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, 2015



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-Fite
BioPharma Ltd., an Israeli Limited Company

(Translation
of the Registrant’s name into English)



Israel

(Jurisdiction
of incorporation)



10
Bareket Street, Kiryat Matalon, 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, Kiryat Matalon, 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, 2015): 27,672,901 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                                  | 70 
|ITEM 6. Directors, Senior Management and Employees                                    | 83 
|ITEM 7. Major Shareholders and Related Party Transactions                             | 102
|ITEM 8. Financial Information                                                         | 102
|ITEM 9. The Offer and Listing                                                         | 103
|ITEM 10. Additional Information                                                       | 105
|ITEM 11. Quantitative and Qualitative Disclosures About Market Risk                   | 121
|ITEM 12. Description of Securities Other Than Equity Securities                       | 122
|                                                                                      |    
|PART II                                                                               |    
|ITEM 13. Defaults, Dividend Arrearages and Delinquencies                              | 123
|ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds | 123
|ITEM 15. Controls and Procedures                                                      | 124
|ITEM 16. [RESERVED]                                                                   | 125
|ITEM 16A. Audit Committee Financial Expert                                            | 125
|ITEM 16B. Code of Ethics                                                              | 125
|ITEM 16C. Principal Accountant Fees and Services                                      | 125
|ITEM 16D. Exemptions from the Listing Standards for Audit Committees                  | 126
|ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers      | 126
|ITEM 16F. Change in Registrant’s Certifying Accountant                                | 126
|ITEM 16G. Corporate Governance                                                        | 126
|ITEM 16H. Mine Safety Disclosure                                                      | 126
|                                                                                      |    
|PART III                                                                              |    
|ITEM 17. Financial Statements                                                         | 127
|ITEM 18. Financial Statements                                                         | 127
|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-fite BioPharma 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, 2015, 2014 and 2013, and the selected consolidated
balance sheet data as of December 31, 2015 and 2014, 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, 2012 and 2011, and the selected consolidated balance sheet data as of December 31, 2013, 2012 and 2011, 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:                                                                |  | 2011 |           |   | 2012                                            | 
|                                                                                |  |      |           |   | (in thousands, except share and per share data) | 
|                                                                                |  | NIS  |           |   | Convenience  translation to US $                | 
|                                                                                |  |      |           |   |                                                 | 
|Revenues                                                                        |  |      | 1,785     |   |                                                 | 
|Operating expenses:                                                             |  |      |           |   |                                                 | 
|Research and development, expenses net                                          |  |      | 12,969    |   |                                                 | 
|General and administrative expenses                                             |  |      | 6,934     |   |                                                 | 
|                                                                                |  |      |           |   |                                                 | 
|Operating loss                                                                  |  |      | 18,118    |   |                                                 | 
|Other expense – due to M&A                                                      |  |      | 11,496    |   |                                                 | 
|Financial expenses                                                              |  |      | 232       |   |                                                 | 
|Financial income                                                                |  |      | (1,669    | ) |                                                 | 
|Taxes on income                                                                 |  |      | 191       |   |                                                 | 
|Net loss                                                                        |  |      | 28,368    |   |                                                 | 
|Adjustments arising from translating financial statements of foreign operations |  |      | (92       | ) |                                                 | 
|Remeasurements loss (gain) from defined benefit
    plan                        |  |      | 59        |   |                                                 | 
|Comprehensive loss                                                              |  |      | 28,335    |   |                                                 | 
|Net loss per ordinary share                                                     |  |      | 2.72      |   |                                                 | 
|Number of ordinary shares used in computing loss per ordinary share             |  |      | 9,708,505 |   |                                                 | 





1







|Consolidated Balance                |  | As of December 31, |       
|----------------------------------- |  | ------------------ | ------
|Sheet Data:                         |  | 2011               |       
|                                    |  | (in thousands NIS) |       
|Cash and cash equivalents           |  |                    | 14,622
|Other receivables and lease deposit |  |                    | 3,760 
|Fixed assets                        |  |                    | 278   
|Total assets                        |  |                    | 18,660
|Total liabilities                   |  |                    | 6,133 
|Total shareholders’ equity          |  |                    | 12,527



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 3.902 to $1.00 U.S. dollar, the
daily representative rates in effect as of December 31, 2015. 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           |      
|2015                    |  | 4.053          |      
|2014                    |  |                | 3.994
|2013                    |  |                | 3.791
|2012                    |  |                | 4.084
|2011                    |  |                | 3.821



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 2016 (through March 29, 2016) |  | 3.912          |      
|February 2016                       |  |                | 3.964
|January 2016                        |  |                | 3.983
|December 2015                       |  |                | 3.905
|November 2015                       |  |                | 3.921
|October 2015                        |  |                | 3.923
|September 2015                      |  |                | 3.949



On
March 29, 2016, the closing representative rate was $1.00 to NIS 3.826, 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 20 million (approximately
$5 million) in 2015, NIS 25 million in 2014 (approximately $6 million), and NIS 31 million in 2013 (approximately $8 million).
At December 31, 2015, we had an accumulated deficit of approximately NIS 323 million (approximately $83 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, 2015, we had cash and cash equivalents of approximately NIS 66 million (approximately $17 million). During
the first quarter of 2015, we received approximately NIS 5.1 million (approximately $1.3 million) from Cipher
Pharmaceuticals, or Cipher, as upfront payment for entering into the distribution agreement with Cipher and in September and
October 2015, we raised approximately NIS 48.3 million (approximately $12.5 million) in registered direct offerings. 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;
| | - | ---------------------------------------------------------------------------------------------



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





4







| | ● | 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;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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





5







| | ● | 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.





6







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, the European Medicines Agency, or EMA, and foreign regulatory authorities for commercial
use. The FDA, EMA 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 CF101 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. We believe that this may have been due to low A3AR expression in the
subpopulation of RA patients that did not respond well to treatment with MTX. Because of their low A3AR expression, such patients
also did not respond well to treatment with CF101. We were not aware of this when we designed the studies. As such, we conducted
an additional Phase IIb RA trial of CF101 as a standalone therapy in patients with A3AR expression levels above a certain threshold,
and positive results from this study were announced in December 2013. Furthermore, a Phase II/III study of CF101 for psoriasis
did not meet its primary endpoint although positive data from further analysis of the Phase II/III study suggests CF101 as a potential
systemic therapy for patients with moderate-severe psoriasis.



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. We
believe that this may have been due to low A3AR expression in the subpopulation of RA patients that did not respond well to treatment
with MTX. Because of their low A3AR expression, such patients also did not respond well to treatment with CF101. We were not aware
of this when it designed the studies. As such, we conducted an additional Phase IIb RA trial of CF101 as a standalone therapy
in patients with A3AR expression levels above a certain threshold, and positive results from this study were announced in December
2013. Furthermore, a Phase II/III study of CF101 for psoriasis did not meet its primary endpoint although positive data from further
analysis of the Phase II/III study suggests CF101 as a potential systemic therapy for patients with moderate-severe psoriasis.



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.





9







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.



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;
| | - | ---------------------------------------------------------------------------------------------





11







| | ● | 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.



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 Amgen, Centocor, Pfizer, Novartis, Abbvie, Celgene, Eli Lilly,
Janssen and more. The competitive landscape in the ophthalmic therapeutics field includes Alcon, a Novartis company, Allergan,
Pfizer, Akorn, Merck and more. Competitors in the hepatocellular carcinoma, also known as primary liver cancer, or HCC field include
companies such as Bayer. Competitors in the NASH field include companies such as Gilead, Genfit, Regato, Galmed, Raptor and Intercept.
Competitors in the erectile dysfunction field include Pfizer, Eli Lilly and Bayer. 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 Pfizer), Hoechst Marion Roussel
Inc., Novo Nordisk A/S and Inotek Pharmaceuticals. However, 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
are subject to a purported class action lawsuit. This litigation could result in substantial damages and may divert management’s
time and attention from our business.



On
June 29, 2015, we received a lawsuit, filed with the District Court of Tel-Aviv, requesting recognition of this lawsuit as a
class action. The lawsuit named the Company, its Chief Executive Officer and directors as defendants. The lawsuit alleges,
among other things, that we misled the public with regard to disclosures concerning the efficacy of our drug candidate,
CF101. The claimant alleges that he suffered personal damages of over NIS 73,000, while also claiming that our shareholders
suffered damages of approximately NIS 125 million. On November 27, 2015 and December 1, 2015, we filed a motion to dismiss
the action in part and on March 31, 2016, we filed a response to the lawsuit. While we strongly believe the lawsuit and its
allegations to be baseless and without merit and will vigorously defend this action, due to the inherent uncertainties that
accompany litigation of this nature, there can be no assurance that we will be successful, and an adverse resolution of
the lawsuit may result in  damages beyond the Company’s insurance coverage for such cases, which could cause a risk of
loss and expenditures that may adversely affect its financial condition and results of operations. Furthermore, this action
may divert management’s time and attention from our business, and we could be forced to expend significant resources
and pay significant costs and expenses, including legal fees, in connection with defending this lawsuit.





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  approximately 1,000 patients
treated with CF101, indicates that CF101 is safe and well tolerated at doses up to 4.0 mg administered twice daily for up to
32 weeks, there were incidences (albeit less than or equal to 5%) of adverse events in eight completed and fully analyzed
trials in inflammatory disease. Such adverse events included nausea, diarrhea, constipation, common bacterial 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 the pooled CF101 groups. No new safety concerns have been identified and no novel or unexpected safety concerns have
appeared over 32 weeks of treatment in more recent trials.



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.



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.





13







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
rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including
any cybersecurity incidents, could harm our ability to operate our business effectively.



Despite
the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable
to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and
electrical failures. System failures, accidents or security breaches could cause interruptions in our operations, and could result
in a material disruption of our clinical activities and business operations, in addition to possibly requiring substantial expenditures
of resources to remedy. The loss of clinical trial data could result in delays in our regulatory approval efforts and significantly
increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a
loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could
incur liability and our research and development programs and the development of our product candidates could be delayed.



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,
including potentially rapid and substantial growth, which will result in an increase in the level of responsibility for management
personnel and place a strain on our human and capital resources. 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. 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 personnel.
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 personnel will further strain our human
resources and could impede our growth or result in ineffective growth. Moreover, 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.



If
we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately
insured loss or damage. 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 not be able to obtain insurance policies on terms affordable to us that would adequately insure our business and property
against damage, loss or claims by third parties. To the extent our business or property suffers any damages, losses or claims
by third parties, which are not covered or adequately covered by insurance, our financial condition may be materially adversely
affected.





14







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 us.



Risks
Related to Our Intellectual Property



The
termination of the National Institute of Health, or NIH, license agreement between us and NIH due to patent expiration may diminish
our proprietary position.



As
a result of the termination of the NIH license agreement between us and the NIH in June 2015 due to patent expiration, we no longer
hold rights to a family of composition of matter patents relating to CF101 that were licensed from NIH. Nevertheless, because
CF101 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 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. 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. In addition, we have discontinued
the prosecution of a family of pending patent applications under joint ownership of us and NIH pertaining to the use of A3AR agonists
for the treatment of uveitis. Such diminution of our proprietary position could have a material adverse effect on our business,
results of operation and financial condition.



We
license from 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 this license if a dispute with Leiden University arises or if we fail
to comply with the financial and other terms of the license.



We
have licensed intellectual property from Leiden University pursuant to a license agreement. The license agreement imposes 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, Leiden University would have the right to terminate the license agreement. In addition, Leiden University has the
right to terminate the license agreement upon our bankruptcy, insolvency, or receivership. If any dispute arises with respect
to our arrangements with Leiden University, such dispute may disrupt our operations and may have a material adverse impact on
us if resolved in a manner that is unfavorable to us.



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;
| | - | --------------------------------------------------





15







| | ● | 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.
| | - | ---------------------------------------------------------------



If
patent rights covering our products and methods are not sufficiently broad, they may not provide us with any protection against
competitors with similar products and technologies. Furthermore, if the United States Patent and Trademark Office, or the USPTO,
or foreign patent offices issue patents to us or our licensors, others may challenge the patents or design around the patents,
or the patent office or the courts may invalidate the patents. Thus, any patents we own or license from or to third parties may
not provide any protection against our competitors.



We
cannot be certain that patents will be issued as a result of any pending applications, and we cannot be certain that any of our
issued patents will give us adequate protection from competing products. For example, issued patents, including the patents licensed
by us, 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.



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 USPTO 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.





16







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.



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 different than in the United States. 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, if at all. A failure to obtain sufficient
intellectual property protection in any foreign country could materially and adversely affect our business, results of operations
and future prospects. Moreover, 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 divert management’s resources and
attention.



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.





17







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 Leiden University, and, in the future, we intend to continue to
license intellectual property from 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.



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.



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 2015 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 2015 and although we have not determined
whether we will be a PFIC in 2016, 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 2015, 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 and ADSs is 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 and our ADSs on the NYSE MKT is
subject to fluctuation, and changes in our share price may be unrelated to our operating performance. 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. 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 listed on a U.S. exchange, 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. Israel faces political tension with respect to its relationships with Turkey, Iran and certain Arab neighbor
countries. In addition, recent 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. Any future deterioration in the political
and security situation in Israel will negatively impact our business.





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 as the 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 2013, 2014, or 2015 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 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, 2015, 2014 and 2013 were NIS 177,000, NIS 37,000 and NIS 43,000, 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;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





28







| | ● | 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



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 and sexual dysfunction. 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 an allosteric modulator of the A3AR, CF602 from Leiden University. In addition, we have out-licensed CF101 (i)
for the treatment of RA to Kwang Dong Pharmaceutical Co. Ltd., a South Korean limited company, or KD for the Korean market, (ii)
for the treatment of psoriasis and RA to Cipher Pharmaceuticals, or Cipher, for the Canadian market, and (iii) for the treatment
of ophthalmic diseases to Eye-Fite, a wholly-owned subsidiary of OphthaliX for the global market. Our license with NIH expired
in June 2015 with the expiration of certain patents.



Recently,
we entered into an agreement with Japan-based Seikagaku Corporation, or SKK, terminating its license agreement with us. SKK informed
us that it is strategically focused on expanding its core research and development activities in the field of glyco-science. Under
the license agreement, SKK was granted a license for the use, development and marketing of CF101 in Japan with respect to inflammatory
indications, except for ophthalmic disease indications. The termination agreement provides, among other things, that all licenses
and rights granted to SKK terminate and all clinical and non-clinical studies conducted by SKK shall be transferred free of charge
to us. Over the life of the license, we received an aggregate of approximately $8.5 million from SKK.



Our
product candidates, CF101, CF102 and CF602 are being developed to treat several autoimmune-inflammatory, oncological, ophthalmic
and sexual dysfunction indications. CF101 is in an advance stage of clinical development for the treatment of autoimmune-inflammatory
diseases, including RA and psoriasis. CF101 is also being developed by OphthaliX for the treatment of ophthalmic indications,
including glaucoma and uveitis. CF102 is being developed for the treatment of HCC and has orphan drug designation for the treatment
of HCC in the U.S. and Europe. Recently CF102 was granted Fast Track designation by the FDA as a second line treatment to improve
survival for patients with advanced hepatocellular carcinoma who have previously received Nexavar (sorafenib). CF102 is also
being developed for the treatment of non-alcoholic steatohepatitis, or NASH, following our recently concluded study which revealed
compelling pre-clinical data on CF102 in the treatment of NASH, a disease for which no FDA approved therapies currently exist.
CF602 is our second generation allosteric drug candidate for the treatment of sexual dysfunction, which has shown proof of concept
in pre-clinical pharmacological studies. 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.





29







In
March 2015, we announced that our 32 week Phase II/III double-blind, placebo-controlled study did not meet its primary endpoint
of a statistically significant improvement in the Psoriasis Area Severity Index (PASI) 75 score relative to placebo after 12 weeks
of treatment. In April 2015, after further data analysis we announced that, based on positive data that we have found between
weeks 16-32 of the study showing linear cumulative response to CF101, we intend to continue the development of CF101 for the treatment
of psoriasis and are completing the design of a Phase III study protocol for CF101 in the treatment of psoriasis which we plan
to file with the European Medicines Agency, or EMA, in the first half of 2016 and anticipate study initiation in the fourth quarter
of 2016.



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 and the psoriasis drug market is forecasted to
be worth $8.9 billion by 2018. According to Datamonitor, the HCC drug market is expected to reach $1.4 billion by 2019. According to Market Scope, the global glaucoma pharmaceutical market is expected to be nearly $6.1 billion
in 2020.



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.



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.





30







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. We in-licensed the intellectual property rights to CF602 from Leiden University.
Under this license agreement 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 agreement 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.”



We
are currently: (i) awaiting approval of a Phase III protocol that we filed with the EMA for CF101 in the treatment of RA during
the first quarter of 2016 with study initiation anticipated in the second or third quarter of 2016, (ii) completing the design
of our Phase III study protocol for CF101 in the treatment of psoriasis which we plan to file with the EMA in the first half of
2016 and anticipate study initiation in the fourth quarter of 2016, (iii) conducting a Phase II study with respect to the development
of CF102 for the treatment of HCC and anticipate completing enrollment of approximately 78 patients during the second half of
2016, (iv) planning to file a Phase II study protocol with institutional review boards, or IRBs in the second quarter of 2016,
for our first human clinical study of CF102 in the treatment of NASH, a new indication identified by us for our liver cancer drug,
and (v) conducting further preclinical work with respect to the development of CF602 for the submission of an IND to the FDA during
the fourth quarter of 2016. OphthaliX is currently: (i) in the final stages of a Phase II trial with respect to the development
of CF101 for the treatment of glaucoma or related syndromes of ocular hypertension having completed patient enrollment and expects
to report data in the second quarter of 2016; and (ii) planning on 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;
| | - | ---------------------------------------------------





31







| | ● | 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 and NASH 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.



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 throughout-licensing arrangements. We have previously 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 throughout-licensing 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) |             |              |              
|                                   |                                      |             |              |              
|Oncology/Liver
    diseases        |                                      |             |              |              
|                                   | HCC
    - CF102(3)                   |             |              |              
|                                   |                                      |             |              |              
|                                   | NASH
    – CF102(4)                  |             |              |              
|                                   |                                      |             |              |              
|Sexual
    Dysfunction - CF602 (5) |                                      |             |              |              
|                                   |                                      |             |              |              
|Ophthalmology(6)                   |                                      |             |              |              
|                                   | Glaucoma
    - CF101(7)              |             |              |              
|                                   |                                      |             |              |              
|                                   | Uveitis
    - CF101(8)               |             |              |              



| | Completed            |  |  |  |  |  |  |  | 
| | -------------------- |  |  |  |  |  |  |  | 
| |                      |  |  |  |  |  |  |  | 
| | On-going             |  |  |  |  |  |  |  | 
| |                      |  |  |  |  |  |  |  | 
| | Preparatory
    work |  |  |  |  |  |  |  | 



|(1) | We
    are completing the design of our Phase III study protocol for CF101 in the treatment of psoriasis which we plan to file with
    the EMA in the first half of 2016 and anticipate study initiation in the fourth quarter of 2016.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | We
    filed a Phase III protocol with the EMA for CF101 in the treatment of RA during the first quarter of 2016 with study initiation
    anticipated in the second or third quarter of 2016.                                          
|(3) | We
    are conducting a Phase II study with respect to the development of CF102 for the treatment of HCC and anticipate completing
    enrollment of approximately 78 patients during the second half of 2016.                          
|(4) | We
    plan to file a Phase II study protocol with IRBs for our first human clinical study of CF102 in the treatment of NASH in the
    second quarter of 2016.                                                                         
|(5) | We
    are conducting further preclinical work with respect to the development of CF602 for the submission of an IND to the FDA which
    is anticipated in the fourth quarter of 2016.                                                 
|(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 and expects to report data in the second quarter of 2016.           
|(8) | OphthaliX
    is planning on 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.



