) | 2%-3% of net sales (as defined in the agreement) received by the Company;
| | -- | -------------------------------------------------------------------------

| | d) | Royalties in a total amount of up to €850 thousand based on certain progress milestones in
the license stages of the products, which are the subject of the patent under the agreement,as follows: (i) €50 thousand upon initiation of Phase I studies; (ii) €100 thousand upon initiation of Phase II
studies; (iii) €200 thousand upon initiation of Phase III studies; and (iv) €500 thousand upon marketing approval by
any regulatory authority.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e) | If the agreement is sublicensed to another company, the Company will provide the Leiden University
royalties at a rate of 10%. A merger, consolidation or any other change in ownership will not be viewed as an assignment of the
agreement as discussed in this paragraph.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December 31, 2014, no
accrual is recorded with respect to Leiden University.





F-31









CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 12:- | CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
|--------- | ----------------------------------------------



| | b. | Commitments and license agreements:
| | -- | -----------------------------------



| | 1. | On September 22, 2006, the Company signed an exclusive license agreement regarding inflammatory
indicators, including rheumatoid arthritis indicators (excluding eye disease indicators) with a public Japanese company, Seikagaku
Corporation (the “Japanese Corporation”), for the use, development and marketing of the Company's CF101 drug in Japan
only.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



According to the agreement,
the Company is entitled to receive the following amounts:



| | a) | A non-refundable amount of $ 3 million (gross) (NIS 12,909 thousand) paid immediately
upon signing the agreement. This amount was included in the Company's revenues in its financial statements for 2006.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | An amount of $ 500 thousand (gross) on January 1 of each year starting from January 1, 2007,
until the earlier of the date of filing an application for a new drug with the Japanese regulatory authorities and the beginning
of the fifth year from the date of signing (until January 1, 2011).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | An amount equal to $12 million (gross) based on the Japanese Corporation's progress milestones
in the development of the CF101 for treating rheumatoid arthritis in Japan as follows: (i) $1 million following the commencement
of a Phase I clinical trial of the CF101 drug by the Japanese Corporation (such amount was received and included in the Company's
revenues in the year ended December 31, 2008); (ii) $5 million upon marketing authorization in Japan for the first indication;
(iii) $1.5 million upon commencement of a Phase II clinical trial of the CF101 drug by the Japanese Corporation for the first indication
in Japan; (vi) $2.5 million upon submission of a new drug application to the appropriate regulatory authority in Japan for the
first indication; and (v) $2 million if the Japanese Corporation does not employ Bridging Strategy (as defined in the agreement)
upon commencement of a Phase III clinical trial by the Japanese corporation for the first indication.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | An aggregate amount of $ 2 million (gross) received in 2006 and 2007 ($ 1 million each
year) based on milestones underlying the Company's Phase IIb clinical trial in rheumatoid arthritis indicators. These amounts were
included in the Company's financial statements for said years under participation in research and development expenses, based on
the milestones met by the Company according to the agreement.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | If the Japanese Corporation decides to develop CF101 for the treatment of indications other than
rheumatoid arthritis, the Company will be entitled to at least an additional $1 million (gross) based on milestones met in the
development of CF101 for such other indications as follow: (i) $3 million upon marketing authorization in Japan for the second
indication; and (ii) $1 million upon the commencement of each Phase III clinical trial in Japan for each indication after the first
indication.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-32







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 12:- | CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
|--------- | ----------------------------------------------



In addition to the amounts
detailed above, the Company will be entitled to royalties of 7%-12% on sales of the CF101 marketed by the Japanese Corporation
according to the agreement and on additional revenues from sales of raw materials to the Japanese corporation for the purpose of
the development, production and marketing of the CF101. If the Japanese corporation decides to produce the raw materials itself,
the Company will be entitled to an additional $ 1 million (gross). Furthermore, according to the agreement, the Company will
be entitled to receive additional amounts if the Japanese corporation requests information regarding the results of other clinical
trials conducted by the Company in the future. The Company is committed to pay 5% of the above amounts as brokerage commission
to a Japanese company which brokered the agreement. The agreement is for an indefinite period.



| | 2. | On December 22, 2008, the Company signed an agreement regarding the provision of a license for
its CF101 drug with a South Korean pharmaceutical company, Kwang Dong Pharmaceutical Co. Ltd. (the “Korean License Agreement”
and the “Korean Company”, respectively). According to the license agreement, the Company granted the Korean Company
a license to use, develop and market its CF101 drug for treating only rheumatoid arthritis only in the Republic of Korea.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



According to the license agreement,
the Company is entitled to receive the following amounts:



| | a) | A non-refundable amount of $300 thousand that was received on the
effective date of the license agreement in 2006, and up to $1.2 million (gross) based on the Company's achievement of certain milestones
as follows: (i) $200 thousand upon the public announcement of the data from the Can-Fite Phase IIb clinical trial (such amount
was received and included in the Company's revenue for the year ended December 31, 2010); (ii) $200 thousand upon commencement
of the first clinical study by the Korean Company in the Republic of Korea; (iii) $200 thousand upon submission by the Korean Company
of a new drug application in the Republic of Korea; (iv) $300 thousand upon all approval, licenses or authorizations of any regulatory
authority necessary for the commercial marketing, sale and use of the product in the United States, in the European Union as a
whole or in any one of the following countries: Germany, Italy, the United Kingdom, France or Switzerland; and (v) $300 thousand
upon commercial launch of the product in the Republic of Korea.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | The Company is entitled to annual royalties of 7% based on sales of CF101 in Korea as marketed
by the Korean Company according to the Korean License Agreement.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December 31, 2014, the
Company estimates that such contingent payments are remote.



