UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549










FORM 20-F










(Mark One)

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



OR

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

For the fiscal year ended December
31, 2015



OR

 ̈TRANSITIONAL 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

For the transition period from
____________to ___________.



Commission file number:000-36000



XTL BIOPHARMACEUTICALS LTD.

(Exact name of registrant as specified in its
charter)



Israel

(Jurisdiction of incorporation or organization)



5 HaCharoshet St.

Raanana 43656, Israel



(Address of principal executive offices)



Josh Levine

Chief Executive Officer

5 HaCharoshet St.

Raanana 4365603, Israel

Tel: +972-9-955-7080

Fax: +972-9-951-9708



(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
        twenty Ordinary Shares, par value NIS 0.1 | The Nasdaq Capital Market                  
|----------------------------------------------------------------------------------------------- | -------------------------------------------
|(Title of Class)                                                                                | (Name of each exchange on which registered)



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.



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.



4,440,150 American Depositary Shares            273,525,799
Ordinary 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 x



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 x



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 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 x    No  ̈



Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T 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 x



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



 ̈
US GAAP     x International Financial Reporting Standards
as issued     ̈ Other

by the International Accounting Standards Board



If “Other” has been check in
response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.



Item 17  ̈   
Item 18  ̈



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes  ̈    No x











XTL BIOPHARMACEUTICALS LTD.

ANNUAL REPORT ON FORM 20-F



TABLE OF CONTENTS



|                                                               |                                                                              | Page
|-------------------------------------------------------------- | ---------------------------------------------------------------------------- | ----
|                                                               |                                                                              |     
|SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS | 1                                                                           
|                                                               |                                                                              |     
|                                                               | PART I                                                                       | 1   
|ITEM 1                                                         | Identity of Directors, Senior Management and Advisers                        | 1   
|ITEM 2                                                         | Offer Statistics and Expected Timetable                                      | 1   
|ITEM 3                                                         | Key Information                                                              | 2   
|ITEM 4                                                         | Information on the Company                                                   | 16  
|ITEM 4A                                                        | Unresolved Staff Comments                                                    | 27  
|ITEM 5                                                         | Operating and Financial Review and Prospects                                 | 27  
|ITEM 6                                                         | Directors, Senior Management and Employees                                   | 40  
|ITEM 7                                                         | Major Shareholders and Related Party Transactions                            | 50  
|ITEM 8                                                         | Financial Information                                                        | 51  
|ITEM 9                                                         | The Offer and Listing                                                        | 51  
|ITEM 10                                                        | Additional Information                                                       | 53  
|ITEM 11                                                        | Quantitative and Qualitative Disclosures About Market Risk                   | 71  
|ITEM 12                                                        | Description of Securities other than Equity Securities                       | 71  
|                                                               |                                                                              |     
|                                                               | PART II                                                                      | 71  
|ITEM 13                                                        | Defaults, Dividend Arrearages and Delinquencies                              | 71  
|ITEM 14                                                        | Material Modifications to the Rights of Security Holders and Use of Proceeds | 71  
|ITEM 15                                                        | Controls and Procedures                                                      | 72  
|ITEM 16                                                        | Reserved                                                                     | 72  
|ITEM 16A                                                       | Audit Committee Financial Expert                                             | 72  
|ITEM 16B                                                       | Code of Ethics                                                               | 72  
|ITEM 16C                                                       | Principal Accountant Fees And Services                                       | 72  
|ITEM 16D                                                       | Exemptions From The Listing Standards For Audit Committees                   | 73  
|ITEM 16E                                                       | Purchases Of Equity Securities By The Issuer And Affiliated Purchasers       | 73  
|ITEM 16G                                                       | Corporate Governance                                                         | 73  
|                                                               |                                                                              |     
|                                                               | PART III                                                                     | 73  
|ITEM 17                                                        | Financial Statements                                                         | 73  
|ITEM 18                                                        | Financial Statements                                                         | F-1 
|ITEM 19                                                        | Exhibits                                                                     | 74  
|                                                               |                                                                              |     
|SIGNATURES                                                     |                                                                              | 76  











SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS



Certain matters discussed
in this report, including matters discussed under the caption “Item 5. Operating and Financial Review and Prospects,”
may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, or the Securities Act, and the
Securities Exchange Act of 1934, as amended, or the Exchange Act, and involve known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to be materially different from the future results, performance
or achievements expressed or implied by such forward-looking statements. In some instances, you can identify these forward-looking
statements by words such as “anticipates,” “believes,” “estimates,” “expects,”
“intends,” “may,” “plan,” “potential,” “will,” “should,”
“would,” or similar expressions, including their negatives. These forward-looking statements include, without limitation,
statements relating to our expectations and beliefs regarding:



| | • | fluctuations in the market price of our securities;
| | - | ---------------------------------------------------



| | • | the possibility that our securities could be delisted from Nasdaq or the Tel-Aviv Stock Exchange
(“TASE”);
| | - | ----------------------------------------------------------------------------------------------------------



| | • | potential dilution to the holders of our securities as a result of future issuances of our securities;
| | - | ------------------------------------------------------------------------------------------------------



| | • | fluctuations in our results of operations;
| | - | ------------------------------------------



| | • | the accuracy of our financial forecasts in our drug development activity and the uncertainty regarding
the adequacy of our liquidity to pursue our complete business objectives;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the timing and cost of the in-licensing, partnering and acquisition of new product opportunities;
| | - | -------------------------------------------------------------------------------------------------



| | • | the timing of expenses associated with product development and manufacturing of the proprietary
drug candidates that we have acquired - hCDR1 for the treatment of Lupus, rHuEPO for the treatment of Multiple Myeloma and those
that may be in-licensed, partnered or acquired;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the costs involved in prosecuting and enforcing patent claims and other intellectual property rights;
and
| | - | ---------------------------------------------------------------------------------------------------------



| | • | other risks and uncertainties described in this report.
| | - | -------------------------------------------------------



Our actual results may
differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without
limitation, those discussed under “Item 3. Key Information-Risk Factors,” “Item 4. Information on the Company,”
“Item 5. Operating and Financial Review and Prospects,” and elsewhere in this report, as well as factors which may
be identified from time to time in our other filings with the Securities and Exchange Commission, or the SEC, or in the documents
where such forward-looking statements appear. All written or oral forward-looking statements attributable to us are expressly qualified
in their entirety by these cautionary statements.



Forward-looking statements
contained in this report reflect our views and assumptions only as of the date this report is filed. Therefore, you should not
place undue reliance on any forward-looking statement as a prediction of future results. Forward-looking statements made in this
report and the documents incorporated by reference are made as of the date of the respective documents, and we undertake no obligation
to update them in light of new information or future results. Except as required by law, we assume no responsibility for updating
any forward-looking statements.



PART I



Unless the context
requires otherwise, references in this report to “XTL,” the “Company,” “we,” “us”
and “our” refer to XTL Biopharmaceuticals Ltd, an Israeli company and our consolidated subsidiaries. We have prepared
our consolidated financial statements in United States, or US, dollars and in accordance with International Financial Reporting
Standards, or IFRS. All references herein to “dollars” or “$” are to US dollars, and all references to
“Shekels” or “NIS” are to New Israeli Shekels.



ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
AND ADVISERS



Not applicable



ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE



Not applicable



1







ITEM 3. KEY INFORMATION



A.  Selected Financial Data



The tables below present
selected financial data for the fiscal years ended as of December 31, 2015, 2014, 2013, 2012 and 2011. We have derived the selected
financial data for the fiscal years ended December 31, 2015, 2014 and 2013, and as of December 31, 2015 and 2014, from our audited
consolidated financial statements, included elsewhere in this report and prepared in accordance with International Financial Reporting
Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). You should read the
selected financial data in conjunction with “Item 5. Operating and Financial Review and Prospects,” “Item 8.
Financial Information” and “Item 18. Financial Statements.”