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.





34







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.



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.





35







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.



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.





36







Phase
II, Phase II/III and Phase III Clinical Studies of CF101



CF101
has completed eight Phase II studies, one Phase II/III study and one Phase III study in different clinical indications including
psoriasis, rheumatoid arthritis and DES, in approximately 1,000 patients. These studies indicate that CF101 has a favorable safety profile at doses up to 4.0 mg BID for up to 32 weeks. In these
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 DES however a Phase III study of CF101
for DES failed to reach the primary endpoint. We have 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.) A Phase
II/III study of CF101 for psoriasis did not meet its primary endpoint although positive data from further analysis of the Phase
II/III study suggests CF101 as a potential systemic therapy for patients with moderate-severe psoriasis.



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.





37







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.







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





38







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.



In
March 2015, we announced the study did not meet its primary endpoint of a statistically significant improvement in the PASI 75
score relative to placebo after 12 weeks of treatment. Further analysis of the entire study period revealed that by 32 weeks of
treatment with CF101, 33% of the patients achieved PASI 75 while the mean percent of improvement in PASI score was 57% (p<0.001). This was a statistically significant cumulative and linear improvement during weeks 16 to 32. Most significantly, by week 32
of the study, 20% of the study patients reached PASI 90, a result demonstrating a response rate of 90% clearing of skin lesions.
PASI 90 is one of the most stringent and difficult to meet clinical endpoints for measuring responses to psoriasis treatments.
Moreover, the PASI 90 subset analysis further suggests a higher and significant (p=0.026) CF101 response rate of 27% among patients
previously untreated with systemic psoriasis therapy compared to patients pre-treated with systemic drugs. We believe this presents
the opportunity that CF101 can be developed as a first-line systemic therapy for patients with moderate-severe psoriasis and for
patients who do not want to be treated with the current systemic drugs due to safety issues.







Figure
3: Linear Effect of CF101 on PASI Scores through 32 Weeks of Treatment





39







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.







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.





40







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.







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







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





41







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 was a 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 were to 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.



| | 
| | 



Figure
7: ACR response data –Rheumatoid Arthritis phase IIb



We
plan to conduct a Phase III, multicenter, randomized, double-blind, placebo-controlled, parallel-group study that will investigate
the efficacy and safety of CF101 administered orally twice daily for 16 weeks to patients with active RA treated
with conventional disease modifying drugs. The study will have three arms, a 1 mg CF101 dose, a 2 mg CF101 dose and placebo, given
orally twice daily in the form of tablets. The study is expected to enroll 360 patients and the primary endpoint is expected to
be low disease activity. Inclusion criteria will include patients who have high expression of A3AR. A3AR and its correlation to
patients' response to the drug will be analyzed upon study conclusion. Based on our Phase II clinical studies with CF101 in patients
with active rheumatoid arthritis, the percentage of patients with high expression of A3AR is estimated to be approximately 70%.



In
March 2016, we filed a Phase III protocol with the EMA for CF101 in the treatment of RA. Earlier, in January 2016, we
submitted a Phase III protocol to the IRB of Barzilai Medical Center in Israel and plan to file similar submissions in
several European countries, Canada and the U.S. We plan to initiate the study in the second or third quarter of
2016 following EMA approval.





42







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.



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, warrants 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 is 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 of CF101 1.0 mg treatment to the placebo. In 2015, OphthaliX amended
the ongoing Phase II study protocol and enrolled a further 44 subjects for the second segment, which was randomized in a 3:1 ratio
of CF101 2.0 mg treatment to the placebo. This decision was based on certain positive data from our psoriasis Phase II/III study
of CF101. As a result, there will not be an interim analysis and the full study data is expected to be announced in the second
half of 2016. 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. 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.





43







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.



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. Subsequently, in October 2015,
the EMA granted CF102 orphan drug designation for the treatment of HCC.



An
orphan drug designation is a special designation 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 FDA 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 and in the EU not more than 5 per 10,000.
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.



In
September 2015, the FDA granted Fast Track designation to CF102 as a second line treatment to improve survival for patients with
advanced HCC who have previously received Nexavar (sorafenib). Fast Track, aimed at getting important new drugs that meet an unmet
need to patients earlier, is expected to expedite the development of CF102. Drugs that receive Fast Track designation benefit
from more frequent meetings and communications with the FDA to review the drug's development plan to support approval. It also
allows the Company to submit parts of the NDA on a rolling basis for review as data becomes available.



Israel's
Ministry of Health has previously approved CF102 for Compassionate Use for HCC.



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





44







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.



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.





45







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.



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 IRB, 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.





46







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 protocol was approved by the IRB at the Rabin Medical Center in Israel and in December 2014
we dosed the first patient at the study’s Israeli site. We expect to complete patient enrollment in the second half of 2016.



Additional
Developments with CF102



NASH



Non-alcoholic
steatohepatitis, or NASH, also called "fatty liver", is a condition in which fat builds up inside the liver causing
inflammation. Prior to the presence of inflammation, the disease is simply referred to as non-alcoholic fatty liver disease, or
NAFLD, the most common form of liver disorder in the United States. The accumulation of macroglobular fat inside the liver causes
oxidative stress that reduces the efficiency of the liver and can lead to increased liver enzymes such as alanine aminotransferase
and aspartate aminotransferase. Loss of liver efficiency and oxidative stress leads to inflammation, liver cell ballooning, and
the development of NASH. Prolonged inflammation results in cirrhosis (scar tissue), liver failure, or liver cancer.



In
November 2015, we announced development of CF102 will be expanded into treatment for NASH, a disease for which no FDA approved
therapies currently exist. NASH is characterized by excess fat in the liver along with inflammation and liver damage. It resembles
alcoholic liver disease; however, it occurs in people who drink little or no alcohol. According to the National Institutes of
Health, NASH affects between 2% and 5% of Americans and the prevalence of NASH has been increasing, potentially due to increasing
rates of obesity and diabetes.



In
a preclinical study, CF102 revealed its capability to improve liver pathology in a NAFLD /diabetes animal model of NASH. The data
showed:



| | ● | CF102 had a statistically significant reduction in NAFLD
activity score compared to placebo.
| | - | --------------------------------------------------------------------------------------------
| |   |                                                                                             
| | ● | CF102 reduced liver-to-body weight compared to placebo.                                     





47







| | ● | Representative
                                         photomicrographs of H&E-stained liver sections showed improved pathology in animals
                                         receiving CF102 vs. placebo.                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ● | CF102
                                         decreased plasma ALT and triglycerides levels in the livers of NASH-model compared to
                                         placebo.                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ● | Liver
                                         sections from the placebo group exhibited severe micro- and macrovesicular fat deposits,
                                         hepatocellular ballooning and inflammatory cell infiltration, whereas the CF102 treated
                                         group showed a significant decrease in steatosis, ballooning and lobular inflammation
                                         compared to the placebo group.



We
plan to file a Phase II study protocol with IRBs for our first human clinical study of CF102 in the treatment of NASH.



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.



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.



Further
studies of CF602 have revealed that CF602 restores the impaired vascular endothelial growth factor system in the penis
of Diabetes Mellitus rats, thereby inducing an increase in nitric oxide resulting in significant improvement of penile
erection compared to placebo. This mechanism of action is similar to that of sildenafil, with CF602 demonstrating effects on
erection superior to that demonstrated by sildenafil in animal studies. Among the most important factors to affect erectile
function is nitric oxide which is released by endothelial cells that line the corpus cavernosum and control smooth muscle
relaxation and vascular inflow. It has been well established that release of nitric oxide is diminished in diabetes.
According to the American Diabetes Association, approximately 30 million Americans have Diabetes Mellitus in the U.S. It is
estimated that 35-75% of men with Diabetes Mellitus suffer from erectile dysfunction.



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
are currently developing a working plan to file an IND to the FDA, during the fourth quarter of 2016, for a Phase I study of CF602
for the treatment of erectile dysfunction.





48







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.



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 is a summary description of our in-licensing agreement with Leiden University. Our license with NIH expired in
June 2015 with the expiration of certain patents. The description provided below does not purport to be complete and is
qualified in their entirety by the complete agreement, which is attached as an exhibit to this Annual Report on Form
20-F.



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.



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, 2015, we have paid approximately 95,000 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.





49







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.



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, 2015, KD had paid us approximately $0.8 million, 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.



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.





50







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. Under the license
agreement, Eye-fite was required to assume responsibility for making payments to our licensor, the NIH, pursuant to, and for the
term of, a license agreement between us and NIH for certain patent rights relating to CF101. In June 2015, our license with NIH
expired and as a result Eye-fite is no longer obligated to make any payments to NIH in connection with Can-Fite’s now expired
license with NIH (other than with respect to any accrued and unpaid payments to which NIH may be entitled to). Patent rights granted
to Eye-fite under the license agreement by us that are not NIH patents are free of any royalties and milestone payments.



The
license agreement with Eye-Fite 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. We may terminate the license 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 license agreement upon three months’ prior written notice for any reason and
upon 30 days’ prior written notice for our material breach of the license agreement.



All
inventions resulting from the development and commercialization of CF101 under the license agreement belong to us, whether invented
solely by us, solely by Eye-Fite or by both entities. However, the license 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. Pursuant to the
license agreement, we have the sole right to make elections with respect to patent term extension of or supplemental protection
certificates with respect to our licensed patents and the sole right to seek and maintain any data exclusivity periods available
for CF101. Also pursuant to the license agreement, we have retained the right to prosecute and maintain the patents licensed to
us.



SKK
Agreement



On
August 27, 2015, we entered into an agreement with Japan-based Seikagaku Corporation, or SKK, terminating its license agreement
with us. SKK informed us that it is strategically focused on expanding its core research and development activities in the field
of glyco-science. Under the license agreement, SKK was granted a license for the use, development and marketing of CF101 in Japan
with respect to inflammatory indications, except for ophthalmic disease indications. The termination agreement provides, among
other things, that all licenses and rights granted to SKK terminate and all clinical and non-clinical studies conducted by SKK
shall be transferred free of charge to us. Over the life of the license, we received an aggregate of approximately $8.5 million
from SKK.





51







Total
Revenues by Category of Activity and Geographic Markets



Historically, we have generated revenues from payments
received pursuant to our out-licensing agreements with Cipher, SKK and KD with respect to CF101. See “Item
4—Information on the Company—Business Overview—Out-Licensing and Distribution Agreements”.We
recorded revenues of NIS 0.64 million for the year ended December 31, 2015 which was due to the recognition of a portion of
the NIS 5.14 million (CAD 1.65 million) advance payment received in March 2015 under the distribution agreement with Cipher.
In the years ended December 31, 2014 and 2013 we did not record any revenues. 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.



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.





52







Patents



As
of March 29, 2016, we owned or exclusively licensed (from Leiden University) 14 patent families that, collectively, contain approximately
181 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.



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 patent application is pending in Brazil. These patents and patent application
    have a filing date of January 1, 2002 and a priority date of January 16, 2001 and are set to expire in 2022, other than the
    United States patent that will expire in 2023;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | 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. There are patent applications pending in the U.S. (divisional), Canada,
    and Brazil. Each of the patents and patent applications has a filing date of November 30, 2005 and a priority date of December
    2, 2004;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | 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, Israel, Japan 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), China, Canada, Mexico, Hong-Kong and
    South Korea, each patent or patent application having a filing date of May 16, 2010 and a priority date of May 17, 2009;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





53







| | ● | 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 Israel, Japan and 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, 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 U.S.,
    India, China, Japan and Israel. These patents are set to expire in 2028. The patent applications are pending in the EPO (this
    European application designates all EPC member states) and India. Each patent and patent application has 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, Israel, Japan and Mexico. The patents are set to expire
    in 2026. Patent applications are pending in the United States and Brazil. These patents and 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 which was recently allowed. Each patent or patent
    application in this family has 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 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;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ● | a
    patent application in Israel which pertain to the use of A3AR ligands for treatment of ectopic fat accumulation. Further applications
    claiming priority from this Israeli application must be filed no later than November 23, 2016.                                                                                                                                                                                                                                             



We
currently hold an exclusive license from 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 patents that were granted in the United States, China, Japan, South Korea and in Europe (validated in, Austria, Belgium, Denmark,
France, Germany, Italy, Spain, Sweden, Switzerland, Holland and England). There are patent applications pending in the U.S. (recently
allowed) and India. These granted patents and the patents that may be granted on patent applications of this patent family are
set to expire in 2027.





54







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,
as a result of the termination of the NIH license agreement between Can-Fite and the NIH in June 2015 due to patent expiration,
we no longer hold rights to a family of composition of matter patents relating to CF101 that were licensed from NIH. Nevertheless,
because CF101 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 may also
be entitled to the rights under Can-Fite’s pharmaceutical use issued patents with respect to CF101, which provide patent
exclusivity within the ophthalmic field until the mid-2020s. While we believe that we may be able to protect our exclusivity in
the ophthalmic field 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. 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. In addition, we have discontinued the prosecution of a family of pending patent applications
under joint ownership of Can-Fite and NIH pertaining to the use of A3AR agonists for the treatment of uveitis. Such diminution
of our proprietary position could have a material adverse effect on our business, results of operation and financial condition.



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, glaucoma; HCC, NASH. Preclinical studies have also indicated that our drug candidates have
the potential to treat additional inflammatory diseases, such as sexual dysfunction, 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. For example, while TNF
inhibitor therapies transformed the treatment for many patients, a substantial percentage of patients (40% to 60%) do not respond
to either disease modifying anti-rheumatic drug, or a DMARD, or biologic therapies (Simsek, 2010).



Pre-clinical
pharmacology studies in different experimental animal models of arthritis revealed that CF101 acts as 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, potentially leading to an improvement in response rate for patients. 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 (sorafenib),
has been approved by the FDA.





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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.



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 Amgen, Centocor, Pfizer, Novartis, Abbvie, Celgene, Eli Lilly, Janssen and more. The competitive
landscape in the ophthalmic therapeutics field includes Alcon, a Novartis company, Allergan, Pfizer, Akorn, Merck and more. Competitors
in the hepatocellular carcinoma, also known as primary liver cancer, or HCC field include companies such as Bayer. Competitors
in the NASH field include companies such as Gilead, Genfit, Regato, Galmed, Raptor and Intercept. Competitors in the erectile
dysfunction field include Pfizer, Eli Lilly and Bayer.



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, 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. Recently, a new oral small molecule inhibitor of phosphodiesterase 4 (PDE4), Celgene’s Otezla,
has gained sizable market share as a result in part due to its convenience of oral dose and comparable efficacy to the biologic
drugs. The FDA recently approved Taltz (ixekizumab) by Eli Lilly. The psoriasis drug market is forecast to grow to $8.9 billion
by 2018, according to estimates of Visiongain.



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 (etanercept) by Amgen and Pfizer, Remicade (infliximab)
by Centocor, Humira (adalimumab) by Abbvie and Stelara (ustekinumab) by Janssen, have significant side effects, are expensive
and patients are often not responsive. For example, some of these drugs have received an FDA “black box” warning for
increased risk of cancer in children and adolescents and risk of infection with Legoinella and Listeria bacteria.





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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.



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 including sores, anemia, diarrhea, nausea/vomiting, abdominal pain, bruising/bleeding, and liver problems.



The
second class of DMARD includes biological drugs, such as Enbrel (etanercept) by Amgen, Remicade (infliximab) by Centocor, and
Humira (adalimumab) by Abbvie. These drugs are usually administered in combination with MTX and are more effective in combination,
but may have severe side effects, including risk of lymphoma and serious infection. Biological drugs are administered through
injection, are generally expensive and there is no biomarker to predict the response, if any. As such, response rates typically
range between 40-60% (Simsek, 2010). 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 including baricitninib by Eli Lilly which is pending FDA approval, while others
are in Phase II or earlier stages of development.



CF101
for the Treatment of Glaucoma



According
to Datamonitor, as of 2010, seven million people in the seven major markets suffered from glaucoma. Market Scope expects the global
glaucoma pharmaceutical market to climb from about $4.7 billion in 2015 to nearly $6.1 billion in 2020 at a compounded annual
rate of 5.1%. 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 the prostaglandin analogs, or PGA, Xalatan (latanoprast) by Pfizer, and Travatan (travoprost)
by Alcon, a Novartis company, and beta-blocker Cosopt (timolol-dorzolamide) by Merck. 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
$0.5 billion in 2014 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 2012 and 2013. 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 (bimatoprost), Ganfort (timolol-bimatoprost),
Alphagan (brimonidine), and Combigan (timolol-brinidine), 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 Akorn (acquired from Merck), the first preservative-free PGA ophthalmic solution, or a solution derived from fatty
acids, for the treatment of glaucoma.





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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.



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 (sorafenib) by Bayer is the only approved drug for HCC and prolongs patient survival time by only
a few months. According to Datamonitor, the HCC drug market is expected to reach $1.4 billion by 2019.



Currently,
there is no vaccine for HCC. Several therapies are in advanced clinical development for HCC including Opdivo (nivolumab) by Bristol-Myers
and Cabozantinib by Exelixis. 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 NASH



Rates
of NAFLD and NASH are increasing in the U.S. in concert with increasing rates of obesity and diabetes. In fact, NASH is now the
third leading cause of liver transplant in the U.S. It is estimated that 17-33% of Americans have fatty liver, with approximately
one-third going on to develop NASH. NASH is believed to affect 2-5% of adult Americans. Despite the progression of several interesting
clinical-stage candidates by companies such as Gilead, Genfit, Regado, Conatus, Galmed, Raptor and Intercept as well as others,
there are currently no FDA approved treatment options for NASH.



By
2025, Deutsche Bank estimates the addressable pharmaceutical market for NASH will reach $35-40 billion in size.



CF602
for the Treatment of Erectile Dysfunction



According
to a the Massachusetts Male Aging Study in 1994, 52% of the respondents between the ages of 40 and 70 years old reported some
degree of erectile dysfunction.