F-33







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 12:- | CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
|--------- | ----------------------------------------------



| | 3. | Lease commitments:
| | -- | ------------------



The Company leases motor
vehicles through operating leases. The lease period ends in April 2017. Future minimum lease commitments under non-cancelable
operating leases as of December 31, 2014 are as follows:





| |      |  | NIS in thousands |    
| | ---- |  | ---------------- | ---
| |      |  |                  |    
| | 2015 |  |                  | 144
| | 2016 |  |                  | 59 
| | 2017 |  |                  | 9  
| |      |  |                  | 212



Lease expenses
for the years ended December 31, 2012, 2013 and 2014 were approximately NIS 246, NIS 229 and NIS 185, respectively.



|NOTE 13:- | EQUITY
|--------- | ------



| | a. | Composition of share capital:
| | -- | -----------------------------



| |                                            |  | December 31, 2014 |            |  | December 31, 2013      | 
| | ------------------------------------------ |  | ----------------- | ---------- |  | ---------------------- | 
| |                                            |  | Authorized        |            |  | Issued and outstanding | 
| |                                            |  | Number of Shares  |           
| |                                            |  |                   |            |  |                        | 
| | Ordinary shares of NIS 0.25 par value each |  |                   | 40,000,000 |  |                        | 



| | b. | Issued and outstanding
capital:
| | -- | -------------------------------



| |                                          |  | Number of shares |            |  | NIS par value | 
| | ---------------------------------------- |  | ---------------- | ---------- |  | ------------- | 
| |                                          |  |                  |            |  |               | 
| | Balance at December 31, 2012             |  |                  | 10,935,196 |  |               | 
| |                                          |  |                  |            |  |               | 
| | Issuance of share capital                |  |                  | 4,862,836  |  |               | 
| | Exercise of warrants (Series 8, 10, 11)  |  |                  | 2,940      |  |               | 
| | Exercise of unlisted share options       |  |                  | 348,582    |  |               | 
| |                                          |  |                  |            |  |               | 
| | Balance at December 31, 2013             |  |                  | 16,149,554 |  |               | 
| |                                          |  |                  |            |  |               | 
| | Issuance of share capital                |  |                  | 5,560,194  |  |               | 
| | Issuance of shares - share based payment |  |                  | 52,000     |  |               | 
| | Exercise of unlisted share options       |  |                  | 1,656      |  |               | 
| |                                          |  |                  |            |  |               | 
| | Balance at December 31, 2014             |  |                  | 21,763,404 |  |               | 



| | c. | Ordinary shares and rights
attached to shares:
| | -- | ----------------------------------------------



On May 2, 2013, the annual
general meeting of the Company's shareholders approved a reverse stock split of one share for each twenty five shares outstanding
(1:25) (the “Reverse Split”). The Reverse Split became effective as of the close of business on May 10, 2013. The Company's
authorized share capital after the Reverse Split was NIS 10 million divided into 40 million ordinary shares, NIS 0.25
par value per share, of the Company. All ordinary shares, warrants, options, per share data and exercise prices included in these
financial statements and notes for all periods presented have been retroactively adjusted to reflect the Reverse Split with respect
to the Company’s share capital.



F-34







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 13:- | EQUITY (Cont.)
|--------- | --------------



All ordinary shares have equal
rights for all intent and purposes and each ordinary share confers its holder:



| | 1. | The right to be invited and participate in all the Company's general meetings, both annual and
regular, and the right to one vote per ordinary share owned in all votes and in all Company's general meeting participated.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | The right to receive dividends if and when declared and the right to receive bonus shares if and
when distributed.
| | -- | ------------------------------------------------------------------------------------------------------------------



| | 3. | The right to participate in the distribution of the Company's assets upon liquidation.
| | -- | --------------------------------------------------------------------------------------



| | 4. | Quoted on the Tel-Aviv Stock Exchange and New-York Stock Exchange.
| | -- | ------------------------------------------------------------------



| | d. | Issue of shares and warrants and changes in equity:
| | -- | ---------------------------------------------------



| | 1. | On March 26, 2012, 23,333 warrants (Series 5) were exercised
into 933 ordinary shares of the Company for a total consideration approximately NIS 76
thousand. The remaining 13,226,667 warrants (Series 5) which had not been exercised expired on March 31, 2012.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | On May 1, 2012, the Company offered securities to the public according to a shelf proposal report
which was published on the basis of a shelf prospectus which the Company published on May 27, 2010. The securities were offered
to the public in 4,000 units at a minimum price of NIS 1,431 per unit. Each unit comprised of 120 ordinary shares at NIS 0.477
per share, 2,000 warrants (Series 8) and 3,000 warrants (Series 9) (both series of warrants at no consideration). Every 25 warrants
(Series 8) were exercisable into one ordinary share, NIS 0.25 par value per share, of the Company in consideration of NIS 13.75,
linked to the Israeli CPI with the base index being the CPI of March 2012. The exercise period of the warrants was until May 1,
2013. In addition, every 25 warrants (Series 9) is exercisable into one ordinary share of the Company in consideration of NIS 21.25,
unlinked. The exercise period of the warrants is until May 1, 2015.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Due
to an oversubscription, 4,056 units were purchased at NIS 1,440 per unit for total proceeds of NIS 5,349 thousand (net
of issue expenses of approximately NIS 491 thousand). The Series 8 warrants  expired on December 31, 2013.



| | 3. | On February 5, 2013, the Company offered securities to the public according to a shelf proposal
report which was published on the basis of a shelf prospectus which the Company published on July 26, 2012. The securities
were offered to the public in 6,927 units at a minimum unit price of NIS 3,144 per unit. Each unit comprised of 400 ordinary
shares of the Company at NIS 7.86 per share, 5,000 warrants (Series 10) and 5,000 warrants (Series 11). Every 25 warrants
(Series 10) are exercisable into one ordinary share of the Company for NIS 9.85 linked to the Israeli consumer price index, The
warrants are exercisable until October 31, 2015. In addition every 25 warrants (Series 11) are exercisable into one ordinary share,
NIS 0.25 par value per share, of the Company for NIS 9.80, with the warrants being initially linked to the Israeli consumer price
index for December 2012. The warrants are exercisable until April 30, 2016.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Due to an oversubscription,
7,477 units were purchased at a price of NIS 3,544 per unit for total proceeds of NIS 23,926 thousand (net of issuance
expenses of approximately NIS 2,572 thousand). The issuance proceeds were received on February 5, 2013. The shares included
in the units were listed for trading on February 5, 2013.