The
most popular class of drug to treat erectile dysfunction is the phosophodiesterase type 5 inhibitors, or PDE5. These drugs block
the degradative action of cyclic guanosine monophosphate, or GMP, specific phosphodiesterase type 5 on cyclic GMP in the smooth
muscle cells lining the blood vessels supplying the corpus cavernosum of the penis. An erection is caused by increased blood flow
into the penis resulting from the relaxation of penile arteries and corpus cavernosal smooth muscle. This response is mediated
by the release of nitric oxide from nerve terminals and endothelial cells, which stimulates the synthesis of cyclic GMP in smooth
muscle cells. The inhibition of PDE5 enhances erectile function by increasing the concentration of cyclic GMP in the corpus cavernosum
and pulmonary arteries.





59







Unfortunately,
the systemic side effects of PDE5 inhibitors include a decrease in sitting blood pressure. This has resulted in warnings and precautions
and contraindications of use in patients already taking antihypertensive agents like nitrates or alpha-blockers. A study published
in the American Journal of Medicine (Selvin E., et al., 2007) found that persons with a history of heart disease, hypertension,
and diabetes had a higher probability of impotence. A second study published in the same journal (Shah NP., et al, 2015) notes
that vascular erectile dysfunction is a powerful marker of increased cardiovascular risk. We believe a significant market opportunity
exists targeting erectile dysfunction patients contraindicated for use of the market leading products, Viagra and Cialis.



GlobalData
estimates the value of the erectile dysfunction therapeutic market to be approximately $2.6 billion by 2018 with few drugs on
the market which includes Viagra (sildenafil) by Pfizer, Cialis (tadalafil) by Eli Lilly and Levitra (vardenafil) by Bayer.



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.



We
also maintain worldwide product and clinical trial liability insurance with coverage of approximately $5 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.”





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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.



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.





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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. Subsequently, in October 2015, the EMA granted CF102 orphan
drug designation 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.



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).





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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.



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.





63







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.



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.





64







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.



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.





65







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.
| | - | ---------------------------------------------------------------------------------------------------------------------------



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.





66







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.



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.





67







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.



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.





68







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.



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.



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 20,447, or $5,243, 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.





69







ITEM
4A. Unresolved Staff Comments



Not
Applicable.



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 and sexual dysfunction. 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 an allosteric modulator of the A3AR, CF602 from Leiden University. In addition, we have out-licensed CF101 (i)
for the treatment of RA to Kwang Dong Pharmaceutical Co. Ltd., a South Korean limited company, or KD for the Korean market, (ii)
for the treatment of psoriasis and RA to Cipher Pharmaceuticals, or Cipher, for the Canadian market, and (iii) for the treatment
of ophthalmic diseases to Eye-Fite, a wholly-owned subsidiary of OphthaliX for the global market. Our license with NIH expired
in June 2015 with the expiration of certain patents. See “Item 4. Information on the Company—Business Overview—Out-Licensing
and Distribution Agreements”.



In August 2015, we
entered into an agreement with Japan-based Seikagaku Corporation, or SKK, terminating its license agreement with us. SKK
informed us that it is strategically focused on expanding its core research and development activities in the field of
glyco-science. Under the license agreement, SKK was granted a license for the use, development and marketing of CF101 in
Japan with respect to inflammatory indications, except for ophthalmic disease indications. The termination agreement
provides, among other things, that all licenses and rights granted to SKK terminate and all clinical and non-clinical studies
conducted by SKK shall be transferred free of charge to us. Over the life of the license, we received an aggregate of
approximately $8.5 million from SKK.



Our
product candidates, CF101, CF102 and CF602 are being developed to treat several autoimmune-inflammatory, oncological, ophthalmic
and sexual dysfunction indications. CF101 is in various stages of clinical development for the treatment of autoimmune-inflammatory
diseases, including RA and psoriasis. CF101 is also being developed by OphthaliX for the treatment of ophthalmic indications,
including glaucoma and uveitis. CF102 is being developed for the treatment of HCC and has orphan drug designation for the treatment
of HCC in the U.S. and Europe. Recently, CF102 was granted Fast Track designation by the FDA as a second line treatment to improve
survival for patients with advanced hepatocellular carcinoma who have previously received Nexavar (sorafenib). CF102 is also being
developed for the treatment of non-alcoholic steatohepatitis, or NASH, following our recently concluded study which revealed compelling
pre-clinical data on CF102 in the treatment of NASH, a disease for which no FDA approved therapies currently exist. CF602 is our
second generation allosteric drug candidate for the treatment of sexual dysfunction, which has shown proof of concept in pre-clinical
pharmacological studies. 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.





70







We
are currently: (i) awaiting approval of a Phase III protocol that we filed with the EMA for CF101 in the treatment of RA during
the first quarter of 2016 with study initiation anticipated in the second or third quarter of 2016, (ii) completing the design
of our Phase III study protocol for CF101 in the treatment of psoriasis which we plan to file with the EMA in the first half of
2016 and anticipate study initiation in the fourth quarter of 2016, (iii) conducting a Phase II study with respect to the development
of CF102 for the treatment of HCC and anticipate completing enrollment of approximately 78 patients during the second half of
2016, (iv) planning to file a Phase II study protocol with institutional review boards, or IRBs, for our first human clinical
study of CF102 in the treatment of NASH, a new indication identified by us for our liver cancer drug, and (v) conducting further
preclinical work with respect to the development of CF602 for the submission of an IND to the FDA during the fourth quarter of
2016. OphthaliX is currently: (i) in the final stages of a Phase II trial with respect to the development of CF101 for the treatment
of glaucoma or related syndromes of ocular hypertension having completed patient enrollment and expects to report data in the
second quarter of 2016; and (ii) planning on 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, 2015, we had
an accumulated deficit of approximately NIS 322.9 million ($82.7 million). Although we have begun to recognize revenues in
connection with our out-licensing agreements with SKK, KD and Cipher, 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.



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, 2015, we had approximately $16.9 million, or NIS
66 million, of cash and cash equivalents based on the exchange rate reported by the Bank of Israel as of December 31,
2015.



Revenues



Our
revenues to date have been generated primarily from payments under our licensing arrangements with Cipher, KD and SKK. Under the
Distribution and Supply Agreement with Cipher we received CDN$1.65 million upon execution of the agreement and are entitled to
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. 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 payment of $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. Under the recently terminated SKK license agreement we received an aggregate
of approximately $8.5 million from SKK. See “Item 4. Information on the Company—Business Overview—Out-Licensing
and Distribution Agreements”.





71







Under
the terms of 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 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               |  |  | Awaiting
approval of a Phase III protocol that we filed with the EMA during the first quarter of 2016 with study initiation anticipated
in the second or third quarter of 2016
|           |  |  | Completing
    design of Phase III study in psoriasis   |  |  | Planning
    to file a Phase III protocol with the EMA in first half of 2016; patient enrollment anticipated in fourth quarter of 2016                                        
|           |  |  | Ongoing
    Phase II in Glaucoma (via OphthaliX)        |  |  | Top
    line results are expected in second quarter of 2016                                                                                                                   
|CF
    102 |  |  | Phase
    II in HCC                                     |  |  | Completion
    of patient enrollment in first half of 2016                                                                                                                    
|           |  |  | Preparing
    for a Phase II study in NASH              |  |  | Planning
    to file Phase II protocol with IRBs in second quarter of 2016                                                                                                    
|CF
    602 |  |  | Preparing
    for a Phase I study in sexual dysfunction |  |  | Planning
    to file an IND with the FDA in fourth quarter of 2016                                                                                                            



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.





72







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, 2013, 2014 and
2015; and on an aggregate basis since project inception:



|                                     |  |                         |       |  | Total   | 
|------------------------------------ |  | ----------------------- | ----- |  | ------- | 
|                                     |  |                         |       |  | Costs   | 
|                                     |  | (USD in thousands)      |       |  | Since   | 
|                                     |  | Year Ended December 31, |       |  | Project | 
|                                     |  | 2013                    |       |  | 2014    | 
|CF101                                |  |                         | 2,624 |  |         | 
|CF102                                |  |                         | 268   |  |         | 
|CF602                                |  |                         | -     |  |         | 
|                                     |  |                         |       |  |         | 
|Other projects                       |  |                         | -     |  |         | 
|Total gross direct project costs (1) |  |                         | 2,892 |  |         | 



|(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, 2015, we have incurred research and development expenses of approximately $61 million. 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.



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;
| | - | ------------------------------------------------------------





73







| | ● | 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 U.S. dollar warrants.



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.





74







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, 2015 have been translated into U.S. dollars at the
representative rate of exchange on December 31, 2015 (U.S. $1 = NIS 3.902). 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;                                                                                                         
|
| | ● | 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
generate income from a distribution agreement with Cipher. See “Item 4. Information on the Company—Business Overview—Out-Licensing
and Distribution Agreements”. Such income comprises of upfront license fees, milestone payments and potential royalty payments.





75







We
identified four components in the agreement: (i) performing the research and development services through regulatory approval;
(ii) exclusive license to distribute the product in Canada; (iii) participation in joint steering committee; and, (iv) royalties
resulting from future sales of the product.



We
recognize revenue in accordance with IAS 18, "Revenue" pursuant to which each required deliverable is evaluated to determine
whether it qualifies as a separate unit of accounting based on whether the deliverable has "stand-alone value" to the
customer. The arrangement’s consideration that is fixed or determinable is then allocated to each separate unit of accounting
based on the relative selling price of each deliverable which is based on the Estimated Selling Price.



Components
(i) – (iii) were analyzed as one unit of accounting. Consequently, revenue from these components is recorded based on the
term of the research and development services (which is the last deliverable in the arrangement). We estimate these services will
spread over a period of 24 quarters beginning March 2015.



Revenues
from milestone payments:



Contingent
payments related to milestones will be recognized immediately upon satisfaction of the milestone and contingent payments related
to royalties will be recognized in the period that the related sales have occurred.



Revenues
from royalties:



Revenues
from royalties will be 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.



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.





76







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.





Liability Related to Certain Warrants



The
fair value of the liability for warrants exercisable into shares issued to investors in connection with our financings to date
was calculated using the Black-Scholes-Merton option-pricing model. We accounted for these warrants as liabilities due to the
dollar exercise price terms and in accordance with IAS 39, measured at fair value each reporting period until they will be exercised
or expired, with changes in the fair values being recognized in our statement of comprehensive loss as financial income or expense.

Fair
value for each reporting period was calculated based on the following assumptions:

|1. |  | Risk-free interest rate - based on yield rated of non-index linked U.S. Federal Reserve
treasury bonds.
|-- |  | -------------------------------------------------------------------------------------------------------



|2. |  | Expected volatility - was calculated based on our actual historical stock price
                                                                             movements over a term that is equivalent to the expected term of the option.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Expected life - the expected life was based on the expiration date of the warrants.
|-- |  | -----------------------------------------------------------------------------------



|4. |  | Expected dividend yield - was based on the fact that we have not paid dividends to its
                                                                              shareholders in the past and does not expect to pay dividends to its shareholders in the future.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our
net loss for the year ended December 31, 2015 and 2014 included finance income in the amount of NIS 6,913 thousand and NIS 2,971,
respectively, in connection with the above-mentioned warrants.



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.



IAS
7-Statement of Cash Flows:



In
January 2016, the IASB issued amendments to IAS 7 Statement of Cash Flows. This standard requires additional disclosures regarding
financial liabilities. The amendments are effective for annual periods beginning on or after January 1, 2017, with early application
permitted. We plan to include the necessary disclosures in the financial statements when applicable.



IFRS
15-Revenue from Contracts with Customers:



In
May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which replaces IAS 18 Revenue, IAS 11 Construction Contracts,
IFRIC 13 Customer Loyalty Programs, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from
Customers and SIC-31 Revenue - Barter Transactions Involving Advertising Services. IFRS 15 is to be applied retrospectively for
annual periods beginning on or after January 1, 2018 with early adoption permitted. We are evaluating the possible impact
of IFRS 15 but  are presently unable to assess its effect, if any, on the financial statements.



IFRS
16-Leases:



IFRS
16 replaces International Accounting Standard 17 - Leases (IAS 17) and its related interpretations. The standard's
instructions annul the existing requirement from lessees to classify leases as operating or finance leases. Instead of this,
for lessees, the new standard presents a unified model for the accounting treatment of all leases according to which the
lessee has to recognize an asset and liability in respect of the lease in its financial statements. Similarly, the standard
determines new and expanded disclosure requirements from those required at present. The standard will become effective for
annual periods as of January 1, 2019, with early adoption permitted. We have not yet commenced examining the effects of
adopting the standard on the financial statements.



U.S.
Registered Direct Offerings



On
December 8, 2014, we sold to certain institutional investors an aggregate of 1,797,753 ADSs in a 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 in a private placement. 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. 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.



On
September 21, 2015, we sold to certain institutional investors an aggregate of 2,068,966 ADSs in a registered direct offering
at $4.35 per ADS resulting in gross proceeds of $9,000,002. In addition, we issued to the investors unregistered warrants to purchase
1,034,483 ADSs in a private placement. The warrants may be exercised after six months from issuance for a period of five and a
half years from issuance and have an exercise price of $5.25 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. We paid an aggregate of $792,379 in placement agent fees and expenses and issued unregistered placement
agent warrants to purchase 103,448 ADS on the same terms as the warrants except they have a term of five years.









77







On
October 15, 2015, we sold to certain institutional investors providing for the issuance of an aggregate of 1,109,196 ADSs in a
registered direct offering at $4.35 per ADS resulting in gross proceeds of approximately $4,825,000. In addition, we issued to
the investors unregistered warrants to purchase 443,678 ADSs in a private placement. The warrants may be exercised after six months
from issuance for a period of five and a half years from issuance and have an exercise price of $5.25 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. We paid an aggregate of $524,621 in placement agent fees and expenses
and issued unregistered placement agent warrants to purchase 55,460 ADS on the same terms as the warrants except they have a term
of five years.



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.



Israeli
Public Offering



On
February 5, 2013, we completed the sale in Israel of 7,477 units, each consisting of 400 of our ordinary shares, 5,000 Series
10 Warrants to purchase 200 ordinary shares and 5,000 Series 11 Warrants to purchase 200 ordinary shares, for an aggregate of
2,990,800 ordinary shares, 37,385,000 Series 10 Warrants to purchase 1,495,400 ordinary shares and 37,385,000 Series 11 Warrants
to purchase 1,495,400 ordinary shares. In addition, we issued 1,682,000 Series 10 Warrants to purchase 67,280 ordinary shares
to the underwriters of the offering. 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 375 ordinary shares, for an aggregate of 1,837,500 ordinary shares and 1,378,125 Series 12 Warrants to
purchase 1,378,125 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. The Series 9 Warrants
expired 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
had an exercise price of 0.394 NIS per ordinary share (which may fluctuate as it is based on the Israeli consumer price index)
and following extension are set to expire on October 30, 2016.



We
also issued 37,385,000 Series 11 Warrants exercisable for 1,495,400 of our ordinary shares in the offering. The Series 11 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 29, 2016, other than Series 6, Series 7, Series 8 and Series 9 Warrants that have expired, 25,000 Series 10 Warrants
to purchase 1,000 ordinary shares were exercised on December 26, 2013 for an aggregate exercise price of NIS 9,850 and 12,500
Series 11 Warrants to purchase 500 ordinary shares were exercised on December 26, 2013 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, 2015 to Year Ended December 31, 2014



Revenues



In
the year ended December 31, 2015, we recorded revenues of NIS 0.64 million. We did not record any revenues during the year ended
December 31, 2014. The increase in revenue was due to the recognition of a portion of the NIS 5.14 million (CAD 1.65 million)
advance payment received in March 2015 under the distribution agreement with Cipher.



Research
and development expenses



Research
and development expenses for the year ended December 31, 2015 were NIS 15.05 million, a decrease of NIS 1.15 million, or 7.1%,
compared to NIS 16.20 million for the year ended December 31, 2014. Research and developments expenses for the year ended 2015
comprised primarily of expenses associated with the Phase II study for CF102 as well as expenses for ongoing studies of CF101.
The decrease is primarily due to the completion of the Phase II/III psoriasis study during the first quarter of 2015 and a decrease
in the scope of the non-clinical expenses during the year ended 2015 as compared to the parallel period in 2014. We expect that
the research and development expenses will increase through 2016 and beyond.



General
and administrative expenses



General
and administrative expenses were NIS 10.63 million for the year ended December 31, 2015 and NIS 11.57 million for year ended December
31, 2014. The decrease is primarily due to a reduction in salary and investors and public relations expenses. We expect that general
and administrative expenses will remain at the same level through 2016 and beyond.



Financial
expenses, net



Financial
income, net for the year ended December 31, 2015 aggregated NIS 5.29 million compared to financial income, net of NIS 3.27 million
for the same period in 2014. The increase in financial income, net in the year ended 2015 was mainly due to a decrease in the
fair value of warrants that are accounted as financial liability.



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 NIS 11.57 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.





80







B.
Liquidity and Capital Resources



Since
inception, we have funded our operations primarily through public (in Israel and US) and private offerings of our equity securities
and payments received under our strategic licensing arrangements. At December 31, 2015, we had approximately NIS 66.03 million
($16.9 million) in cash and cash equivalents, and have invested most of our available cash funds in short-term bank deposits.
During the first quarter of 2015, we received approximately NIS 5.14 million ($1.3 million) from Cipher, as upfront payment for
entering into the distribution agreement with Cipher and in September and October 2015, we raised approximately NIS 48.33 million
($12.5 million) in registered direct offerings.



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 18.2 million for the year ended December 31, 2015, compared with net cash used in operating
activities of NIS 28.6 million and NIS 30.1 million for the years ended December 31, 2014 and 2013, respectively. The NIS 10.4
million decrease in the net cash used in operating activities during 2015, compared to 2014, was primarily the result of a decrease
in loss and an increase in deferred revenues. 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 loss offset by an increase in accounts receivable and a decrease
in trade payables and other payables, which increased in the year before.



Net
cash used in investing activities for the year ended December 31, 2015 was NIS 0.17 million compared to net cash used in investing
activities of NIS 0.04 million for the year ended December 31, 2014 and net cash used in investing activities of NIS 0.04
million for the year ended December 31, 2013. The changes in cash flows from investing activities are immaterial.



Net
cash provided by financing activities was NIS 48.3 million for the year ended December 31, 2015, compared to net cash provided
by financing activities of NIS 44.7 million for the year ended December 31, 2015 and NIS 46 million for the year ended December
31, 2013. The NIS 3.6 million increase in the net cash provided by financing activities during 2015, compared to 2014, was primarily
due to issuance of shares and warrants, net of issuance expenses. 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.