F-35







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 13:- | EQUITY (Cont.)
|--------- | --------------



As part of the February 5,
2013 financing, the Company's board of directors approved the grant to certain of the Company’s external advisors of 1,682,000
warrants (Series 10) exercisable into 67,280 ordinary shares of the Company for an exercise price of NIS 0.394 per warrant.
The warrants (Series 10) are exercisable until October 31, 2015. The grant was considered as additional issuance expenses related
to the financing round. A total amount of NIS 125 thousand was recorded as capital reserve from share based payment.



On August
1, 2013 and August 4, 2013, a general meeting of the shareholders and the holders of warrants (Series 10 and Series 11), respectively,
approved a settlement according to which the exercise price of such warrants (Series 10 and Series 11) will no longer be linked
to the Israeli consumer price index. On August 20, 2013, the District Court in Lod, Israel approved such settlement. The settlement
changes the classification of the warrants (Series 10 and Series 11) from liabilities to equity instruments, thereby increasing
the Company’s shareholders’ equity, which in turn may be required to meet certain listing standards of certain U.S.
national securities exchanges.



| | 4. | During 2013 8,714,576 unlisted options were exercised into 348,582 ordinary shares of the Company
for a total consideration of approximately NIS 87 thousand.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | On June 23, 2013, 6,000 warrants (Series 8) were exercised to purchase 240 ordinary shares, NIS
0.25 par value per share, of the Company for total consideration of approximately NIS 4 thousand.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | On November 17, 2013, 30,000 warrants (Series 8) were exercised to purchase 1,200 ordinary shares,
NIS 0.25 par value per share, of the Company for total consideration of approximately NIS 23 thousand.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | On December 26, 2013, 25,000 warrants (Series 10) were exercised to purchase 1,000 ordinary shares,
NIS 0.25 par value per share, of the Company for total consideration of approximately NIS 10 thousand.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8. | On December 26, 2013, 12,500 warrants (Series 11) were exercised to purchase 500 ordinary shares,
NIS 0.25 par value per share, of the Company for total consideration of approximately NIS 5 thousand.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 9. | On October 23, 2013, the Company offered securities to the public according to a shelf proposal
report which was published on the basis of a shelf prospectus which the Company published on July 26, 2012. The securities were
offered to the public in 3,600 units at the minimum unit price of NIS 5,000 thousand per unit. Each unit comprised of 500 ordinary
shares at NIS 10 per share and 375 warrants (Series 12) for no additional consideration.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Due to an oversubscription,
3,675 units were purchased at a price of NIS 5,800 per unit for total proceeds of NIS 20,138 thousands (net of issuance expenses
of approximately NIS 1,177 thousands). The issuance proceeds were received on October 23, 2013. Until the use of issuance proceeds,
the issuance proceeds are to be held in the Company's accounts and will be invested by it in accordance with the Company's investment
policy as in place from time to time, provided that every aforesaid investment will be secure investments, including and without
derogating from the generality of the aforesaid, a shekel interest bearing deposit account or foreign currency interest bearing
deposit account. The shares included in the units were listed for trading on October 23, 2013.





F-36







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 13:- | EQUITY (Cont.)
|--------- | --------------



On October 22, 2013, the Company's
board of directors approved the grant to certain of the Company's external advisors of 91,875 warrants (Series 12) exercisable
into 91,875 ordinary shares, NIS 0.25 par value per share, of the Company. The grant was included in the issuance expenses of the
Company in connection with the financing round. The exercise price of the options is NIS 15.29 per option and the options are not
linked to the Israeli Consumer Price Index. The warrants (Series 12) expire on October 22, 2016. A total amount of NIS 159 thousand
was recorded as capital reserve from share based payment.



| | 10. | On November 2013 the Company’s board of directors approved the private placement of 34,536
ordinary shares, NIS 0.25 par value per share, of the Company. Upon issuance, the proceeds of such private placement will be approximately
$100 thousand, which represent a price of $2.90, or NIS 10.23, per ordinary share. Such price per share is equal to the closing
price per share of the Company's ordinary shares on the TASE on November 3, 2013. The shares were listed for trading on the TASE
on November 13, 2013.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 11. | In March 2014, the Company completed a private placement with certain institutional and accredited investors,
pursuant to which it sold an aggregate of 982,344 ADSs representing 1,964,688 ordinary shares and warrants to purchase an additional491,172 ADSs representing 982,344 ordinary shares for an aggregate purchase price of NIS 17,567 thousand (the "March 2014
Financing"). The warrants may be exercised at any time after September 10, 2014 for a period of four years from the date of
issuance and have an exercise price of $6.43 per ADS (equivalent to $3.215 per ordinary share) (subject to certain adjustments).
The issuance costs in relation to the March 2014 financing were NIS 1,795 thousand. The Company also issued placement agent warrants
to purchase 49,117 ADSs representing 98,234 ordinary shares exercisable at $6.43 per ADS (equivalent to $3.215 per ordinary share)
(subject to certain adjustments) for a period of four years. The placement agent warrants may be exercised on a cashless basis
at any time after September 10, 2014 and contain registration rights covering the resale of the ordinary shares. The fair value
of the placement agents warrants at the grant date was NIS 381 thousand and considered as additional issuance costs.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In relation to the issuance
of March 2014 Financing, the Company first allocated the proceeds to the warrant, that due to the dollar exercise price terms
and in accordance with IAS 39 is being considered a freestanding liability instrument that is measured at fair value at each reporting
date, based on its fair value, with changes in the fair values beingrecognized in the Company's statement of comprehensive
loss as financial income or expense. The remaining proceeds were allocated to the shares and were recorded to equity. The issuance
costs were allocated between the warrants and the shares in proportion to the allocation of the proceeds. The portions of the
issuance costs that were allocated to the warrants and to the ordinary share were recorded as financial expense in the Company's
statement of comprehensive loss and to the additional paid in capital in the Company's balance sheet, respectively.