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 29, 2016, will be sufficient
to fund our projected cash requirements at least 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;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------





81







| | ● | 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;
| | - | ------------------------------------------------------------------------------------------------------



| | ● | 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, 2015:



|                                |  | Total     |           |  | Less than
1 year |  |           | 1 – 3  years |  |  | 3-5  years |   |  | More than
5 years |  
|------------------------------- |  | --------- | --------- |  | ---------------- |  | --------- | ------------ |  |  | ---------- | - |  | ----------------- | -
|Contractual Obligations         |  |           |           |  |                  |  |           |              |  |  |            |   |  |                   |  
|                                |  |           |           |  |                  |  |           |              |  |  |            |   |  |                   |  
|NIH milestones(1)               |  | 1,658,350 |           |  | 1,658,350        |  |           | -            |  |  |            | - |  |                   | -
|Leiden University milestones(2) |  |           | 339,744   |  |                  |  | 42,468    |              |  |  | 297,276    |   |  |                   | -
|Car lease obligations           |  |           | 263,232   |  |                  |  | 133,945   |              |  |  | 129,287    |   |  |                   | -
|Severance pay                   |  |           | 630,000   |  |                  |  | -         |              |  |  | -          |   |  |                   | -
|                                |  |           |           |  |                  |  |           |              |  |  |            |   |  |                   |  
|Total                           |  |           | 2,863,742 |  |                  |  | 1,831,315 |              |  |  | 402,427    |   |  |                   | -



|(1) | Includes
    $425,000 in milestone payments.                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(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                                       |  | 60 
|                          |  |                                                                 |  |    
|Pnina
    Fishman, Ph.D.  |  | Chief
    Executive Officer, Director                           |  | 67 
|                          |  |                                                                 |  |    
|Motti
    Farbstein       |  | Chief
    Operating and Financial Officer                       |  | 52 
|                          |  |                                                                 |  |    
|Guy
    Regev             |  | Director                                                        |  | 47 
|                          |  |                                                                 |  |    
|Abraham
    Sartani, M.D. |  | Director                                                        |  | 68 
|                          |  |                                                                 |  |    
|Gil
    Oren              |  | Director,
    Audit Committee and Compensation Committee member |  | 63 
|                          |  |                                                                 |  |    
|Israel
    Shamay         |  | Director,
    Audit Committee and Compensation Committee member |  | 52 



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 Executive Officers and Directors



The
following table presents in the aggregate all compensation we paid to all of our executive officers and directors as a group for
the year ended December 31, 2015. 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 executive officers and directors as a group, consisting of 7 persons |  |                                                                        | 3,072



The
following table sets forth information with respect to the options granted to the members of our executive officers and directors
for the year ended December 31, 2015.



|Name          |  | Date of  Grant |  | Purchase  Price 
(in NIS) |       |  | Number of Options |  |         | Vesting  Period |  | Expiration Date  |  | Total Benefit  (in NIS) |  |  | Benefit  recognized
in 2015
(in NIS) | 
|------------- |  | -------------- |  | ------------------------- | ----- |  | ----------------- |  | ------- | --------------- |  | ---------------- |  | ----------------------- |  |  | ------------------------------------ | 
|Pnina Fishman |  | 22/10/15       |  |                           | 3.573 |  |                   |  | 200,000 |                 |  | 1/12 per quarter |  | 22/10/25                |  |  | 1,039,771                            | 





85







Each
director other than our Chief Executive Officer and Avraham Sartani, is entitled to the payment of annual fee of NIS 48,869 (approximately
$12,524), and payment of NIS 3,265 (approximately $837) per meeting for participating in meetings of the board and committees
of the board. The annual fee shall not exceed the annual fee of an expert external director set forth in the Companies Regulations
(Rules regarding Compensation and Expenses of External Directors) 5760-2000 as adjusted by the Companies Regulations (Relief for
Public Companies with Shares Listed for Trading on a Stock Market Outside of Israel), 5760-2000. The compensation awarded for
participating in resolutions that are adopted without an actual convening (i.e., unanimous written resolutions) and for participating
through telephone meetings will be reduced as follows: (1) for resolutions that will be adopted without an actual convening, the
participation compensation will be reduced by 50%; and (2) for participation through telephone meetings, the participation compensation
will be reduced by 40%. The participation compensation and the annual fee is inclusive of all expenses incurred by our directors
in connection with their participation in a meeting held at our offices or with regard to resolutions resolved by written consent
or teleconference. Avraham Sartani is entitled to a fee of $1,000 per meeting. In addition, our directors (other than our Chief
Executive Officer and external directors) are entitled to reimbursement for expenses related to their participation at meetings
taking place not at our offices and outside their respective residency area.



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
office holders (as defined in the Companies Law), we have elected to provide such information in our annual reports. Accordingly,
the following table presents information regarding compensation reflected in our financial statements for five most highly compensated
office holders, as of December 31, 2015.



|Name and Position                       |  | Salary             |     |     | Bonus |  |    | Value of Options Granted(4) |  |  | Other(5) |  |  | Total |   
|--------------------------------------- |  | ------------------ | --- | --- | ----- |  | -- | --------------------------- |  |  | -------- |  |  | ----- | --
|                                        |  | (NIS in thousands) |    
|Pnina Fishman Chief Executive Officer   |  | 1,128              | (1) |     | -     |  |    | 197                         |  |  | 55       |  |  | 1,380 |   
|Motti Farbstein Chief Financial Officer |  |                    | 930 | (2) |       |  | 99 |                             |  |  | 38       |  |  |       | 49
|Gil Oren Director                       |  |                    | 154 | (3) |       |  | -  |                             |  |  | 10       |  |  |       | - 
|Guy Regev External Director             |  |                    | 154 | (3) |       |  | -  |                             |  |  | -        |  |  |       | - 
|Israel Shamay External Director         |  |                    | 148 | (3) |       |  | -  |                             |  |  | -        |  |  |       | - 



|(1) | Amount
    represents consulting fee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(2) | Salary
    includes Mr. Farbstein’s gross salary plus payment of social benefits made by us on behalf of such person. Such benefits
    may include, to the extent applicable, payments, contributions and/or allocations for savings funds (e.g., managers’
    life insurance policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, risk
    insurances (e.g., life, or work disability insurance), payments for social security payments and tax gross-up payments, vacation,
    medical insurance and benefits, convalescence or recreation pay and other benefits and perquisites consistent with our policies.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(3) | Amount
    represents fees for board service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(4) | The
    value of options is the expense recorded in our financial statements for the period ended December 31, 2015 with respect to
    all options granted to such person.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



|(5) | Amount
    represents cost of use of company car.
|--- | -------------------------------------------------



Employment
and Consulting Agreements



We
have entered into employment or consulting agreements with our executive officers, certain of our directors and key service providers.
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.





86







The
following are summary descriptions of certain 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.



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 103,200 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.



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.



Dr.
Fishman is also entitled to receive options exercisable into our ordinary shares from time to time. As of March 29,
2016, we have granted her options to purchase an aggregate of 744,443 ordinary shares, of which (i) 241,613 were exercised
into ordinary shares, (ii) 4,890,760 options to purchase 195,630 ordinary shares have an exercise price of NIS 0.50 per
option, are fully vested and expire on August 23, 2016, (iii) 2,680,000 options to purchase 107,200 ordinary shares have an
exercise price of NIS 0.644 per option, are fully vested and expire on January 13, 2021, and (iv) 200,000 options to purchase
200,000 ordinary shares have an exercise price of NIS 3.573 per ordinary share, vesting on a quarterly basis over three years
commencing October 22, 2015, and expire on October 22, 2025.



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.



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.



Mr.
Farbstein is also entitled to receive options exercisable into our ordinary shares from time to time. As of March 29, 2016, we
have granted him options to purchase an aggregate of 114,195 ordinary shares, of which (i) options to purchase ordinary shares
were exercised into 1,133 ordinary shares, (ii) options to purchase 12,887 ordinary shares expired, (iii) 554,387 options are
exercisable into 22,175 ordinary shares at an exercise price of NIS 0.307 per option, are fully vested, and expire on November
26, 2018, (iii) 100,000 options are exercisable into 4,000 ordinary shares at an exercise price of NIS 0.385 per option, are fully
vested, and expire on May 2, 2022, (iv) 100,000 options are exercisable into 4,000 ordinary shares at an exercise price of NIS
0.326 per option, vesting on a quarterly basis over four years commencing March 21, 2013, and expire on March 20, 2023, (v) 10,000
options to purchase 10,000 ordinary shares at an exercise price of NIS 8.1205 per option, vesting on a quarterly basis over four
years commencing March 19, 2015, and expire on March 18, 2025, (vi) 60,000 options to purchase 60,000 ordinary shares at an exercise
price of NIS 4.317 per ordinary shares, vesting on a quarterly basis over four years commencing February 18, 2016 and expire on
February 18, 2026.



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.





87







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.



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 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.”



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 October 22, 2015, at an annual general
meeting of our shareholders, Pnina Fishman, Ilan Cohn, 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. On
July 14, 2014, at an annual general meeting of our shareholders 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. 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.





88







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.



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, but there is a presumption that a shareholder holding 25% of the
shares of the Company is regarded as a controlling shareholder. 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) the 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.





89







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 the TASE. 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.



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. Gil Oren, who is one of our external directors, meets the required qualifications
and has financial and accounting expertise as required by the Israeli Companies Law, while Guy Regev, and independent director,
also meets the required qualifications and has financial and accounting expertise as required by the Israeli Companies Law.





90







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 Israeli 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.



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.





91







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) approves the working plan of the internal auditor, to examine such working plan before
its submission to the Board and propose amendments thereto, (vi) examining our internal controls and internal auditor's performance,
including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities, (vii) 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 (viii) 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.



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.





92







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.



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. The
compensation policy is required to be brought before the shareholders of the Company once every three years for approval.





93







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;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | ● | 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 on January 6, 2014 after discussions and recommendation
of the compensation committee and approval by the Board of Directors. 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.



Under
Amendment no. 27 to the Israeli Companies Law, which became effective as of February 17, 2016, the audit committee of an Israeli
public company which has been established and conducts itself also in accordance with provisions governing the composition of
the compensation committee as set forth in the Israeli Companies Law, may act in lieu of a compensation committee with respect
to the responsibilities of a compensation committee which are set forth in the Israeli Companies Law.





94







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.



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.





95







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 Israeli 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.



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;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





97







| | ● | 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.



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.





98







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.



D.
Employees.



As
of December 31, 2015, we had seven employees, three 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, 2014, 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.





99







E.
Share Ownership.



The
following table sets forth information regarding the beneficial ownership of our outstanding ordinary shares as of March 29, 2016
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 27,672,901 ordinary shares outstanding as of March 29, 2016 (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 29, 2016, 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                   |  |                           | 214,852 | (1) |                      | 
|Pnina Fishman, PhD.Chief Executive Officer and Director |  |                           | 599,603 | (2) |                      | 
|Motti FarbsteinChief Operating Officer                  |  |                           | 37,433  | (3) |                      | 
|Guy RegevDirector                                       |  |                           | 54,240  | (4) |                      | 
|Abraham Sartani, Ph.D.Director                          |  |                           | 11,733  | (5) |                      | 
|Gil OrenDirector                                        |  |                           | 5,833   | (6) |                      | 
|                                                        |  |                           |         |     |                      | 
|Directors and Executive Officers as a group (6 persons) |  |                           | 923,694 |     |                      | 



|*   | Denotes
    less than 1%                                                                                                                                                                                                                             
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                      
|(1) | Represents
    (i) 133,567 ordinary shares, and (ii) 2,032,136 unregistered options to purchase 81,285 ordinary shares at an exercise price
    of NIS 1.247 per option and expire on March 20, 2017. All such warrants and options are fully vested.



|(2) | Represents
    (i) 263,433 ordinary shares, (ii) 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 expiring on January 13, 2021 and (iii) 200,000 unregistered options to purchase 33,340 ordinary shares
    at an exercise price of NIS 3.573 per option and expire on October 22, 2025. Excludes 166,660 unregistered options to purchase
    166,660 ordinary shares that vest in more than 60 days from March 29, 2016.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes
    (i) 1,133 ordinary shares, (ii) 735,637 unregistered options to purchase 29,425 ordinary shares, of which (1) 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, (2)
    100,000 are exercisable into 4,000 ordinary shares at an exercise price of NIS 0.385 per option and expire on May 2, 2022,
    and (3) 81,250 are exercisable into 3,250 ordinary shares at an exercise price of NIS 0.326 per option and expire on March
    20, 2023, and (iii) (1) 3,125 unregistered options to purchase 3,125 ordinary shares at an exercise price of NIS 8.1205 per
    option and expire on March 18, 2025, (2) 3,750 unregistered options to purchase 3,750 ordinary shares at an exercise price of
    NIS     4.317     per     option and expire     on     February 18, 2026. Excludes 18,750 unregistered options to purchase
    750     ordinary shares     and     63,125 unregistered     options to     purchase 63,125 ordinary shares that vest in more
    than 60     days from March 29,     2016.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





100







|(4) | Represents
    (i) 24,240 ordinary shares, (ii) 250,000 registered warrants (Series 10) to purchase 10,000 ordinary shares at an exercise
    price of NIS 0.394 per warrant and expire on October 31, 2016, (iii) 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 (iv) 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Represents
    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) | Represents
    5,833 unregistered options to purchase 5,833 ordinary shares at an exercise price of NIS 12 per option and expire on July
    14, 2024. Excludes 4,167 unregistered options to purchase 4,167 ordinary shares that vest in more than 60 days from March
    29, 2016.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 12b 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, 2015, we have granted to employees, directors and consultants options that are outstanding to purchase up to 798,579
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, 2015, 13,714,570 options to purchase 548,579 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.





101







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, 2015, options to purchase 543,579 ordinary shares, par value NIS 0.25, were
fully vested.



2013
Share Option Plan



Under
the 2013 Plan we granted options at exercise prices between NIS 3.573 and NIS 12 per ordinary share, par value NIS 0.25. Options
to purchase up to 966,634 ordinary shares, par value NIS 0.25, were available to be granted under the 2013 Plan. As of December
31, 2015, 250,000 options to purchase 250,000 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.



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, 2015, options to purchase 14,166 ordinary shares, par value NIS 0.25, were fully
vested.



ITEM
7. Major Shareholders and Related Party Transactions



A.
Major Shareholders.



To
our knowledge, as of March 29, 2016 there were approximately  six shareholders of record with a United States address which
held 27,392 ordinary shares, directly or represented by ADSs, representing in the aggregate approximately 0.1% of our then
outstanding shares of common stock. 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.



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.





102







Legal
Matters



Except
as set forth below, 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.



On June 29, 2015, we received a lawsuit, filed with the
District Court of Tel-Aviv, requesting recognition of this lawsuit as a class action. The lawsuit named the Company, its Chief
Executive Officer and directors as defendants. The lawsuit alleges, among other things, that we misled the public with regard
to disclosures concerning the efficacy of our drug candidate, CF101. The claimant alleges that he suffered personal damages of
over NIS 73,000, while also claiming that our shareholders suffered damages of approximately NIS 125 million. On November 27,
2015 and December 1, 2015, we filed a motion to dismiss the action in part and on March 31, 2016, we filed a response to the lawsuit.
We strongly believe the lawsuit and its allegations to be baseless and without merit, and will vigorously defend this action.



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, 2015.



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, 2015, we had 27,672,901 ordinary shares outstanding (which excludes 446,827 ordinary shares held in treasury). See “Item
10—Additional Information—Memorandum and Articles of Association” for a detailed description of the rights attaching
to the shares.





103







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:                             |  |                               |        |  |                               | 
|2015                                |  |                               | 10.990 |  |                               | 
|2014                                |  |                               | 11.140 |  |                               | 
|2013                                |  |                               | 15.600 |  |                               | 
|2012                                |  |                               | 12.400 |  |                               | 
|2011                                |  |                               | 23.000 |  |                               | 
|                                    |  |                               |        |  |                               | 
|Quarterly:                          |  |                               |        |  |                               | 
|Fourth Quarter 2015                 |  |                               | 9.519  |  |                               | 
|Third Quarter 2015                  |  |                               | 10.020 |  |                               | 
|Second Quarter 2015                 |  |                               | 5.800  |  |                               | 
|First Quarter 2015                  |  |                               | 10.990 |  |                               | 
|Fourth Quarter 2014                 |  |                               | 9.350  |  |                               | 
|Third Quarter 2014                  |  |                               | 7.068  |  |                               | 
|Second Quarter 2014                 |  |                               | 10.480 |  |                               | 
|First Quarter 2014                  |  |                               | 11.140 |  |                               | 
|                                    |  |                               |        |  |                               | 
|Most Recent Six Months:             |  |                               |        |  |                               | 
|March 2016 (through March 29, 2016) |  |                               | 5.700  |  |                               | 
|February 2016                       |  |                               | 4.586  |  |                               | 
|January 2016                        |  |                               | 5.841  |  |                               | 
|December 2015                       |  |                               | 6.999  |  |                               | 
|November 2015                       |  |                               | 6.902  |  |                               | 
|October 2015                        |  |                               | 9.519  |  |                               | 
|September 2015                      |  |                               | 10.020 |  |                               | 



|(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 29, 2016, the last reported sales price of our ordinary shares on the TASE was NIS  5.076 per share, or $1.327 per
share. On March 29, 2016, the exchange rate of the NIS to the dollar was $1.00 = NIS  3.826 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,
2015, we had  6,269,707 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.





104







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:                             |  |                    |     
|2015                                |  |                    | 5.54
|2014                                |  |                    | 6.50
|2013                                |  |                    | 8.60
|2012 (from October 2, 2012)         |  |                    | 5.50
|                                    |  |                    |     
|Quarterly:                          |  |                    |     
|Fourth Quarter 2015                 |  |                    | 4.66
|Third Quarter 2015                  |  |                    | 5.24
|Second Quarter 2015                 |  |                    | 3.29
|First Quarter 2015                  |  |                    | 5.54
|Fourth Quarter 2014                 |  |                    | 4.80
|Third Quarter 2014                  |  |                    | 4.21
|Second Quarter 2014                 |  |                    | 6.10
|First Quarter 2014                  |  |                    | 6.50
|                                    |  |                    |     
|Most Recent Six Months:             |  |                    |     
|March 2016 (through March 29, 2016) |  |                    | 2.93
|February 2016                       |  |                    | 2.32
|January 2016                        |  |                    | 2.85
|December 2015                       |  |                    | 3.55
|November 2015                       |  |                    | 3.50
|October 2015                        |  |                    | 4.66
|September 2015                      |  |                    | 5.24



|(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 29, 2016, the last reported sales price of our ADSs on the NYSE MKT was $2.72 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.



ITEM
10. Additional Information



A.
Share Capital.



Not
applicable.





105







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.”



Shareholder
Meetings



Under
Israeli Companies 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.





106







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.



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.





107







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.



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.





108







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.



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.





109







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.



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”.





110







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, 2015, 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 29, 2016, 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”.



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.





111







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 August 2015), agreeing
to defer payments owed to us under the Services Agreement beginning on January 31, 2013 until the completion of fundraising by
OphthaliX sufficient to cover such deferred payments. As of December 31, 2015, the deferred payments to us totaled approximately
$3,690,000. In addition, in August 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 our available cash to finance its operations,
including cash generated from any future sale of Can-Fite shares held by OphthaliX. Both letters expire in October 2016 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.”



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.





112







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.



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.





113







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.



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.