The fair value of the warrants
at the commitment date and December 31, 2014 were NIS 3,812 thousand and NIS 1,654 thousand, respectively with changes recorded
as financial income in the Company's statement of comprehensive loss.



F-37







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 13:- | EQUITY (Cont.)
|--------- | --------------



| | 12. | In December 2014, the Company completed an at-the-market registered direct offering with certain institutional
investors, pursuant to which it sold an aggregate of 1,797,753 ADSs representing 3,595,506 ordinary shares. In addition, the Company
issued to the investors unregistered warrants to purchase 898,877 ADSs representing 1,797,753 ordinary shares. The offering (the
"December 2014 Financing") resulted in gross proceeds of NIS 31,923 thousand. The warrants may be exercised for a period
of five years from the date of issuance and have an exercise price of $4.45 per ADS (equivalent to $2.225 per ordinary share) (subject
to certain adjustments). The issuance costs in relation to the December 2014 financing were NIS 3,020 thousand. The Company also
issued placement agent warrants to purchase 89,888 ADS representing 179,775 ordinary shares exercisable at $4.45 per ADS (equivalent
to $2.225 per ordinary share) (subject to certain adjustments) per share for a period five years. The placement agent warrants
may be exercised on a cashless basis at any time after December 8, 2014 and contain registration rights covering the resale of
the ordinary shares underlying the placement agent warrants. The fair value of the placement agents warrants at the grant date
was NIS 613 thousand and considered as additional issuance costs.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In relation to the
issuance of December 2014 Financing, the Company first allocated the proceeds to the warrant, that due to the dollar exercise
price terms and in accordance with IAS 39 is being considered a freestanding liability instrument that is measured at fair value
at each reporting date, based on its fair value, with changes in the fair values beingrecognized in the Company's statement
of comprehensive loss as financial income or expense. The remaining proceeds were allocated to the shares and were recorded to
equity. The issuance costs were allocated between the warrants and the shares in proportion to the allocation of the proceeds.
The portions of the issuance costs that were allocated to the warrants and to the ordinary share were recorded as financial expense
in the Company's statement of comprehensive loss and to the additional paid in capital in the Company's balance sheet, respectively.

The fair value of the warrants
at the commitment date and December 31, 2014 were NIS 6,127 thousand and NIS 5,315 thousand, respectively with changes in recorded
as financial income in the Company's statement of comprehensive loss.



| | 13. | During 2014, unlisted options were exercised into 1,656 ordinary shares of the Company for a total
consideration of NIS 0.41 thousand.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



| | e. | Warrants classified as liability:
| | -- | ---------------------------------



As of December 31, 2013,
the Company had 9,907,500 registered warrants(Series 7) that were exercisable into 396,300
ordinary shares of the Company, in every trading day except from the 12th to the 16th of each calendar month from their admission
to trading through November 16, 2013 for the exercise price of NIS 20 per share, linked to the Israeli CPI form October
2011. Since the exercise price is linked to the Israeli CPI, these warrantswere classified
as a liability in the Company's statements of financial position, remeasured at fair value each with changes recorded as financial
income (loss) in the Company's statement of comprehensive loss.



F-38







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 13:- | EQUITY (Cont.)
|--------- | --------------



On November 7, 2013 the Company
filed an application with the District Court in Petach-Tikva, Israel to approve an extension of all warrants (Series 7) until March
31, 2014. On November 20, 2013, the District Court in Petach-Tikva, Israel approved the convening of a general meeting of the Company's
shareholders and a meeting of the holders of warrants (Series 7) of the Company to approve the extension of the exercise period
of the warrants (Series 7) until March 31, 2014. The meetings that convened on January 6, 2014 approved the extension and on January
27, 2014 the District Court in Petach-Tikva approved the extension until March 31, 2014.



On March 31, 2014, all warrants
(Series 7) were expired. Accordingly, the Company recorded an amount of NIS 119 thousand as financial income in its statement of
comprehensive loss.



As described at Note 13.d.11
and 12 above, in March and December 2014 the Company issued warrants to purchase 491,172 ADSs representing 982,334 ordinary shares
and 898,877 ADSs representing 1,797,753 ordinary shares.



| | f. | Warrants classified as equity:
| | -- | ------------------------------



The Company has 12,168,000
registered warrants (Series 9) that are exercisable into 486,720 ordinary shares of the Company for the exercise price of NIS 21.25
per share. These warrantsare exercisable until May 1, 2015.



The Company has 39,042,000
registered warrants (Series 10) that are exercisable into 1,561,680 ordinary shares of the Company for NIS 9.85 per share.
The warrants are exercisable until October 31, 2015.



The Company has 37,372,500
registered warrants (Series 11) that are exercisable into 1,494,900 ordinary shares of the Company for NIS 9.80 per share.
The warrantsare exercisable until April 30, 2016.



The Company has 1,470,000
registered warrants (Series 12) that are exercisable into 1,470,000 ordinary shares of the Company for NIS 15.29 per share.
The warrantsare exercisable until October 22, 2016.



As described at Note 13.d.11
and 12 above, in March and December 2014 the Company issued warrants to purchase 49,117 ADSs representing 98,324 ordinary
shares and 89,888 ADSs representing 179,775 ordinary
shares.





| | g. | Unlisted share options:
| | -- | -----------------------



On November 28, 2013,
the Board of Directors approved the adoption of the 2013 ESOP (the "2013 Plan"). Under the 2013 Plan, the Company
may grant its officers, directors, employees and consultants, Stock options, of the Company. Each Stock option granted shall
be exercisable at such times and terms and conditions as the Board of Directors may specify in the applicable option
agreement, provided that no option will be granted with a term in excess of 10 years.



Upon the adoption of the 2013
ESOP the Company reserved for issuance 1,000,000 shares of Common Stock, NIS 0.25 par value each.



On May 28, 2014 the Company’s
board of directors approved the extension by one year of options which are exercisable into 502,025 ordinary shares of the Company,
originally granted to investor on October 2010, till October 21, 2015. As of May 28, 2014, the modification date, the Company
has evaluated the incremental fair value to be NIS 331 which was recorded as immediately expense.



F-39







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 13:- | EQUITY (Cont.)
|--------- | --------------



| | h. | Treasury
shares:
| | -- | ----------------



As of December 31, 2014, the
Company's shares held by OphthaliX amounted to 446,827 ordinary shares.



| |                              |  | December 31, |     
| | ---------------------------- |  | ------------ | ----
| |                              |  | 2014         |     
| |                              |  | %            |     
| |                              |  |              |     
| | Percentage of issued capital |  |              | 2.05



NOTE 14:-SHARE-BASED PAYMENT TRANSACTIONS



| | a. | Expenses recognized in the financial statements:
| | -- | ------------------------------------------------



| |                                     |  | Year ended December 31, |    
| | ----------------------------------- |  | ----------------------- | ---
| |                                     |  | 2014                    |    
| |                                     |  | NIS in thousand         |    
| |                                     |  |                         |    
| | Research and development expenses   |  |                         | 27 
| | General and administrative expenses |  |                         | 799
| |                                     |  |                         |    
| |                                     |  |                         | 826



| | b. | Share-based payment transactions granted by the Company:
| | -- | --------------------------------------------------------



| | 1. | On February 28, 2013, OphthaliX's
board of directors approved the appointment of Barak Singer as its Chief Executive Officer, effective March 1, 2013. The board
of directors also approved an amendment, dated February 28, 2013, to the existing employment agreement and non-competition agreement,
dated February 22, 2011, pursuant to which he was to serve as Chief Executive Officer of OphthaliX while at the same time continuing
to serve as Vice-President of Business Development of the Company. He was required to devote approximately 50% of his time to
each position.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On April 22, 2013, OphthaliX's
board of directors approved the grant of options to Mr. Singer. In accordance with the option agreement, he received options to
acquire 104,412 shares of common stock of OphthaliX at an exercise price of $5.29 (the “Time Based Options”) which
expire ten years from the grant date. The Time Based Options provided for vesting over a period of three years on a quarterly
basis over twelve consecutive quarters from the date of commencement of the employment of Mr. Singer. In addition, the Company's
board of directors also approved the grant of an aggregate of 469,855 options to Mr. Singer, to acquire 104,412 shares of common
stock of OphthaliX at an exercise price of $5.29 in accordance with the terms of the 2012 Plan, and which expire ten years from
the grant date. These options provided for vesting upon the achievement of certain business and financial milestones, as defined
in the agreement governing the same.



On July 28, 2014, by mutual agreement, Mr. Singer ceased serving as OphthaliX Chief Executive
Officer and as Vice-President of Business Development of Can-Fite. As of December 31, 2014 all his granted options were forfeited/expired.



F-40







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 14:- | SHARE-BASED PAYMENT TRANSACTIONS (Cont.)
|--------- | ----------------------------------------



According to IFRS 2 compensation
cost initially is recognized based on an estimate of instruments expected to vest. Each reporting period a company must reevaluate
its estimate of the number of instruments that ultimately will be forfeited if the requisite service has not been or is not expected
to be provided. The effect of this change in estimated forfeitures is accounted for as a cumulative effect of a change in an accounting
estimate in the period that the estimate is revised.



Based on the above accounting
policy, for the year ended December 31, 2014 the Company reversed all previous compensation which related to the unvested option
at amount of NIS 296.



| | 2. | On March 21, 2013, the Company's board of directors approved a grant of 740,000 unlisted options
which are exercisable into 29,600 shares, NIS 0.25 par value per share, of the Company to two employees of the Company, three senior
officers and three advisors. The exercise price of the options is NIS 0.326 per option. The options vest each quarter over
a period of 48 months from the date of grant. According to the binomial model, the weighted average of the fair value of the options
on the date of grant was NIS 0.204 per option and a total of NIS 141 thousand for all options, which is based on the
following inputs: the closing price of the Company's shares of NIS 0.326, ranges of risk-free interest of 1.64%-6.86%, life
of the options of 10 years, annual volatility range of 57.58%-72.10%, annual employee turnover of 5%, early exercise factor of
2-2.5 and distribution of annual dividend of 0%.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The general manager of the
Tel Aviv Stock Exchange (“TASE”) approved the listing of the shares issuable upon the exercise of the options for trading
on May 6, 2013.



| | 3. | On May 2, 2013, the annual general meeting of the Company's shareholders approved the grant
to one of the Company’s directors of 250,000 unlisted options which are exercisable into 10,000 ordinary shares, NIS 0.25
par value per share, of the Company. The exercise price of the options is NIS 0.6 per option. According to the binomial model,
the economic value of the options on the date when the Company's board of directors approved the grant was NIS 0.148 per option
and a total of NIS 36 thousand for all options, which is based on the following inputs: the closing price of the Company's
shares of NIS 0.326, ranges of risk-free interest of 1.64%-6.86%, life of the options of 10 years, annual volatility range
of 57.58%-72.10%, annual employee turnover of 5%, early exercise factor of 2.5 and distribution of annual dividend of 0%.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The director was entitled
to exercise half of such options immediately upon the date of the grant and the other half of the options become exercisable in
equal amounts every quarter over a period of two years. On May 6, 2013, the general manager of the TASE approved the listing
of the shares issuable upon the exercise of the options for trading.



| | 4. | On May 20, 2013, one of the advisors informed the Company that he waived the 80,000 unlisted options which
were awarded to him on March 21, 2013 (see Note 14.b.2). The Company accounted for the waiver as a cancellation of the award
and recorded an expense totaling NIS 23 thousands.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-41