114







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.”



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.”





115







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.



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.





116







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 2015 although we have not determined whether we will be a PFIC in 2016, 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.



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.





117







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.



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.





118







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.



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.





119







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.



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.





120







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.



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.





121







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.



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.





122







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.



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 a 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.





123







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, 2015, we have used the net proceeds from the offering, in the amount of approximately $4.1 million
for research and development expenses, 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, 2015. Based upon that evaluation, our management, including our CEO and CFO, concluded that
our disclosure controls and procedures as of December 31, 2015 were effective.



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.





124







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, 2015 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, 2015



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, 2015 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.



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, |    
|-------------------------- |  | ------------------------ | ---
|                           |  | 2014                     |    
|Services Rendered          |  | (in thousands of NIS)    |    
|Audit (1)                  |  |                          | 370
|Audit related services (2) |  |                          | 29 
|Tax                        |  |                          | -  
|All other fees (3)         |  |                          | 32 
|Total                      |  |                          | 431



|(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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Audit related services consist of services that were reasonably related to the performance
of the audit or reviews of our financial statements and not included under “Audit Fees” above, including, principally,
providing consents for registration statement filings.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | All other fees consist of consulting services related to compensation and risk management.
|--- | ------------------------------------------------------------------------------------------







125







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.



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.





126







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, 2014 and 2015 and for each of the three years in the period ended December
    31, 2015 |  |  |      | 
|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.





127







CAN-FITE
BIOPHARMA LTD. AND ITS SUBSIDIARIES



CONSOLIDATED
FINANCIAL STATEMENTS



AS
OF DECEMBER 31, 2015



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-48



-
----------





F-1









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, 2015 and 2014, 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, 2015. These financial statements are the
responsibility of the Company's board of directors and management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company and its subsidiaries as of December 31, 2015 and 2014, and the results of their operations
and their cash flows for each of the three years ended December 31, 2015, in conformity with International Financial Reporting
Standards as issued by the International Accounting Standards Board.



|Tel-Aviv,
    Israel |  | /s/ Kost
    Forer Gabbay & Kasierer
|-------------------- |  | ------------------------------------
|March
    31, 2016   |  | KOST
    FORER GABBAY & KASIERER    
|                     |  | 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, |       
|---------------------------------------- |  | ---- |  | ------------ | ------
|                                         |  |      |  | 2015         |       
|                                         |  | Note |  | USD          |       
|                                         |  |      |  | Note 2.c.2   |       
|ASSETS                                   |  |      |  |              |       
|                                         |  |      |  |              |       
|CURRENT ASSETS:                          |  |      |  |              |       
|Cash and cash equivalents                |  |      |  |              | 16,921
|Accounts receivable and prepaid expenses |  | 5    |  |              | 620   
|                                         |  |      |  |              |       
|Total current assets                     |  |      |  |              | 17,541
|                                         |  |      |  |              |       
|NON-CURRENT ASSETS:                      |  |      |  |              |       
|Lease deposit                            |  |      |  |              | 7     
|Property, plant and equipment, net       |  | 6    |  |              | 61    
|                                         |  |      |  |              |       
|Total long-term assets                   |  |      |  |              | 68    
|                                         |  |      |  |              |       
|Total assets                             |  |      |  |              | 17,609



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, |        
|---------------------------------------------------------- |  | ------ |  | ------------ | -------
|                                                           |  |        |  | 2015         |        
|                                                           |  | Note   |  | USD          |        
|                                                           |  |        |  | Note 2.c.2   |        
|LIABILITIES AND SHAREHOLDERS' EQUITY                       |  |        |  |              |        
|                                                           |  |        |  |              |        
|CURRENT LIABILITIES:                                       |  |        |  |              |        
|Trade payables                                             |  |        |  |              | 462    
|Deferred revenues                                          |  | 10.b.2 |  |              | 220    
|Other accounts payable                                     |  | 7      |  |              | 1,097  
|                                                           |  |        |  |              |        
|Total current liabilities                                  |  |        |  |              | 1,779  
|                                                           |  |        |  |              |        
|NON-CURRENT LIABILITIES:                                   |  |        |  |              |        
|Warrants exercisable into shares                           |  | 8d     |  |              | 4,286  
|Deferred revenues                                          |  | 10.b.2 |  |              | 933    
|Severance pay, net                                         |  | 9      |  |              | 162    
|                                                           |  |        |  |              |        
|Total Long-term liabilities                                |  |        |  |              | 5,381  
|                                                           |  |        |  |              |        
|CONTINGENT LIABILITIES AND COMMITMENTS                     |  | 10     |  |              |        
|                                                           |  |        |  |              |        
|EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY:      |  | 11     |  |              |        
|Share capital                                              |  |        |  |              | 1,802  
|Share premium                                              |  |        |  |              | 85,308 
|Capital reserve from share-based payment transactions      |  |        |  |              | 4,943  
|Warrants exercisable into shares (Series 9-12)             |  |        |  |              | 2,302  
|Treasury shares, at cost                                   |  |        |  |              | (930   
|Accumulated other comprehensive loss                       |  |        |  |              | (359   
|Accumulated deficit                                        |  |        |  |              | (82,746
|                                                           |  |        |  |              |        
|Total equity attributable to equity holders of the company |  |        |  |              | 10,320 
|                                                           |  |        |  |              |        
|Non-controlling interests                                  |  |        |  |              | 129    
|                                                           |  |        |  |              |        
|Total equity                                               |  |        |  |              | 10,449 
|                                                           |  |        |  |              |        
|Total liabilities and equity                               |  |        |  |              | 17,609 



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





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BIOPHARMA LTD.AND ITS SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS

In
thousands (except for share and per share data)



|                                                                                |  |        |  | Year ended December 31, |       
|------------------------------------------------------------------------------- |  | ------ |  | ----------------------- | ------
|                                                                                |  |        |  | 2015                    |       
|                                                                                |  | Note   |  | USD                     |       
|                                                                                |  |        |  | Note 2.c.2              |       
|                                                                                |  |        |  |                         |       
|Revenues                                                                        |  | 10.b.2 |  |                         | 165   
|                                                                                |  |        |  |                         |       
|Research and development expenses                                               |  | 13     |  |                         | 3,858 
|General and administrative expenses                                             |  | 14     |  |                         | 2,725 
|                                                                                |  |        |  |                         |       
|Operating loss                                                                  |  |        |  |                         | 6,418 
|                                                                                |  |        |  |                         |       
|Financial expenses                                                              |  | 15     |  |                         | 564   
|Financial income                                                                |  | 15     |  |                         | (1,920
|                                                                                |  |        |  |                         |       
|Loss before taxes on income                                                     |  |        |  |                         | 5,062 
|Taxes on income                                                                 |  | 17     |  |                         | 4     
|                                                                                |  |        |  |                         |       
|Net loss                                                                        |  |        |  |                         | 5,066 
|                                                                                |  |        |  |                         |       
|Other comprehensive loss:                                                       |  |        |  |                         |       
|                                                                                |  |        |  |                         |       
|Adjustments arising from translating financial statements of foreign operations |  |        |  |                         | -     
|Remeasurement loss (gain) from defined benefit plans                            |  |        |  |                         | 99    
|                                                                                |  |        |  |                         |       
|Total other comprehensive loss                                                  |  |        |  |                         | 99    
|                                                                                |  |        |  |                         |       
|Total comprehensive loss                                                        |  |        |  |                         | 5,165 
|                                                                                |  |        |  |                         |       
|Net loss Attributable to:                                                       |  |        |  |                         |       
|Equity holders of the Company                                                   |  |        |  |                         | 4,799 
|Non-controlling interests                                                       |  |        |  |                         | 267   
|                                                                                |  |        |  |                         |       
|                                                                                |  |        |  |                         | 5,066 
|                                                                                |  |        |  |                         |       
|Total comprehensive loss attributable to:                                       |  |        |  |                         |       
|Equity holders of the Company                                                   |  |        |  |                         | 4,898 
|Non-controlling interests                                                       |  |        |  |                         | 267   
|                                                                                |  |        |  |                         |       
|                                                                                |  |        |  |                         | 5,165 
|                                                                                |  |        |  |                         |       
|Net loss per share attributable to equity holders of the Company:               |  |        |  |                         |       
|Basic and diluted net loss per share                                            |  | 16     |  |                         | 0.21  



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





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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.





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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 |  |         | Capitalreservefromshare-basedpaymenttransactions | 
|                                                                                    |  | 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.





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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, 2015                                                       |  |                                                   | 5,441 |  |                   |  | 301,787 |                                                        | 
|                                                                                    |  |                                                   |       |  |                   |  |         |                                                        | 
|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 3,530      |  |                                                   | 1,589 |  |                   |  | 30,417  |                                                        | 
|Expiration of warrants exercisable into shares                                      |  |                                                   | -     |  |                   |  | 669     |                                                        | 
|Share-based payments                                                                |  |                                                   | -     |  |                   |  | -       |                                                        | 
|                                                                                    |  |                                                   |       |  |                   |  |         |                                                        | 
|Balance as of December 31, 2015                                                     |  |                                                   | 7,030 |  |                   |  | 332,873 |                                                        | 



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



F-8







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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, 2015                                                          |  |                                                   | 1,394 |  |                   |  | 77,342 |                                                        | 
|                                                                                       |  |                                                   |       |  |                   |  |        |                                                        | 
|Net loss                                                                               |  |                                                   | -     |  |                   |  | -      |                                                        | 
|Remeasurement gain (loss) from defined benefit
    plans                               |  |                                                   | -     |  |                   |  | -      |                                                        | 
|                                                                                       |  |                                                   |       |  |                   |  |        |                                                        | 
|Total comprehensive loss                                                               |  |                                                   | -     |  |                   |  | -      |                                                        | 
|                                                                                       |  |                                                   |       |  |                   |  |        |                                                        | 
|Issuance of share capital and warrants, net of issue expenses of
    USD 905 thousands |  |                                                   | 408   |  |                   |  | 7,794  |                                                        | 
|Expiration of warrants exercisable into shares                                         |  |                                                   | -     |  |                   |  | 172    |                                                        | 
|Share-based payments                                                                   |  |                                                   | -     |  |                   |  | -      |                                                        | 
|                                                                                       |  |                                                   |       |  |                   |  |        |                                                        | 
|Balance as of December 31, 2015                                                        |  |                                                   | 1,802 |  |                   |  | 85,308 |                                                        | 



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





F-9







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BIOPHARMA LTD.AND ITS SUBSIDIARIES



CONSOLIDATED
STATEMENTS OF CASH FLOWS

In
thousands (except for share and per share data)



|                                                                               |  | Year ended December 31, |       
|------------------------------------------------------------------------------ |  | ----------------------- | ------
|                                                                               |  | 2015                    |       
|                                                                               |  | USD                     |       
|                                                                               |  | Note 2.c.2              |       
|Cash flows from operating activities:                                          |  |                         |       
|                                                                               |  |                         |       
|Net loss                                                                       |  |                         | (5,066
|Adjustments to reconcile loss to net cash used:                                |  |                         |       
|                                                                               |  |                         |       
|Depreciation of property, plant and equipment                                  |  |                         | 16    
|Share-based payment                                                            |  |                         | 258   
|Issuance expenses related to warrants exercisable into shares                  |  |                         | 400   
|Gain from sale of property, plant and equipment                                |  |                         | -     
|Increase in severance pay, net                                                 |  |                         | 5     
|Changes in fair value of warrants liability exercisable into shares            |  |                         | (1,772
|Exchange differences on balances of cash and cash equivalents                  |  |                         | 19    
|                                                                               |  |                         |       
|                                                                               |  |                         | (1,074
|Working capital adjustments:                                                   |  |                         |       
|                                                                               |  |                         |       
|Decrease (increase) in accounts receivable, prepaid expenses and lease deposit |  |                         | 254   
|Increase (decrease) in trade payable                                           |  |                         | 200   
|Increase in deferred revenues                                                  |  |                         | 1,153 
|Increase (decrease) in other accounts payable                                  |  |                         | (121  
|                                                                               |  |                         |       
|                                                                               |  |                         | 1,486 
|                                                                               |  |                         |       
|Net cash used in operating activities                                          |  |                         | (4,654



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





F-10







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BIOPHARMA LTD.AND ITS SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF CASH FLOWS

In
thousands (except for share and per share data)





|                                                                 |  | Year ended December 31, |       
|---------------------------------------------------------------- |  | ----------------------- | ------
|                                                                 |  | 2015                    |       
|                                                                 |  | USD                     |       
|                                                                 |  | Note 2.c.2              |       
|Cash flows from investing activities:                            |  |                         |       
|                                                                 |  |                         |       
|Purchase of property, plant and equipment                        |  |                         | (45   
|Proceeds from sale of property, plant and equipment              |  |                         | 3     
|                                                                 |  |                         |       
|Net cash provided by (used in) investing activities              |  |                         | (42   
|                                                                 |  |                         |       
|Cash flows from financing activities:                            |  |                         |       
|                                                                 |  |                         |       
|Issuance of share capital and warrants, net of issuance expenses |  |                         | 12,387
|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                        |  |                         | 12,387
|                                                                 |  |                         |       
|Exchange differences on balances of cash and cash equivalents    |  |                         | (19   
|                                                                 |  |                         |       
|Increase (decrease) in cash and cash equivalents                 |  |                         | 7,672 
|Cash and cash equivalents at the beginning of the year           |  |                         | 9,249 
|                                                                 |  |                         |       
|Cash and cash equivalents at the end of the year                 |  |                         | 16,921
|                                                                 |  |                         |       
|Supplemental disclosure of cash flow information:                |  |                         |       
|                                                                 |  |                         |       
|Cash paid during the year for income taxes                       |  |                         | 4     
|                                                                 |  |                         |       
|Cash received during the year for interest                       |  |                         | 11    



| | *) | Represent
                                         an amount lower than NIS 1.
| | -- | ------------------------------------------------------------------------------



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



F-11







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BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS








|NOTE 1:- | GENERAL
|-------- | -------



| | a. | Company
                                         description:
| | -- | -------------------------------------------------------------



Can-Fite
Biopharma Ltd. (the “Company”) was incorporated and started to operate in September 1994 as a private Israeli company.
Can-Fite is a clinical-stage biopharmaceutical company focused on developing orally bioavailable small molecule therapeutic products
for the treatment of autoimmune-inflammatory, oncological and ophthalmic diseases. Its 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. The Company's 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.



The
Company’s ordinary shares have been publicly trading traded on the Tel-Aviv Stock Exchange since October 2005 under the
symbol “CFBI” and the Company’s American Depositary Shares (“ADSs”) began public trading on the
over the counter market in the U.S. in October 2012 and since November 2013 the Company’s ADSs have been publicly traded
on the NYSE MKT under the symbol “CANF”.



| | b. | The
                                         Company owns 82% of a U.S. based subsidiary, OphthaliX Inc., (“OphthaliX”)
                                         which is developing the CF101 drug for treatment of ophthalmic indications under license
                                         from the Company. The license to develop this drug was transferred from the Company to
                                         OphthaliX in the context of an ophthalmic activity spinoff transaction. OphthaliX is
                                         traded in the over the counter market in the U.S. under the symbol “OPLI”.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
Company is also the sole owner of Ultratrend Limited, a private, inactive company incorporated in 2005 in the UK.



| | c. | During
                                         the year ended December 31, 2015, the Company incurred net losses of NIS 19,770
                                         thousand and it had negative cash flows from operating activities in the amount of NIS 18,159
                                         thousand as well as accumulated losses from previous years. In addition, based on the
                                         decision of the Company's board of directors, the Company has undertaken to finance OphthaliX's
                                         clinical development at least until October 9, 2016.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
Company has not yet generated any material revenues from sales of its own developed products, or license agreements, and has financed
its activities by raising capital and by collaborating with multinational companies in the industry. In September and October
2015, the Company raised a net total of NIS 32,349 thousand (approximately $ 8,208 thousand) and NIS 16,410 thousand (approximately
$ 4,300 thousand) respectively. For further information see Notes 11.e.1 and 11.e.2. Also in March 2015, the Company received
a net total of NIS 5,141 (CAD 1,650) upfront payment according to a distribution agreement with Cipher Pharmaceuticals, Inc.
(“Cipher”) for future sales in Canada. For further information see Note 10.b.2.



Furthermore,
the Company intends to continue to finance its operating activities by raising capital and seeking collaborations with multinational
companies in the industry. There are no assurances that the Company will be successful in obtaining 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 its development
programs. The Company's management and board of directors are of the opinion that its current financial resources will be sufficient
to continue the development of the Company's products at least for twelve months from the balance sheet date.



F-12







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BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE 1:- | GENERAL (Cont.)
|-------- | ---------------



| | d. | 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           | - | OphthaliX
    Inc                                                                                                                          
| |                     |   |                                                                                                                                            
| | 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                                                                                                                    
| |                     |   |                                                                                                                                            
| | CAD                 | - | Canadian
    dollar                                                                                                                        
| |                     |   |                                                                                                                                            
| | ADS                 | - | American
    Depositary Share ("ADS"). Each ADS represents 2 ordinary shares of the Company                                                



|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







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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 is achieved when the Company is exposed, or has the rights, to variable returns from its involvement
with the investee and has the ability to affect those returns through its power over the investee. 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, 2015 have been translated into U.S. dollars, at the
representative rate of exchange on December 31, 2015 (U.S. $ 1 = NIS 3.902). 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







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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 trial drug-kits which are expensed based on the
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 |  |          | 



Leasehold
improvements are depreciated on a straight-line basis over the shorter of the lease term (including extension option held by the
Company and intended to be exercised) and the expected life of the improvement.



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.





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|NOTE 2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont.)
|-------- | -------------------------------------------



| | g. | Revenue
                                         recognition
| | -- | ------------------------------------------------------------



The
Company generates income from a distribution agreement with Cipher as further described in Note 10.b.2. Such income comprises
of upfront license fees, milestone payments and potential royalty payments.



The
Company identified four components in the agreement: (i) performing the research and development services through regulatory approval;
(ii) exclusive license to distribute the product in Canada; (iii) participation in joint steering committee; and, (iv) royalties
resulting from future sales of the product.



The
Company recognizes revenue in accordance with IAS 18, "Revenue" pursuant to which each required deliverable is evaluated
to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has "stand-alone value"
to the customer. The arrangement’s consideration that is fixed or determinable is then allocated to each separate unit of
accounting based on the relative selling price of each deliverable which is based on the Estimated Selling Price (''ESP'').



Components
(i) – (iii) were analyzed as one unit of accounting. Consequently, revenue from these components is recorded based on the
term of the research and development services (which is the last deliverable in the arrangement). The Company estimates these
services will spread over a period of 24 quarters beginning March 2015.



Revenues
from milestone payments:



Contingent
payments related to milestones will be recognized immediately upon satisfaction of the milestone and contingent payments related
to royalties will be recognized in the period that the related sales have occurred.