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 14:- | SHARE-BASED PAYMENT TRANSACTIONS (Cont.)
|--------- | ----------------------------------------



| | 5. | On May 9, 2013, the board of directors of OphthaliX granted options, which were modified on May
29, 2013 as to number and exercise price, to purchase 13,055 shares of its common stock to the Company’s Chief Financial
Officer.  These options have an exercise price of $9.00 (as of December 31, 2014 NIS 35) per share and expire on May 29, 2023. 
29,375 of these options vest immediately and the remaining 29,375 will vest over a period of three years on a quarterly basis for
12 consecutive quarters from the date of the grant. The Company accounted for the modification in accordance with IFRS 2, which
measures the fair value of the replacement award against the fair value of the cancelled award on the cancellation date. During
2013 the Company recognized an expense of $62 (NIS 224) of which $38 (NIS 137) was related to the modification.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | On May 9, 2013 the board of directors of OphthaliX approved the grant of options, with the same
terms as the options granted to OphthaliX's Chief Financial Officer as described above, to certain members of OphthaliX's board
of directors, Secretary and a director of EyeFite. The option grants to the Secretary and EyeFite director were made but later
rescinded by the OphthaliX's board of directors on June 13, 2013 and the respective grantees waived any rights in and to such options. 
All unrecognized compensation costs were recorded on the cancellation date and amounted to $211 (NIS 762). The options to be granted
to the members of the Company’s board of directors, which also required the approval of the Company’s stockholders,
were never granted due to the failure to obtain such stockholders approval.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 7. | On
July 1, 2013, the board of directors of OphthaliX approved the grant of options to purchase 52,222 shares of common stock of OphthaliX
at $6.638 per share for a period of ten years to one of its directors. The options vest as follows: 1/12th vested on September
30, 2013 and 1/12th of the total options vest on the last day of each 11 quarters thereafter so long as he remains a director,
until fully vested.                                                                                                                                                                                                                                                                                                                                                                                                                



| | 8. | On January 30, 2014 one of the Company's directors ceased serving as a director and all her 350,000
granted options exercisable into 14,000 ordinary shares forfeited.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 9. | On April 1, 2014, the Company engaged an external advisor for investor relation services, pursuant to which
the Company agreed to issue an aggregate of 26,000 ADS representing 52,000 ordinary shares as partial consideration. As of December
31, 2014 the Company recorded an amount of NIS 333 thousand for share based payment expenses relating to this transaction.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10. | On July14, 2014, the Company's shareholders' meeting approved the grant of options to acquire up
to 10,000 of the Company's ordinary shares to one of its directors at an exercise price of NIS 12 per share. The options will vest
over a period of three years on a quarterly basis for 12 consecutive quarters from the date of the grant. The term of the options
is 10 years.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-42







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 14:- | SHARE-BASED PAYMENT TRANSACTIONS (Cont.)
|--------- | ----------------------------------------



| | c. | Movement during the year:
| | -- | -------------------------



The following table lists
the number of share options, their weighted average exercise prices and modification in option plans of employees, directors and
consultants for the periods indicated:



| |                                  |  | Shares subject to options outstanding |        
| | -------------------------------- |  | ------------------------------------- | -------
| |                                  |  | 2014                                  |        
| |                                  |  | Number                                |        
| |                                  |  |                                       |        
| | Outstanding at beginning of year |  |                                       | 623,279
| | Grants                           |  |                                       | 10,000 
| | Exercised                        |  |                                       | (1,656 
| | Forfeited/expired                |  |                                       | (38,916
| |                                  |  |                                       |        
| | Outstanding at end of year       |  |                                       | 592,707
| |                                  |  |                                       |        
| | Exercisable at end of year       |  |                                       | 565,694



| | d. | The weighted average remaining contractual life for the shares subject to options outstanding as
of December 31, 2014, 2013 and 2012 was 3.11 years, 4.43 years and 4.01 years, respectively.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | The range of exercise prices for shares subject to options outstanding as of December 31,
2014, 2013 and 2012 was between NIS 0.25 and NIS 31.175.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | The fair value of the Company's share options granted for the years ended December 31, 2013 and
2014 was estimated using the Binomial option pricing model using the following assumptions:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |                                             |  | December 31, |      
| | ------------------------------------------- |  | ------------ | -----
| | Description                                 |  | 2014         |      
| |                                             |  |              |      
| | Risk-free interest rate                     |  |              | 1.29 
| | Expected volatility                         |  |              | 56.68
| | Dividend yield                              |  |              | 0    
| | Contractual life                            |  |              | 10   
| | Early Exercise Multiple (Suboptimal Factor) |  |              | 2.5  
| | Weighted averageshare price                 |  |              | 1.701



F-43







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 15:- | RESEARCH AND DEVELOPMENT EXPENSES
|--------- | ---------------------------------



| |                                 |  | Year ended December 31, |       
| | ------------------------------- |  | ----------------------- | ------
| |                                 |  | 2014                    |       
| |                                 |  | NIS in thousands        |       
| |                                 |  |                         |       
| | Clinical and preclinical trials |  |                         | 12,295
| | Salary and related expenses     |  |                         | 1,931 
| | Patents                         |  |                         | 760   
| | Royalties                       |  |                         | 510   
| | Laboratory materials            |  |                         | 205   
| | Rent                            |  |                         | 184   
| | Depreciation                    |  |                         | 9     
| | Others                          |  |                         | 306   
| |                                 |  |                         |       
| |                                 |  |                         | 16,200





|NOTE 16:- | GENERAL AND ADMINISTRATIVE EXPENSES
|--------- | -----------------------------------



| |                                 |  | Year ended December 31, |       
| | ------------------------------- |  | ----------------------- | ------
| |                                 |  | 2014                    |       
| |                                 |  | NIS in thousands        |       
| |                                 |  |                         |       
| | Professional services           |  |                         | 3,420 
| | Investors and public relations  |  |                         | 3,069 
| | Salary and related expenses     |  |                         | 2,089 
| | Directors' fee                  |  |                         | 691   
| | Rent                            |  |                         | 123   
| | Travel                          |  |                         | 850   
| | Insurance                       |  |                         | 465   
| | Stock exchange fees             |  |                         | 317   
| | Office and computer maintenance |  |                         | 258   
| | Vehicle maintenance             |  |                         | 89    
| | Depreciation                    |  |                         | 35    
| | Others                          |  |                         | 167   
| |                                 |  |                         |       
| |                                 |  |                         | 11,573





F-44







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 17:- | FINANCE EXPENSES (INCOME)
|--------- | -------------------------



| |                                                               |  | Year ended December 31, |       
| | ------------------------------------------------------------- |  | ----------------------- | ------
| |                                                               |  | 2014                    |       
| |                                                               |  | NIS in thousands        |       
| | Finance expenses:                                             |  |                         |       
| |                                                               |  |                         |       
| | Bank commissions                                              |  |                         | 58    
| | Issuance expenses related to warrants exercisable into shares |  |                         | 1,170 
| | Net loss from exchange rate fluctuations                      |  |                         | -     
| |                                                               |  |                         |       
| |                                                               |  |                         | 1,228 
| | Finance income:                                               |  |                         |       
| |                                                               |  |                         |       
| | Interest income on bank deposits                              |  |                         | (45   
| | Net gain from exchange rate fluctuations                      |  |                         | (1,366
| | Net change in fair value warrants exercisable into shares     |  |                         | (3,089
| |                                                               |  |                         |       
| |                                                               |  |                         | (4,500



|NOTE 18:- | LOSS PER SHARE
|--------- | --------------



| | a. | Details of the number of shares and loss used in the computation of loss per share:
| | -- | -----------------------------------------------------------------------------------



| |                                                                                       |  | Year ended December 31,   |       
| | ------------------------------------------------------------------------------------- |  | ------------------------- | ------
| |                                                                                       |  | 2014                      |       
| |                                                                                       |  | Weighted number of shares |       
| |                                                                                       |  | In thousands              |       
| |                                                                                       |  |                           |       
| | Number of shares and loss used in the computation of basic and diluted loss per share |  |                           | 17,546



| | b. | To compute diluted loss per share for the year ended December 31, 2014, the total number of
8,071,406 shares subject to outstanding warrants and 1,094,736 shares subject to outstanding unlisted options have not been
taken into account since they have anti-dilutive effect.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-45









CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 19:- | TAXES ON INCOME
|--------- | ---------------



| | a. | Corporate tax rates:
| | -- | --------------------



| | 1. | Israeli taxation:
| | -- | -----------------



The Israeli
corporate tax rate is 25% in 2012 - 2013 and 26.5% in 2014.



On July
30, 2013, the Israeli Parliament approved the second and third readings of the Economic Plan for 2013-2014 ("Amended Budget
Law") which consists, among others, of fiscal changes whose main aim is to enhance the collection of taxes in those years.
These changes include, among others, raising the Israeli corporate tax rate from 25% to 26.5% effective from January 1, 2014.



| | 2. | Income
tax on non-Israeli subsidiary:
| | -- | -------------------------------------



| |  | The corporate tax in the U.S. applying to a Company's subsidiary (incorporated in state of Delaware),
consists of a progressive corporate tax at a rate of up to 35% plus state tax and local tax at rates depending on the state and
the city in which the company's subsidiary manages its business. In the Company's estimation, it is subject to approximately a
40% tax rate.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | b. | Final tax assessments:
| | -- | ----------------------







The Company received final
tax assessments through 2010.



The related
company, OphthaliX and Eye-Fite, has not received final tax assessments since its incorporation.



| | c. | Net operating carryforward losses for tax purposes and other temporary differences:
| | -- | -----------------------------------------------------------------------------------



As of December 31, 2014, the
Company and Eyefite had carryforward losses amounting to approximately NIS 272,612 thousand and NIS 9,814 thousand.



Ophthalix is subject to U.S.
income taxes. As of December 31, 2014, the Company has net operating loss carryforwards for federal income tax purposes of approximately
$1,503 thousand (approximately NIS 5,845 thousand) which will expire in the years 2018 to 2034. The Company has no operating loss
carry forwards for state income tax purposes.



| | c. | Deferred taxes
| | -- | --------------



The Company did not recognize
deferred tax assets for carryforward losses and other temporary differences because their utilization in the foreseeable future
is not probable.



| | d. | Theoretical tax:
| | -- | ----------------



The reconciliation between
the tax expense, assuming that all the income and expenses, gains and losses in the statement of income were taxed at the statutory
tax rate and the taxes on income recorded in statement of comprehensive loss, does not provide significant information and therefore
was not presented.



F-46







CAN-FITE BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE 20:- | TRANSACTIONS WITH RELATED PARTIES
|--------- | ---------------------------------



| |                                                        |  | Year ended December 31, |      
| | ------------------------------------------------------ |  | ----------------------- | -----
| |                                                        |  | 2014                    |      
| |                                                        |  | NIS in thousands        |      
| |                                                        |  |                         |      
| | Management and consulting fees (including bonuses) (1) |  |                         | 1,312
| |                                                        |  |                         |      
| | Other expenses and share-based payment (1)             |  |                         | 57   
| |                                                        |  |                         |      
| | Patent expenses                                        |  |                         | 793  
| |                                                        |  |                         |      
| | Directors' fee and share-based payment (2)             |  |                         | 417  
| |                                                        |  |                         |      
| | (1)     Number of related parties                      |  |                         | 1    
| |                                                        |  |                         |      
| | (2)     Number of directors                            |  |                         | 4    



|NOTE 21:- | SUBSEQUENT EVENTS
|--------- | -----------------





| | 1. | In March 2015, the Company
issued a financial support letter pursuant to which the Company committed to cover any shortfall in OphthaliX’s costs and
expenses of the operations which are in excess of its available cash to finance its operations, including cash generated from
any future sale of Can-Fite shares held by OphthaliX. The letter remains in effect for a period of at least 14 months from March
2015 and any related balance bears interest at a rate of 3% per annum.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 2. | On March 19, 2015, the Company's board
        of directors approved a grant of unlisted options exercisable into 40,000 of the Company's ordinary shares to three of its employees
        and one senior officer for an exercise price of NIS 8.118 per shares. The options will vest on a quarterly basis for a period
        of 48 months from the grant date.                                                                                                                       



| | 3. | On March 20, 2015, the Company
entered into a Distribution and Supply Agreement with Cipher Pharmaceuticals (“Cipher”) granting Cipher the exclusive
right to distribute CF101 in Canada for the treatment of psoriasis and RA.
        