Revenues
from royalties:



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



| | h. | Research
                                         and development expenditures
| | -- | ------------------------------------------------------------------------------



Research
expenditures are recognized in the statement of comprehensive loss when incurred.



| | i. | 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. The recoverable
amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the
asset belongs. Impairment losses are recognized in profit or loss. As of December 31, 2015 and 2014, no impairment losses
have been identified.





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|NOTE 2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont.)
|-------- | -------------------------------------------



| | j. | Financial instruments
| | -- | ---------------------



| | 1. | Financial
                                         liabilities
| | -- | --------------------------------------------------------------



Financial
liabilities are initially recognized at fair value.



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 through statement 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 8d.



| | 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.





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NOTES
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|NOTE 2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont.)
|-------- | -------------------------------------------



| | 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.



| | k. | Treasury shares
| | -- | ---------------



Company
shares held by OphthaliX are recognized at cost, and as a deduction from equity. Any gain or loss arising from a purchase, sale,
issuance or cancellation of treasury shares is recognized directly in equity.



| | l. | 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.



Legal
claims:



A
provision for claims is recognized when the Group has a present legal or constructive obligation as a result of a past event,
it is more likely than not that an outflow of resources embodying economic benefits will be required by the Group to settle the
obligation and a reliable estimate can be made of the amount of the obligation.



No
provisions pursuant to IAS 37 have been identified.





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|NOTE 2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont.)
|-------- | -------------------------------------------



| | m. | Employee
                                         benefit liabilities
| | -- | ---------------------------------------------------------------------



The
Group has several employee benefit plans:



| | 1. | Short-term
                                         employee benefits:
| | -- | ----------------------------------------------------------------------



Short-term
employee benefits are benefits that are expected to be settled wholly before twelve months after the end of the annual reporting
period in which the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave,
recreation and social security contributions and are recognized as expenses as the services are rendered. A liability in respect
of a cash bonus or a profit-sharing plan 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 2q.





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|NOTE 2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont.)
|-------- | -------------------------------------------



| | n. | 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. 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 binomial 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.



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.



| | o. | 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.



| | p. | 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.





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|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 ASSUMPTIONS
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:



| | - | 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.



| | - | 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.



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|NOTE 3:- | SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS (Cont.)
|-------- | -----------------------------------------------------------------------------------------------------------------------



| | - | 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.



| | - | Legal
                                         claims:
| | - | ------------------------------------------------------



In
estimating the likelihood of outcome of legal claims filed against the Company and its investees, the companies rely on the opinion
of their legal counsel. These estimates are based on the legal counsel's best professional judgment, taking into account the stage
of proceedings and legal precedents in respect of the different issues. Since the outcome of the claims will be determined in
courts, the results could differ from these estimates.



| | - | Deferred
                                         tax assets:
| | - | -------------------------------------------------------------



Deferred
tax assets are recognized for unused carryforward tax losses and deductible temporary differences to the extent that it is probable
that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to
determine the amount of deferred tax assets that can be recognized, based upon the timing and level of future taxable profits,
its source and the tax planning strategy.



|NOTE 4:- | DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO
THEIR ADOPTION
|-------- | -----------------------------------------------------------------



| | a. | In
                                         July 2014, the IASB issued the final and complete version of IFRS 9, "Financial
                                         Instruments" ("IFRS 9"), which replaces IAS 39, "Financial Instruments:
                                         Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement
                                         of financial assets and it applies to all assets in the scope of IAS 39.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



According
to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments are
measured at amortized cost only if both of the following conditions are met:



| | - | the
                                         asset is held within a business model whose objective is to hold assets in order to collect
                                         the contractual cash flows.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | the
                                         contractual terms of the financial asset give rise on specified dates to cash flows that
                                         are solely payments of principal and interest on the principal amount outstanding.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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|NOTE 4:- | DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO
THEIR ADOPTION (Cont.)
|-------- | -------------------------------------------------------------------------



Subsequent
measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction between
debt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through
other comprehensive income.



Financial
assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit
or loss or in other comprehensive income (loss), in accordance with the election by the Company on an instrument-by-instrument
basis. If equity instruments are held for trading, they should be measured at fair value through profit or loss.



According
to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value
option has not been elected.



According
to IFRS 9, changes in fair values of financial liabilities which are attributable to the change in credit risk should be presented
in other comprehensive income. All other changes in fair value should be presented in profit or loss.



IFRS
9 also prescribes new hedge accounting requirements.



IFRS
9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.



The
Company is evaluating the possible impact of IFRS 9 but is presently unable to assess its effect, if any, on the financial statements.



| | b. | Amendments
                                         to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial
                                         liabilities:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", which require additional disclosures regarding
financial liabilities. The amendments require disclosure of the changes between the opening balance and the closing balance of
financial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the
effect of changes in foreign exchange rates and changes in fair value.



The
amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to
the effective date of the amendments is not required. Early application is permitted.



The
Company will include the necessary disclosures in the financial statements when applicable.





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|NOTE 4:- | DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO
THEIR ADOPTION (Cont.)
|-------- | -------------------------------------------------------------------------



| | c. | IFRS
                                         15, "Revenue from Contracts with Customers":
| | -- | ------------------------------------------------------------------------------------------



In
May 2014, the IASB issued IFRS 15 ("IFRS 15").



IFRS
15 replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs",
IFRIC 15, "Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers"
and SIC-31, "Revenue - Barter Transactions Involving Advertising Services".



The
IFRS 15 introduces a five-step model that will apply to revenue earned from contracts with customers:



Step
1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.



Step
2: Identify the separate performance obligations in the contract



Step
3: Determine the transaction price, including reference to variable consideration, financing components that are significant
to the contract, non-cash consideration and any consideration payable to the customer.



Step
4: Allocate the transaction price to the separate performance obligations on a relative stand-alone selling price basis
using observable information, if it is available, or using estimates and assessments.



Step
5: Recognize revenue when the entity satisfies a performance obligation over time or at a point in time.



IFRS
15 is to be applied retrospectively for annual periods beginning on or after January 1, 2018. Early adoption is permitted. IFRS
15 allows an entity to choose to apply a modified retrospective approach, according to which IFRS 15 will only be applied in the
current period presented to existing contracts at the date of initial application. No restatement of comparative periods is required.



The
Company is evaluating the possible impact of IFRS 15 but is presently unable to assess its effect, if any, on the financial statements.



| | d. | IFRS
                                         16, "Leases"
| | -- | ----------------------------------------------------------



IFRS
16 replaces International Accounting Standard 17 - Leases (IAS 17) and its related interpretations. The standard's instructions
annul the existing requirement from lessees to classify leases as operating or finance leases. Instead of this, for lessees, the
new standard presents a unified model for the accounting treatment of all leases according to which the lessee has to recognize
an asset and liability in respect of the lease in its financial statements. Similarly, the standard determines new and expanded
disclosure requirements from those required at present. The standard will become effective for annual periods as of January 1,
2019, with the possibility of early adoption, so long as the company has also early
adopted IFRS 15 - Revenue from contracts with customers. The standard includes a number of alternatives for the implementation
of transitional provisions, so that companies can choose one of the following alternatives at the implementation date: full retrospective
implementation or implementation from the effective date while adjusting the balance of retained earnings at that date.



We
have not yet commenced examining the effects of adopting the standard on the financial statements.





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|NOTE 5:- | ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
|-------- | ----------------------------------------



| |                             |  | December 31,     |      
| | --------------------------- |  | ---------------- | -----
| |                             |  | 2015             |      
| |                             |  | NIS in thousands |      
| |                             |  |                  |      
| | Government authorities      |  |                  | 242  
| | Prepaid expenses and others |  |                  | 2,177
| |                             |  |                  |      
| |                             |  |                  | 2,419



|NOTE 6:- | PROPERTY, PLANT AND EQUIPMENT, NET
|-------- | ----------------------------------



Balance
as of December 31, 2015:



| |                                       |  | Laboratory equipment |     |  | Computers, office furniture and equipment |  |       | Leasehold improvements |  |  | Total | 
| | ------------------------------------- |  | -------------------- | --- |  | ----------------------------------------- |  | ----- | ---------------------- |  |  | ----- | 
| |                                       |  | NIS in thousands     |    
| | Cost:                                 |  |                      |     |  |                                           |  |       |                        |  |  |       | 
| |                                       |  |                      |     |  |                                           |  |       |                        |  |  |       | 
| | Balance at January 1, 2015            |  |                      | 883 |  |                                           |  | 1,086 |                        |  |  | 646   | 
| | Purchases during the year             |  |                      | 91  |  |                                           |  | 86    |                        |  |  | -     | 
| | Sale of fixed assets                  |  |                      | -   |  |                                           |  | (10   | )                      |  |  | -     | 
| |                                       |  |                      |     |  |                                           |  |       |                        |  |  |       | 
| | Balance at December 31, 2015          |  |                      | 974 |  |                                           |  | 1,162 |                        |  |  | 646   | 
| |                                       |  |                      |     |  |                                           |  |       |                        |  |  |       | 
| | Accumulated depreciation:             |  |                      |     |  |                                           |  |       |                        |  |  |       | 
| |                                       |  |                      |     |  |                                           |  |       |                        |  |  |       | 
| | Balance at January 1, 2015            |  |                      | 851 |  |                                           |  | 997   |                        |  |  | 634   | 
| | Depreciation during the year          |  |                      | 16  |  |                                           |  | 45    |                        |  |  | 3     | 
| |                                       |  |                      |     |  |                                           |  |       |                        |  |  |       | 
| | Balance at December 31, 2015          |  |                      | 867 |  |                                           |  | 1,042 |                        |  |  | 637   | 
| |                                       |  |                      |     |  |                                           |  |       |                        |  |  |       | 
| | Depreciated cost at December 31, 2015 |  |                      | 107 |  |                                           |  | 120   |                        |  |  | 9     | 



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|NOTE 6:- | PROPERTY, PLANT
    AND EQUIPMENT, NET (Cont.)
|-------- | ----------------------------------------------



Balance
as of December 31, 2014:



| |                                       |  | Laboratory equipment |     |  | Computers, office furniture and equipment |  |       | Leasehold improvements |  |  | 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    | 



|NOTE 7:- | OTHER ACCOUNTS PAYABLE
|-------- | ----------------------



| |                                |  | December 31,     |      
| | ------------------------------ |  | ---------------- | -----
| |                                |  | 2015             |      
| |                                |  | NIS in thousands |      
| | Employees and payroll accruals |  |                  | 583  
| | Accrued expenses               |  |                  | 3,696
| |                                |  |                  |      
| |                                |  |                  | 4,279



|NOTE 8:- | 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,     |       
| | ---------------------------------------- |  | ---------------- | ------
| |                                          |  | 2015             |       
| |                                          |  | NIS in thousands |       
| | Financial assets:                        |  |                  |       
| | Accounts receivable and prepaid expenses |  |                  | 242   
| |                                          |  |                  |       
| | Financial liabilities:                   |  |                  |       
| | Trade payable                            |  |                  | 1,803 
| | Other account payable                    |  |                  | 4,279 
| | Deferred revenues                        |  |                  | 4,498 
| | Warrants exercisable into shares         |  |                  | 16,725
| |                                          |  |                  |       
| |                                          |  |                  | 27,305





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BIOPHARMA LTD.AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS








|NOTE 8:- | FINANCIAL INSTRUMENTS (Cont.)
|-------- | -----------------------------



| | 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.



| | 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 liability are classified as level 3 in the fair value hierarchy, and measured at fair
value on a recurring basis.



F-27







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BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
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|NOTE
    8:- | FINANCIAL
    INSTRUMENTS (Cont.)
|------------ | ---------------------------------



Fair
value measurements using significant unobservable inputs (Level 3):





| |                                                                      |  | NIS
    in thousands |       
| | -------------------------------------------------------------------- |  | -------------------- | ------
| |                                                                      |  |                      |       
| | Balance at December 31, 2013                                         |  |                      | -     
| |                                                                      |  |                      |       
| | Fair value of warrants at
    issuance date                          |  |                      | 9,940 
| | Changes in values
    of  warrants exercisable into shares liability |  |                      | (2,971
| |                                                                      |  |                      |       
| | Balance at December 31, 2014                                         |  |                      | 6,969 
| |                                                                      |  |                      |       
| | Fair value of warrants at issuance date                              |  |                      | 16,669
| | Changes in values
    of  warrants exercisable into shares liability |  |                      | (6,913
| |                                                                      |  |                      |       
| | Balance at December 31, 2015                                         |  |                      | 16,725



The
fair value of warrants granted was valued by using the Black-Scholes call option pricing model. Fair values were estimated using
the following assumptions for the warrants call option (range of annualized percentages):



| |                     |  | December
    31, |               
| | ------------------- |  | ---------------- | --------------
| |                     |  | 2015             |               
| |                     |  |                  |               
| | Dividend yield      |  |                  | 0             
| | Expected volatility |  |                  | 78.98%-103.85%
| | Risk-free interest  |  |                  | 1.1%-1.81%    
| | Expected life       |  |                  | 2.19-5.29     



| | e. | Linkage
                                         terms of financial instruments
| | -- | -------------------------------------------------------------------------------



| |                                              |  | December
    31, 2015                                         |       
| | -------------------------------------------- |  | ------------------------------------------------------------- | ------
| |                                              |  | In
                                         orlinked todollar |       
| |                                              |  | NIS
    in thousands                                          |       
| | Assets:                                      |  |                                                               |       
| |                                              |  |                                                               |       
| | Cash
    and cash equivalents                |  |                                                               | 64,483
| | Accounts
    receivable and prepaid expenses |  |                                                               | -     
| |                                              |  |                                                               |       
| |                                              |  |                                                               | 64,483
| | Liabilities:                                 |  |                                                               |       
| |                                              |  |                                                               |       
| | Trade payables                               |  |                                                               | 1,418 
| | Other accounts payable                       |  |                                                               | 2,317 
| | Warrants
    exercisable into shares         |  |                                                               | 16,725
| |                                              |  |                                                               |       
| |                                              |  |                                                               | 20,460
| |                                              |  |                                                               |       
| | Financial instruments,
    net               |  |                                                               | 44,023



F-28







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BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    8:- | FINANCIAL
    INSTRUMENTS (Cont.)
|------------ | ---------------------------------



| |                                              |  | December
    31, 2014                                         |       
| | -------------------------------------------- |  | ------------------------------------------------------------- | ------
| |                                              |  | In
                                         orlinked todollar |       
| |                                              |  | NIS
    in thousands                                          |       
| | Assets:                                      |  |                                                               |       
| |                                              |  |                                                               |       
| | Cash
    and cash equivalents                |  |                                                               | 31,412
| | Accounts
    receivable and prepaid expenses |  |                                                               | -     
| |                                              |  |                                                               |       
| |                                              |  |                                                               | 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. | Sensitivity
                                         tests relating to changes in market factors
| | -- | ------------------------------------------------------------------------------------------------



| |                                                                           |  | December
    31,     |       
| | ------------------------------------------------------------------------- |  | -------------------- | ------
| |                                                                           |  | 2015                 |       
| |                                                                           |  | 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                                      |  |                      | 4,402 
| | Decrease of 10%
    in exchange rate                                      |  |                      | (4,402
| |                                                                           |  |                      |       
| | Sensitivity test to changes in the market
    price of listed securities: |  |                      |       
| |                                                                           |  |                      |       
| | Gain (loss) from the change:                                              |  |                      |       
| | Increase of 10%
    in market price                                       |  |                      | (2,368
| | Decrease of 10%
    in market price                                       |  |                      | 2,304 



| | * | 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%.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    8:- | FINANCIAL
    INSTRUMENTS (Cont.)
|------------ | ---------------------------------



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.



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
    9:- | 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-30







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BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
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|NOTE
    9:- | EMPLOYEE
    BENEFIT LIABILITIES, NET (Cont.)
|------------ | ---------------------------------------------



| | a. | Expenses
                                         recognized in statement of comprehensive loss:
| | -- | ------------------------------------------------------------------------------------------------



| |                                     |  | Year
    ended December 31, |    
| | ----------------------------------- |  | --------------------------- | ---
| |                                     |  | 2015                        |    
| |                                     |  | NIS
    in thousands        |    
| |                                     |  |                             |    
| | Current service cost                |  |                             | 146
| | Interest cost on benefit obligation |  |                             | 45 
| | Expected return
    on plan assets  |  |                             | (34
| |                                     |  |                             |    
| | Total employee
    benefit expenses |  |                             | 157
| |                                     |  |                             |    
| | Actual return on
    plan assets    |  |                             | 12 



| | b. | The
                                         plan liabilities, net:
| | -- | -------------------------------------------------------------------



| |                               |  | December
    31,     |       
| | ----------------------------- |  | -------------------- | ------
| |                               |  | 2015                 |       
| |                               |  | NIS
    in thousands |       
| |                               |  |                      |       
| | Defined benefit obligation    |  |                      | (1,792
| | Fair value of
    plan assets |  |                      | 1,162 
| |                               |  |                      |       
| | Total liabilities,
    net    |  |                      | (630  



| | c. | Changes
                                         in the present value of defined benefit obligation:
| | -- | ----------------------------------------------------------------------------------------------------



| |                                                    |  | 2015                 |        |   | 2014 | 
| | -------------------------------------------------- |  | -------------------- | ------ | - | ---- | 
| |                                                    |  | NIS
    in thousands |       
| |                                                    |  |                      |        |   |      | 
| | Balance at beginning of
    year                   |  |                      | (1,238 | ) |      | 
| | Recognized in statement of comprehensive
    loss: |  |                      |        |   |      | 
| | Interest cost                                      |  |                      | (45    | ) |      | 
| | Current service cost                               |  |                      | (146   | ) |      | 
| | Recognized in other comprehensive loss:            |  |                      |        |   |      | 
| | Net actuarial loss                                 |  |                      | (363   | ) |      | 
| | Other:                                             |  |                      |        |   |      | 
| | Benefits paid                                      |  |                      | -      |   |      | 
| |                                                    |  |                      |        |   |      | 
| | Balance at end
    of year                         |  |                      | (1,792 | ) |      | 



| | d. | Plan
                                         assets:
| | -- | -----------------------------------------------------



| | 1) | Plan
                                         assets comprise assets held by a long-term employee benefit fund and qualifying insurance
                                         policies.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-31







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BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    9:- | EMPLOYEE
    BENEFIT LIABILITIES, NET (Cont.)
|------------ | ---------------------------------------------



| | 2) | The
                                         movement in the fair value of the plan assets:
| | -- | -------------------------------------------------------------------------------------------



| |                                                    |  | 2015                 |       |   | 2014 | 
| | -------------------------------------------------- |  | -------------------- | ----- | - | ---- | 
| |                                                    |  | NIS
    in thousands |      
| |                                                    |  |                      |       |   |      | 
| | Balance at beginning of
    year                   |  |                      | 1,014 |   |      | 
| | Recognized in statement of comprehensive
    loss: |  |                      |       |   |      | 
| | Expected return                                    |  |                      | 34    |   |      | 
| | Recognized in other comprehensive loss:            |  |                      |       |   |      | 
| | Net actuarial loss                                 |  |                      | (22   | ) |      | 
| | Other:                                             |  |                      |       |   |      | 
| | Contributions by employer                          |  |                      | 136   |   |      | 
| | Withdrawals from
    the plan                      |  |                      | -     |   |      | 
| |                                                    |  |                      |       |   |      | 
| | Balance at end
    of year                         |  |                      | 1,162 |   |      | 



| | e. | The
                                         principal assumptions underlying the defined benefit plan:
| | -- | -------------------------------------------------------------------------------------------------------



| |                                            |  | December
    31, |     
| | ------------------------------------------ |  | ---------------- | ----
| |                                            |  | 2015             |     
| |                                            |  | %                |     
| |                                            |  |                  |     
| | Discount
    rate of the plan liability    |  |                  | 3.04
| |                                            |  |                  |     
| | Expected rate of
    return on plan assets |  |                  | 3.45
| |                                            |  |                  |     
| | Future salary increases                    |  |                  | 3.50



| | f. | Sensitivity
                                         tests to significant changes of:
| | -- | -------------------------------------------------------------------------------------



| |                    |  |                    |     |  | Increase
                                         (decrease) of the
                                         plan liabilities, net | 
| | ------------------ |  | ------------------ | --- |  | ---------------------------------------------------------------------------------------------------------------------------------- | 
| |                    |  |                    |     |  | December
    31, 2015                                                                                                              | 
| |                    |  |                    |     |  | Increase
    in                                                                                                                    | 
| |                    |  | Rate
    of change |     |  | Rate
    of change                                                                                                                 | 
| |                    |  | %                  |     |  | NIS
    in thousands                                                                                                               | 
| | Salary             |  |                    | 0.5 |  |                                                                                                                                    | 
| | Interest           |  |                    | 0.5 |  |                                                                                                                                    | 
| | Israeli CPI        |  |                    | 0.5 |  |                                                                                                                                    | 
| | Employees turnover |  |                    | 20  |  |                                                                                                                                    | 



|NOTE
    10:- | CONTINGENT
    LIABILITIES AND COMMITMENTS
|------------- | ------------------------------------------



| | a. | Liabilities
                                         to pay royalties:
| | -- | ----------------------------------------------------------------------



| | 1. | According
                                         to the license agreement that the Company entered into with the NIH on January 29, 2003,
                                         the Company was committed to pay royalties until the expiration of the last patent licensed
                                         under the license agreement. The last patent under this agreement expired on June 29,
                                         2015, and therefore except with respect to any amounts already accrued on the Company’s
                                         balance sheet, no future payments or royalties will be due.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
of December 31, 2015, the Company accrued NIS 1,658 thousand (approximately $425 thousand) in Other accounts payable with respect
to the NIH.