        Under the Distribution and Supply Agreement,
        the Company is entitled to CDN$1.65 million upon execution of the agreement plus milestone payments upon receipt of regulatory
        approval by Health Canada for CF101 and the first delivery of commercial launch quantities as follows (i) CDN$1 million upon the
        first approved indication for either psoriasis or RA, and (ii) CDN $1 million upon the second approved indication for either psoriasis
        or RA. In addition, following regulatory approval, the Company shall be entitled to a royalty of 16.5% of net sales of CF101 in
        Canada and reimbursement for the cost of manufacturing CF101. The Company is also entitled to a royalty payment for any authorized
        generic of CF101 that Cipher distributes in Canada.
        
        The Company is responsible for supplying
        Cipher with finished product for distribution and conducting product development activities while Cipher is responsible for distribution,
        marketing and obtaining applicable regulatory approvals in Canada. The Distribution and Supply Agreement has an initial term of
        fifteen years, automatically renewable for additional five year periods and may be terminated in certain limited circumstances
        including certain breaches of the agreement and failure to achieve certain minimum quantities of sales during the contract period.
        
        The timeline to regulatory submissions
to Health Canada will be determined by the completion of the remaining clinical trial program.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-47











ITEM
19. Exhibits



Index
to Exhibits



|Exhibit No. |      |  | Description
|----------- | ---- |  | -----------
|            |      |  |            
|            | 1.1  |  |            
|            |      |  |            
|            | 2.1  |  |            
|            |      |  |            
|            | 4.1  |  |            
|            |      |  |            
|            | 4.2  |  |            
|            |      |  |            
|            | 4.3  |  |            
|            |      |  |            
|            | 4.4  |  |            
|            |      |  |            
|            | 4.5  |  |            
|            |      |  |            
|            | 4.6  |  |            
|            |      |  |            
|            | 4.7  |  |            
|            |      |  |            
|            | 4.8  |  |            
|            |      |  |            
|            | 4.9  |  |            
|            |      |  |            
|            | 4.10 |  |            
|            |      |  |            
|            | 4.11 |  |            
|            |      |  |            
|            | 4.12 |  |            
|            |      |  |            
|            | 4.13 |  |            
|            |      |  |            
|            | 4.14 |  |            
|            |      |  |            
|            | 4.15 |  |            
|            |      |  |            
|            | 4.16 |  |            
|            |      |  |            
|            | 4.17 |  |            
|            |      |  |            
|            | 4.18 |  |            
|            |      |  |            
|            | 4.19 |  |            





129









|Exhibit No. |      |  | Description
|----------- | ---- |  | -----------
|            |      |  |            
|            | 4.20 |  |            
|            |      |  |            
|            | 4.21 |  |            
|            |      |  |            
|            | 4.22 |  |            
|            |      |  |            
|            | 4.23 |  |            
|            |      |  |            
|            | 4.24 |  |            
|            |      |  |            
|            | 4.25 |  |            
|            |      |  |            
|            | 4.26 |  |            
|            |      |  |            
|            | 4.27 |  |            
|            |      |  |            
|            | 4.28 |  |            
|            |      |  |            
|            | 4.29 |  |            
|            |      |  |            
|            | 4.30 |  |            
|            |      |  |            
|            | 4.31 |  |            
|            |      |  |            
|            | 4.32 |  |            
|            |      |  |            
|            | 4.33 |  |            
|            |      |  |            
|            | 4.34 |  |            
|            |      |  |            
|            | 8.1  |  |            
|            |      |  |            
|            | 12.1 |  |            
|            |      |  |            
|            | 12.2 |  |            
|            |      |  |            
|            | 13.1 |  |            
|            |      |  |            
|            | 13.2 |  |            
|            |      |  |            
|            | 15.1 |  |            








|*   | File Herewith.                                                                                                                                                                                                                                                                                                                                                           
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|†   | Certain confidential information contained in this exhibit was omitted by means of redacting a portion of
the text and replacing it with [...]. This exhibit has been filed separately with the Commission without the redaction pursuant
to a Confidential Treatment Request under Rule 24b-2 of the Securities Exchange Act of 1934 and Rule 406 of the Securities Act.
|(1) | Incorporated
                                         herein by reference to Annual Report on 20-F filed with the SEC on March 31, 2014.                                                                                                                                                                                                                                 
|(2) | Incorporated
                                         herein by reference to the Registration Statement on Form 8-A filed with the SEC on November
                                         15, 2013.                                                                                                                                                                    
|(3) | Incorporated
                                         herein by reference to Amendment No. 1 to the Draft Registration Statement on Form 20-F
                                         filed with the SEC on September 10, 2013.                                                                                                                                         
|(4) | Incorporated
                                         herein by reference to the Current Report on Form 6-K filed with the SEC on March 10,
                                         2014.                                                                                                                                                                               
|(5) | Incorporated
                                         herein by reference to the Current Report on Form 6-K filed with the SEC on December
                                         4, 2014.                                                                                                                                                                             







130









SIGNATURES



The
Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this Annual Report on its behalf.



| | CAN-FITE
    BIOPHARMA LTD.
| | ---------------------------
| |                            
| | By:                        
| |                            
| |                            



Date: March 27, 2015





131