F-32







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BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    10:- | CONTINGENT
    LIABILITIES AND COMMITMENTS (Cont.)
|------------- | --------------------------------------------------



| | 2. | According
                                         to the patent license agreement that the Company entered into with Leiden University
                                         in the Netherlands on November 2, 2009, which is affiliated with the NIH, the Company
                                         was granted an exclusive license for the use of the patents of several compounds, including
                                         CF602 in certain territories.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 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, 2015, no accrual is recorded with respect to Leiden University.



| | 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. Under
                                         the agreement, the Company received certain payments from the Japanese Corporation. In
                                         August 2015, the Company and the Japanese Corporation entered into an agreement terminating
                                         the license agreement.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | In
                                         March 2015, the Company signed a distribution agreement with Cipher. As part of the distribution
                                         agreement, Cipher will distribute Can-Fite's lead drug candidate, CF101 ("Product")
                                         for the treatment of psoriasis and rheumatoid arthritis in the Canadian market upon receipt
                                         of regulatory approvals.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under
the terms of the agreement, Cipher made an upfront payment of NIS 5,141 thousand (CAD 1,650 thousand) to the Company in March
2015. In addition, the agreement provides that additional payments of up to CAD 2,000 thousand will be received by the Company
upon the achievement of certain milestones plus royalty payments of 16.5% of net sales of CF101 in Canada. The agreement further
provides that the Company will deliver finished Product to Cipher and that Cipher will reimburse the Company for the cost of manufacturing.





F-33







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BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    10:- | CONTINGENT
    LIABILITIES AND COMMITMENTS (Cont.)
|------------- | --------------------------------------------------



Furthermore,
under the distribution agreement, the Company shall be responsible for conducting Product development activities including management
of the clinical studies required in order to secure regulatory approvals, and shall use commercially reasonable efforts in conducting
such activities. In addition the Company obliged to form a joint steering committee with Cipher which will oversee the progress
of the clinical studies.



The
Company identified four components in the agreement: (i) performing the research and development services through regulatory approval;
(ii) exclusive license to distribute the product in Canada; (iii) participation in joint steering committee; and, (iv) royalties
resulting from future sales of the product. Components (i) – (iii) were analyzed as one unit of accounting. Consequently,
revenue from these components is recorded based on the term of the research and development services (which is the last deliverable
in the arrangement). The Company estimates these services will spread over a period of 24 quarters beginning March 2015. Component
(iv) was not accounted as part of the research and development services and will be recognized entirely upon the Company reaching
sales stage.



| | 3. | 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-34







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BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    10:- | CONTINGENT
    LIABILITIES AND COMMITMENTS (Cont.)
|------------- | --------------------------------------------------



| | 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, 2015, the Company estimates that such contingent payments are remote.



| | 4. | Lease
                                         commitments:
| | -- | -----------------------------------------------------------



The
Company lease motor vehicles through operating leases. The lease is for a period ending April 2018. Future minimum lease commitments
under non-cancelable operating leases as of December 31, 2015 are as follows:



| |      |  | NIS in
    thousands |    
| | ---- |  | -------------------- | ---
| | 2016 |  |                      | 133
| | 2017 |  |                      | 83 
| | 2018 |  |                      | 46 
| |      |  |                      | 262



Lease
expenses for the years ended December 31, 2013, 2014 and 2015 were approximately NIS 229 thousand, NIS 185 thousand and NIS 169
thousand, respectively.



| | c. | Lawsuit:
| | -- | --------





On June 29, 2015 the
Company received a lawsuit requesting recognition of this lawsuit as a class action, naming the Company, its Chief Executive Officer
and its directors as defendants. The motion was filed with the District Court of Tel-Aviv. The lawsuit alleges, among other things,
that the Company misled the public with regard to disclosures concerning the efficacy of the Company’s drug candidate, CF101.



The claimant
alleges that he suffered personal damages of over NIS 73 thousand, while also claiming that the shareholders of the Company
suffered damages of approximately NIS 125 million.  We strongly believe the lawsuit and its allegations to be
baseless and without merit, and will vigorously defend this action. Due to the inherent uncertainties that accompany
litigation of this nature, there can be no assurance that the Company will be successful, and an adverse resolution of the
lawsuit may result in damages beyond the Company’s insurance coverage for such cases, which could cause a risk of loss
and expenditures that may adversely affect its financial condition and results of operations. Furthermore, this action may
divert management’s time and attention from our business, and the Company could be forced to expend significant
resources and pay significant costs and expenses, including legal fees, in connection with defending this lawsuit.





|NOTE
    11:- | EQUITY
|------------- | ------



| | a. | Composition
                                         of share capital:
| | -- | ----------------------------------------------------------------------



| |                                                |  | December
    31, 2015 |            |  | December
    31, 2014      | 
| | ---------------------------------------------- |  | --------------------- | ---------- |  | -------------------------- | 
| |                                                |  | Authorized            |            |  | Issued
    and outstanding | 
| |                                                |  | Number
    of Shares  |           
| | Ordinary
    shares of NIS 0.25 par value each |  |                       | 80,000,000 |  |                            | 





F-35







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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    11:- | EQUITY
    (Cont.)
|------------- | ------------------



| | b. | On
                                         December 3, 2015, a Special General Meeting of Shareholders of Can-Fite BioPharma Ltd.
                                         (the "Company") approved, in accordance with the majority required, a proposal
                                         to increase the Company's authorized share capital by NIS 10,000,000 such that following
                                         the increase, the authorized share capital shall equal NIS 20,000,000 divided into 80,000,000
                                         ordinary shares, par value NIS 0.25 each, and to amend the Company's articles of association
                                         accordingly.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Issued
                                         and outstanding capital:
| | -- | ------------------------------------------------------------------------



| |                                               |  | Number
    of
    shares |            |  | NISpar value | 
| | --------------------------------------------- |  | ------------------------ | ---------- |  | ------------ | 
| | Balance at December 31,
    2013              |  |                          | 16,149,554 |  |              | 
| | Issuance of share
    capital                 |  |                          | 5,560,194  |  |              | 
| | Issuance of shares
    - share based payments |  |                          | 52,000     |  |              | 
| | Exercise
    of unlisted share options        |  |                          | 1,656      |  |              | 
| | Balance at December 31, 2014                  |  |                          | 21,763,404 |  |              | 
| | Issuance
    of share capital                 |  |                          | 6,356,324  |  |              | 
| | Balance at December
    31, 2015              |  |                          | 28,119,728 |  |              | 



| | d. | 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.



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.
| | -- | -------------------------------------------------------------------------------------------------------------------------------



| | e. | Issue
                                         of shares and warrants and changes in equity:
| | -- | --------------------------------------------------------------------------------------------



| | 1. | In
                                         March 2014, the Company completed a private placement pursuant to which it sold an aggregate
                                         of 982,344 ADSs representing 1,964,688 ordinary shares and warrants to purchase an additional
                                         491,172 ADSs representing 982,344 ordinary shares for an aggregate purchase price of
                                         NIS 17,567 thousand (the "March 2014 Financing"). For further information regarding
                                         the warrants, please refer to Note 11.f.2.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    11:- | EQUITY
    (Cont.)
|------------- | ------------------



| | 2. | In
    December 2014, the Company completed a registered direct offering pursuant to which it sold an aggregate of 1,797,753 ADSs
    representing 3,595,506 ordinary shares. In addition, the Company issued 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. For further information regarding the warrants, please refer to Note 11.f.2.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
part of the March 2014 Financing, 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.. In addition, as part of the December 2014 Financing, the Company also issued placement agent warrants
to purchase 89,888 ADSs representing 179,775 ordinary shares exercisable at $ 4.45 per ADS (equivalent to $ 2.225 per ordinary
share), subject to certain adjustments, for a period of five years. The placement agent warrants issued in the March 2014 Financing
may be exercised on a cashless basis and contain registration rights covering the resale of the ordinary shares represented by
ADSs underlying the placement agent warrants and the placement agent warrants issued in the December 2014 Financing may be exercised
on a cashless basis if six months after issuance there is no effective registration statement registering the ADSs underlying
the warrants. The fair value of the placement agents warrants issued in the March 2014 Financing and December 2014 Financing at
the grant date were NIS 381 thousand and NIS 613 thousand, respectively, and were considered as additional issuance costs.



The
cash issuance costs in relation to the March 2014 Financing and December, 2014 Financing were NIS 1,795 thousand and NIS 3,020
thousand, respectively.



In
relation to the issuance of March 2014 Financing and 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 being
recognized 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.



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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    11:- | EQUITY
    (Cont.)
|------------- | ------------------





| | 3. | In
                                         September 2015, the Company completed a registered direct offering pursuant to which
                                         it sold an aggregate 2,068,966 ADSs representing 4,137,932 ordinary shares. In addition,
                                         the Company issued unregistered warrants to purchase 1,034,483 ADSs representing 2,068,966
                                         ordinary shares. The offering (the “September 2015 Financing”) resulted in
                                         gross proceeds of NIS 34,767 thousand. For further information regarding the warrants,
                                         please refer to Note 11.f.3.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
October 2015, the Company completed a registered direct offering pursuant to which it sold an aggregate 1,109,196 ADSs representing
2,218,392 ordinary shares. In addition, the Company issued unregistered warrants to purchase 443,678 ADSs representing 887,356
ordinary shares. The offering (the “October 2015 Financing”) resulted in gross proceeds of NIS 18,653 thousand. For
further information regarding the warrants, please refer to Note 11.f.3.



As
part of the September 2015 Financing, the Company also issued placement agent warrants to purchase 103,448 ADSs representing 206,897
ordinary shares exercisable at $ 5.25 per ADS (equivalent to $ 2.625 per ordinary share), subject to certain adjustments, for
a period of five years. In addition, as part of the October 2015 Financing, the Company also issued placement agent warrants to
purchase 55,460 ADSs representing 110,920 ordinary shares exercisable at $ 5.25 per ADS (equivalent to $ 2.625 per ordinary share),
subject to certain adjustments, for a period of five years. The placement agent 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. The fair
value of the placement agents warrants issued in the September 2015 Financing and October 2015 Financing at the grant date were
NIS 1,224 thousand and NIS 554 thousand, respectively and were considered as additional issuance costs.



The
cash issuance costs in relation to the September 2015 Financing and October 31, 2015 Financing were NIS 3,060 thousand and NIS
2,028 thousand, respectively.



In
relation to the September 2015 Financing and October 2015 Financing, the Company first allocated the proceeds to the warrants,
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 being recognized
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.



| | f. | Warrants
                                         classified as liability:
| | -- | --------------------------------------------------------------------------



| | 1. | On
                                         March 31, 2014, 9,907,500 registered warrants (Series 7) that were exercisable into 396,300
                                         ordinary shares of the Company were expired. Accordingly, the Company recorded an amount
                                         of NIS 119 thousand as financial income in its statement of comprehensive loss.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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NOTES
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|NOTE
    11:- | EQUITY
    (Cont.)
|------------- | ------------------



| | 2. | As
    mentioned in Note 11.e.1 the Company issued warrants as part of the March 2014 Financing and December 2014 Financing. The
    warrants issued in the March 2014 Financing may be exercised after 6 months from the date of issuance for a period of four
    years and have an exercise price of $ 6.43 per ADS (equivalent to $ 3.215 per ordinary share) (subject to certain adjustments).
    The warrants issued in the December 2014 Financing may be exercised for a period of five years following issuance and have
    an exercise price of $ 4.45 per ADS (equivalent to	$ 2.225 per ordinary share) (subject to certain adjustments). The fair
    value of the warrants issued as part of the March 2014 Financing at the commitment date and December 31, 2015 were NIS 6,127
    thousand and NIS 5,315 thousand, respectively. The fair value of the warrants issued as part of the December 2014 Financing
    at the commitment date and December 31, 2015 were NIS 12,235 thousand and NIS 6,370 thousand, respectively with changes in
    recorded as financial income in the Company's statement of comprehensive loss.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | As
                                         mentioned in Note 11.e.2 the Company issued warrants as part of the September 2015 Financing
                                         and October 2015 Financing. These warrants may be exercised after 6 months from the date
                                         of issuance for a period of five and a half years and have an exercise price of $ 5.25
                                         per ADS (equivalent to $ 2.625 per ordinary share) (subject to certain adjustments).
                                         The fair value of the warrants issued as part of the September 2015 Financing at the
                                         commitment date and December 31, 2015 were NIS 12,235 thousand and NIS 6,370 thousand,
                                         respectively. The fair value of the warrants issued as part of the October 2015 Financing
                                         at the commitment date and December 31, 2015 were NIS 4,434 thousand and 2,746 thousand,
                                         respectively. Changes in fair value of the warrants from commitment date to December
                                         31, 2015 were recorded as financial income in the Company's statement of comprehensive
                                         loss.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g. | Warrants
                                         classified as equity:
| | -- | -----------------------------------------------------------------------



The
Company had 12,168,000 registered warrants (Series 9) that were exercisable into 486,720 ordinary shares of the Company for the
exercise price of NIS 21.25 per share. These warrants expired on 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.



On
December 8, 2015, the Company filed an application with the Lod District Court in Israel to approve the extension of the term
of the Company's series 10 warrants until October 31, 2016 which was set to expire on October 31, 2015 and to allow the exercise
of the Series 10 Warrants on any trading day. On December 3, 2015, this action was approved, in accordance with the majority required
by a Special General Meeting of Shareholders and a Special General Meeting of Series 10 Warrants Holders of the Company. On December
24, 2015, the Court approved the Company's application.



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 warrants are exercisable until April 30, 2016.





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NOTES
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|NOTE
    11:- | EQUITY
    (Cont.)
|------------- | ------------------



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 warrants are exercisable until October 22, 2016.



As
described at Note 11.e.2, in September and October 2015 the company issued warrants to purchase 2,275,863 and 998,276 of the Company's
ordinary shares, respectively.



| | h. | 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 thousand which was recorded as immediately
expense.



| | i. | Treasury shares:
| | -- | ----------------



As
of December 31, 2015, the Company's shares held by OphthaliX amounted to 446,827 ordinary shares.



| |                                  |  | December
    31, |     
| | -------------------------------- |  | ---------------- | ----
| |                                  |  | 2015             |     
| |                                  |  | %                |     
| |                                  |  |                  |     
| | Percentage of
    issued capital |  |                  | 1.59



|NOTE12:- | SHARE-BASED
    PAYMENT TRANSACTIONS
|-------- | ------------------------------------



| | a. | Expenses
                                         recognized in the financial statements:
| | -- | -----------------------------------------------------------------------------------------



| |                                         |  | Year
    ended December 31, |    
| | --------------------------------------- |  | --------------------------- | ---
| |                                         |  | 2015                        |    
| |                                         |  | NIS
    in thousand         |    
| |                                         |  |                             |    
| | Research and development
    expenses   |  |                             | 207
| | General and administrative
    expenses |  |                             | 235
| |                                         |  |                             |    
| |                                         |  |                             | 442



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NOTES
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|NOTE
    12:- | SHARE-BASED
    PAYMENT TRANSACTIONS (Cont.)
|------------- | --------------------------------------------



| | b. | Share-based
                                         payment transactions granted by the Company:
| | -- | -------------------------------------------------------------------------------------------------



| | 1. | 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | On
                                         April 1, 2014, the Company engaged an external advisor for investor relation services,
                                         pursuant to which the Company issued 26,000 ADSs 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.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | On
                                         July 14, 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.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | 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.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | In
                                         October 2015, the Company granted an amount of 200,000 options to acquire up to 200,000
                                         of the Company's ordinary shares to one of its directors at an exercise price of NIS
                                         3.573 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.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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 |        
| | ------------------------------------ |  | ----------------------------------------- | -------
| |                                      |  | 2015                                      |        
| |                                      |  | Number                                    |        
| |                                      |  |                                           |        
| | Outstanding at beginning
    of year |  |                                           | 592,707
| | Grants                               |  |                                           | 240,000
| | Exercised                            |  |                                           | -      
| | Forfeited/expired                    |  |                                           | (34,128
| |                                      |  |                                           |        
| | Outstanding at
    end of year       |  |                                           | 798,579
| |                                      |  |                                           |        
| | Exercisable at
    end of year       |  |                                           | 557,749





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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    12:- | SHARE-BASED
    PAYMENT TRANSACTIONS (Cont.)
|------------- | --------------------------------------------



| | d. | The
                                         weighted average remaining contractual life for the shares subject to options outstanding
                                         as of December 31, 2015, 2014 and 2013 was 4.67 years, 3.11 years and 4.43 years, respectively.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | The
                                         range of exercise prices for shares subject to options outstanding as of December 31,
                                         2015, 2014 and 2013 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, 2014
                                         and 2015 was estimated using the binomial option pricing model using the following assumptions:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |                                                 |  | December
    31, |              
| | ----------------------------------------------- |  | ---------------- | -------------
| | Description                                     |  | 2015             |              
| |                                                 |  |                  |              
| | Risk-free interest rate                         |  |                  | 1.94%-2.17%  
| | Expected volatility                             |  |                  | 67.97%-77.03%
| | Dividend yield                                  |  |                  | 0            
| | Contractual life                                |  |                  | 10           
| | Early Exercise Multiple (Suboptimal
    Factor) |  |                  | 2-2.5        
| | Exercise price                                  |  |                  | 3.573-8.1205 



|NOTE
    13:- | RESEARCH
    AND DEVELOPMENT EXPENSES
|------------- | -------------------------------------



| |                                     |  | Year
    ended December 31, |       
| | ----------------------------------- |  | --------------------------- | ------
| |                                     |  | 2015                        |       
| |                                     |  | NIS
    in thousands        |       
| |                                     |  |                             |       
| | Clinical and preclinical
    trials |  |                             | 10,815
| | Salary and related expenses         |  |                             | 2,575 
| | Patents                             |  |                             | 842   
| | Royalties                           |  |                             | 240   
| | Laboratory materials                |  |                             | 190   
| | Rent                                |  |                             | 182   
| | Depreciation                        |  |                             | 19    
| | Others                              |  |                             | 189   
| |                                     |  |                             |       
| |                                     |  |                             | 15,052





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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    14:- | GENERAL
    AND ADMINISTRATIVE EXPENSES
|------------- | ---------------------------------------



| |                                 |  | Year
    ended December 31, |       
| | ------------------------------- |  | --------------------------- | ------
| |                                 |  | 2015                        |       
| |                                 |  | NIS
    in thousands        |       
| |                                 |  |                             |       
| | Professional services           |  |                             | 4,408 
| | Investors and public relations  |  |                             | 1,633 
| | Salary and related expenses     |  |                             | 1,669 
| | Directors' fee                  |  |                             | 773   
| | Rent                            |  |                             | 123   
| | Travel                          |  |                             | 814   
| | Insurance                       |  |                             | 469   
| | Stock exchange fees             |  |                             | 222   
| | Office and computer maintenance |  |                             | 250   
| | Vehicle maintenance             |  |                             | 49    
| | Depreciation                    |  |                             | 45    
| | Others                          |  |                             | 178   
| |                                 |  |                             |       
| |                                 |  |                             | 10,633



|NOTE
    15:- | FINANCE
    EXPENSES (INCOME)
|------------- | -----------------------------



| |                                                                   |  | Year
    ended December 31, |       
| | ----------------------------------------------------------------- |  | --------------------------- | ------
| |                                                                   |  | 2015                        |       
| |                                                                   |  | NIS
    in thousands        |       
| | Finance expenses:                                                 |  |                             |       
| |                                                                   |  |                             |       
| | Bank commissions                                                  |  |                             | 76    
| | Issuance expenses related to warrants
    exercisable into shares |  |                             | 2,116 
| | Net loss from exchange rate fluctuations                          |  |                             | -     
| | Financial expenses
    from defined benefit plans                 |  |                             | 11    
| |                                                                   |  |                             |       
| |                                                                   |  |                             | 2,203 
| | Finance income:                                                   |  |                             |       
| |                                                                   |  |                             |       
| | Interest income on bank deposits                                  |  |                             | (87   
| | Net gain from exchange rate fluctuations                          |  |                             | (492  
| | Net change in
    fair value warrants exercisable into shares     |  |                             | (6,913
| |                                                                   |  |                             |       
| |                                                                   |  |                             | (7,492





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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    16:- | LOSS
    PER SHARE
|------------- | ------------------



| | a. | Details
                                         of the number of shares and loss used in the computation of loss per share:
| | -- | ----------------------------------------------------------------------------------------------------------------------------



| |                                                                                           |  | Year
    ended December 31,       |       
| | ----------------------------------------------------------------------------------------- |  | --------------------------------- | ------
| |                                                                                           |  | 2015                              |       
| |                                                                                           |  | Weighted
    number of
    shares |       
| |                                                                                           |  | Inthousands                       |       
| |                                                                                           |  |                                   |       
| | Number
    of shares and loss used in the computation of basic and diluted loss per share |  |                                   | 22,953



| | b. | To
                                         compute diluted loss per share for the year ended December 31, 2015, the total number
                                         of 10,747,904 shares subject to outstanding warrants and 798,582 shares subject to outstanding
                                         unlisted options have not been taken into account since they have anti-dilutive effect.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|NOTE
    17:- | TAXES
    ON INCOME
|------------- | -------------------



| | a. | Corporate
                                         tax rates:
| | -- | -------------------------------------------------------------



| | 1. | Israeli
                                         taxation:
| | -- | ----------------------------------------------------------



| |  | Corporate
                                         tax rate in Israel in 2014 and 2015 is 26.5%.
| |  | ------------------------------------------------------------------------------------------------



| |  | On
                                         January 4, 2016, the Israeli Parliament's Plenum approved by a second and third reading
                                         the Bill for Amending the Income Tax Ordinance (No. 217) (Reduction of Corporate Tax
                                         Rate), 2015, which consists of the reduction of the corporate tax rate from 26.5% to
                                         25%. The Company estimates that the effect of the change in tax rates will result in
                                         a decrease in deferred tax balances as of December 31, 2015 in immaterial amounts.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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 2011.



The
related company, OphthaliX and Eye-Fite, has not received final tax assessments since its incorporation.





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NOTES
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|NOTE
    17:- | TAXES
    ON INCOME (Cont.)
|------------- | ---------------------------



| | c. | Net
                                         operating carryforward losses for tax purposes and other temporary differences:
| | -- | ----------------------------------------------------------------------------------------------------------------------------



As
of December 31, 2015 the Company and Eye-Fite had carryforward losses amounting to approximately NIS 297,442 thousand and NIS
10,526 thousand.



OphthaliX
is subject to U.S. income taxes. As of December 31, 2015, the Company has net operating loss carryforwards for federal income
tax purposes of approximately $ 1,962 thousand (approximately NIS 7,656 thousand) which will expire in the years 2018 to 2034.
The Company has no operating loss carry forwards for state income tax purposes.



| | d. | 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.



|NOTE
    18:- | TRANSACTIONS
    WITH RELATED PARTIES
|------------- | -------------------------------------



| | a. | The
                                         related parties of the Company are associates, subsidiaries, directors and key management
                                         personnel of the Group, and a close member of the family of any of the persons mentioned
                                         above.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | The
                                         Chairman of the Company's board of directors is a senior partner in the patent firm which
                                         represents the Company in intellectual property and commercial matters (the "Service
                                         Provider"). The Service Provider charges the Company for services it renders on
                                         an hourly basis.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Composition
                                         of balances with related parties as of December 31, 2015 and December 31, 2014:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------



| |                                      |  | As
    of December 31, |    
| | ------------------------------------ |  | ---------------------- | ---
| |                                      |  | 2015                   |    
| |                                      |  | NIS
    in thousands   |    
| |                                      |  |                        |    
| | Patent
    expenses                  |  |                        | 105
| |                                      |  |                        |    
| | Directors' fee
    (2)               |  |                        | 128
| |                                      |  |                        |    
| | (1)	   Number
    of related parties |  |                        | 1  
| |                                      |  |                        |    
| | (2)	   Number
    of directors       |  |                        | 4  
| |                                      |  |                        |    





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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    18:- | TRANSACTIONS
    WITH RELATED PARTIES (Cont.)
|------------- | ---------------------------------------------



| | d. | Composition
                                         of balances with related parties for the year ended December 31, 2015, and each of the
                                         three years then ended:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |                                                            |  | Year
    ended December 31, |      
| | ---------------------------------------------------------- |  | --------------------------- | -----
| |                                                            |  | 2015                        |      
| |                                                            |  | NIS
    in thousands        |      
| |                                                            |  |                             |      
| | Management
    and consulting fees (including bonuses) (1) |  |                             | 1,128
| |                                                            |  |                             |      
| | Other expenses
    and share-based payment (1)             |  |                             | 252  
| |                                                            |  |                             |      
| | Patent expenses                                            |  |                             | 805  
| |                                                            |  |                             |      
| | Directors' fee
    and share-based payment (2)             |  |                             | 575  
| |                                                            |  |                             |      
| | (1)	   Number
    of related parties                       |  |                             | 1    
| |                                                            |  |                             |      
| | (2)	   Number
    of directors                             |  |                             | 5    



| | e. | 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 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. Prior to the transfer of Eye-Fite to OphthaliX described
above, as consideration for the grant of the license, 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.



In
connection with the Eye-Fite License Agreement, referred to above, Eye-Fite was obligated to make to the U.S. National Institutes
of Health ("NIH"), with regard to the patents of which are included in the license to Eye-Fite, for as long as the license
agreement between Can-Fite and NIH remains in effect, a nonrefundable minimum annual royalty fee and potential future royalties
of 4.0% to 5.5% on net sales. In addition, the Company was obligated to make certain milestone payments to NIH ranging from $
25 thousand to $ 500 thousand upon the achievement of various development milestones for each indication. In June 2015, the license
agreement between Can-Fite and NIH terminated due to patent expiration.



All
inventions resulting from the indication that is licensed under the Eye-Fite License Agreement 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 Eye-Fite License
Agreement 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.





F-46







CAN-FITE
                                         BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    18:- | TRANSACTIONS
    WITH RELATED PARTIES (Cont.)
|------------- | ---------------------------------------------



| | f. | Eye-Fite
                                         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.



As
consideration for rendering the services, the Company shall be reimbursed 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
addition, in February 2013 the Company issued to OphthaliX a formal letter, which has been amended periodically (most recently
in August 2015), stating that the Company agrees to defer payments owing to it under the Services Agreement from 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. Also, in August 2015, the Company issued a financial support letter pursuant to which
it committed to cover any shortfall in the costs and expenses of operations of OphthaliX which are in excess of the OphthaliX’s
available cash to finance its operations, including cash generated from any future sale of Company shares held by OphthaliX.



Both
letters will expire in October 2016 and any related balance shall bear an interest at a rate of 3% per annum. As of December 31,
2015, the deferred payments to the Company totaled $ 3,690 thousand.



Further,
the Company will be entitled to an additional payment of 2.5% of any revenues received by OphthaliX or any of its affiliates 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.





F-47







CAN-FITE
BIOPHARMA LTD. AND ITS SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






|NOTE
    19:- | SUBSEQUENT
    EVENTS
|------------- | ---------------------



In
February 2016, the Company's board of directors approved a grant of unlisted options exercisable into 160,000 of the Company's
ordinary shares to three of its employees and one senior officer for an exercise price of NIS 4.317 per shares. The options vest
on a quarterly basis for a period of 48 months from the grant date.





F-48







ITEM
19. Exhibits



Index
to Exhibits





|Exhibit No. |  | Description                                                                                                                                                                                             
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                         
|1.1         |  | Amended and Restated Articles of Association of Can-Fite BioPharma Ltd (1)                                                                                                                              
|            |  |                                                                                                                                                                                                         
|2.1         |  | Form of Amended and Restated Deposit Agreement, by and among Can-Fite BioPharma Ltd., The Bank of New York Mellon and the Owners and Holders of American Depositary Shares, dated September 11, 2013 (2)
|            |  |                                                                                                                                                                                                         
|4.1         |  | Employment and Non-Competition Agreement with Motti Farbstein, dated June 10, 2003 (3)                                                                                                                  
|            |  |                                                                                                                                                                                                         
|4.2         |  | Consulting Agreement with BioStrategics Consulting, Ltd, dated September 27, 2005 (3)                                                                                                                   
|            |  |                                                                                                                                                                                                         
|4.3         |  | Service Management Agreement with F.D. Consulting International and Marketing Ltd., dated June 27, 2002 (3)                                                                                             
|            |  |                                                                                                                                                                                                         
|4.4         |  | Master Services Agreement with Accellient Partners, dated May 10, 2010 (3)                                                                                                                              
|            |  |                                                                                                                                                                                                         
|4.5         |  | License Agreement, by and between The University of Leiden and Can-Fite BioPharma Ltd., dated November 2, 2009 (3)                                                                                      
|            |  |                                                                                                                                                                                                         
|4.6         |  | License Agreement, by and between Kwang Dong Pharmaceutical Co., Ltd. and Can-Fite BioPharma Ltd., dated December 14, 2008 (3)                                                                          
|            |  |                                                                                                                                                                                                         
|4.7         |  | License Agreement, by and between Eye-Fite, Ltd. and Can-Fite BioPharma Ltd., dated November 21, 2011 (3)                                                                                               
|            |  |                                                                                                                                                                                                         
|4.8         |  | Services Agreement, by and among Denali Concrete Management Inc., Eye-Fite Ltd. and Can-Fite BioPharma Ltd., dated November 21, 2011 (3)                                                                
|            |  |                                                                                                                                                                                                         
|4.9         |  | Letter from Can-Fite BioPharma Ltd. to OphthaliX, Inc. regarding “Reimbursement for the Costs of the Clinical Trial”, dated February 24, 2013 (3)                                                       
|            |  |                                                                                                                                                                                                         
|4.10        |  | Agreement, by and between Denali Concrete Management Inc. and Can-Fite BioPharma Ltd., dated November 21, 2011 (3)                                                                                      
|            |  |                                                                                                                                                                                                         
|4.11        |  | Stock Purchase Agreement, by and between Denali Concrete Management Inc. and Can-Fite BioPharma Ltd., dated November 21, 2011 (3)                                                                       
|            |  |                                                                                                                                                                                                         
|4.12        |  | Subscription Agreement, by and between Denali Concrete Management Inc. and Can-Fite BioPharma Ltd., dated November 21, 2011 (3)                                                                         
|            |  |                                                                                                                                                                                                         
|4.13        |  | Common Stock Purchase Warrant issued by Denali Concrete Management Inc. to Can-Fite BioPharma Ltd., dated November 21, 2011 (3)                                                                         
|            |  |                                                                                                                                                                                                         
|4.14        |  | Can-Fite BioPharma Ltd. 2003 Israeli Share Option Plan (3)                                                                                                                                              
|            |  |                                                                                                                                                                                                         
|4.15        |  | Can-Fite BioPharma Ltd. 2013 Israeli Share Option Plan (4)                                                                                                                                              
|            |  |                                                                                                                                                                                                         
|4.16        |  | Form of Securities Purchase Agreement dated as of March 10, 2014 between Can-Fite BioPharma Ltd. and the investors listed therein (5)                                                                   





128







|4.17 |  | Form of Warrant dated March 10, 2014 issued by Can-Fite BioPharma Ltd. (5)                                                                        
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                   
|4.18 |  | Form of Registration Rights Agreement dated as of March 10, 20142014 between Can-Fite BioPharma Ltd. and the investors listed therein (5)         
|     |  |                                                                                                                                                   
|4.19 |  | Form of Lock-Up Agreement dated March 10, 2014 between Can-Fite BioPharma Ltd. and officers and directors of Can-Fite Biopharma Ltd. (5)          
|     |  |                                                                                                                                                   
|4.20 |  | Form of Placement Agent Warrant dated March 10, 2014 issued by Can-Fite BioPharma Ltd. to Roth Capital Partners, LLC(5)                           
|     |  |                                                                                                                                                   
|4.21 |  | Form of Securities Purchase Agreement dated as of December 2, 2014 between Can-Fite BioPharma Ltd. and the investors listed therein (6)           
|     |  |                                                                                                                                                   
|4.22 |  | Form of Warrant issued by Can-Fite BioPharma Ltd. on December 8, 2014 (6)                                                                         
|     |  |                                                                                                                                                   
|4.23 |  | Letter Agreement between H.C. Wainwright & Co., LLC and Can-Fite BioPharma Ltd. dated December 2, 2014 (6)                                        
|     |  |                                                                                                                                                   
|4.24 |  | Distribution and Supply Agreement between Can-Fite BioPharma Ltd. and Cipher Pharmaceuticals Inc. dated as of March 20, 2015 (4)†                 
|     |  |                                                                                                                                                   
|4.25 |  | Form of Securities Purchase Agreement dated as of September 19, 2015 between Can-Fite BioPharma Ltd. and the investors listed therein (7)         
|     |  |                                                                                                                                                   
|4.26 |  | Form of Warrant issued by Can-Fite BioPharma Ltd. on September 21, 2015 (7)                                                                       
|     |  |                                                                                                                                                   
|4.27 |  | Letter Agreement between H.C. Wainwright & Co., LLC and Can-Fite BioPharma Ltd. dated September 18, 2015 (7)                                      
|     |  |                                                                                                                                                   
|4.28 |  | Form of Securities Purchase Agreement dated as of October 13, 2015 between Can-Fite BioPharma Ltd. and the investors listed therein (8)           
|     |  |                                                                                                                                                   
|4.29 |  | Form of Warrant issued by Can-Fite BioPharma Ltd. on October 15, 2015 (8)                                                                         
|     |  |                                                                                                                                                   
|4.30 |  | Letter Agreement between H.C. Wainwright & Co., LLC and Can-Fite BioPharma Ltd. dated October 13, 2015 (8)                                        
|     |  |                                                                                                                                                   
|8.1  |  | List of Subsidiaries of Can-Fite BioPharma Ltd. *                                                                                                 
|     |  |                                                                                                                                                   
|12.1 |  | Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                               
|     |  |                                                                                                                                                   
|12.2 |  | Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                               
|     |  |                                                                                                                                                   
|13.1 |  | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|     |  |                                                                                                                                                   
|13.2 |  | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|     |  |                                                                                                                                                   
|15.1 |  | Consent of Independent Registered Public Accounting Firm.*                                                                                        





|*   | 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 Form F-3 filed with the SEC on January 19, 2016.                                                                                                                                                                                                                                                                                             
|(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 Annual Report on Form 20-F filed with the SEC on March 27, 2015.                                                                                                                                                                                                                                                                             
|(5) | Incorporated
    herein by reference to the Current Report on Form 6-K filed with the SEC on March 10, 2014.                                                                                                                                                                                                                                                                         
|(6) | Incorporated
    herein by reference to the Current Report on Form 6-K filed with the SEC on December 4, 2014.                                                                                                                                                                                                                                                                       
|(7) | Incorporated
    herein by reference to the Current Report on Form 6-K filed with the SEC on September 22, 2015.                                                                                                                                                                                                                                                                     
|(8) | Incorporated
    herein by reference to the Current Report on Form 6-K filed with the SEC on October 15, 2015.                                                                                                                                                                                                                                                                       





129







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 31, 2016





130