Consolidated Statements of Comprehensive
income:



|                                                                                   |  | Year ended December 31,  |            
|---------------------------------------------------------------------------------- |  | ------------------------ | -----------
|                                                                                   |  | 2015                     |            
|                                                                                   |  | U.S Dollars in thousands |            
|                                                                                   |  |                          |            
|Research and development expenses                                                  |  |                          | (578       
|General and administrative expenses                                                |  |                          | (1,419     
|Impairment of intangible assets                                                    |  |                          | (1,604     
|Other gains, net                                                                   |  |                          | (10        
|                                                                                   |  |                          |            
|Operating loss                                                                     |  |                          | (3,611     
|                                                                                   |  |                          |            
|Finance income                                                                     |  |                          | 4          
|Finance expenses                                                                   |  |                          | (15        
|                                                                                   |  |                          |            
|Financial income (expenses), net                                                   |  |                          | (11        
|                                                                                   |  |                          |            
|Earnings (losses) from investment in associate                                     |  |                          | -          
|                                                                                   |  |                          |            
|Total loss from continuing operations                                              |  |                          | (3,622     
|                                                                                   |  |                          |            
|Other comprehensive income (loss):                                                 |  |                          |            
|Items that might be classified to profit or loss:                                  |  |                          |            
|Foreign currency translation adjustments                                           |  |                          | -          
|Reclassification of foreign currency translation adjustments to Other gains, net   |  |                          | -          
|Total other comprehensive income                                                   |  |                          | -          
|                                                                                   |  |                          |            
|Total comprehensive loss from continuing operations                                |  |                          | (3,622     
|                                                                                   |  |                          |            
|Total loss from discontinued operations                                            |  |                          | (689       
|                                                                                   |  |                          |            
|Total comprehensive loss for the year                                              |  |                          | (4,311     
|                                                                                   |  |                          |            
|Loss for the year attributable to:                                                 |  |                          |            
|Equity holders of the Company                                                      |  |                          | (4,313     
|Non-controlling interests                                                          |  |                          | 2          
|                                                                                   |  |                          |            
|                                                                                   |  |                          | (4,311     
|                                                                                   |  |                          |            
|Total comprehensive loss for the year attributable to:                             |  |                          |            
|Equity holders of the Company                                                      |  |                          | (4,313     
|Non-controlling interests                                                          |  |                          | 2          
|                                                                                   |  |                          |            
|                                                                                   |  |                          | (4,311     
|                                                                                   |  |                          |            
|Basic and diluted loss from continuing and discontinued operations (in US dollars) |  |                          |            
|From continuing operations                                                         |  |                          | (0.014     
|From discontinued operations                                                       |  |                          | (0.003     
|Basic and diluted loss per share (in US dollars)                                   |  |                          | (0.017     
|                                                                                   |  |                          |            
|Weighted average number of issued ordinary shares                                  |  |                          | 263,730,467



2







Consolidated Statements of Financial Position Data:



|                                         |  | As of December 31,       |      
|---------------------------------------- |  | ------------------------ | -----
|                                         |  | 2015                     |      
|                                         |  | U.S Dollars in thousands |      
|                                         |  |                          |      
|Cash, cash equivalents and bank deposits |  |                          | 3,817
|Working capital                          |  |                          | 3,829
|Total assets                             |  |                          | 5,323
|Long term liabilities                    |  |                          | -    
|Total shareholders’ equity               |  |                          | 4,887
|Non-controlling interests                |  |                          | -    



B. Capitalization And Indebtedness



Not applicable.



C. Reasons For Offer And Use Of Proceeds



Not applicable.



D. Risk Factors



Before you invest in
our ordinary shares or American Depositary Shares, you should understand the high degree of risk involved. You should carefully
consider the risks described below and other information in this report, including our financial statements and related notes included
elsewhere in this report, before you decide to purchase our ordinary shares or ADSs. If any of the following risks actually occur,
our business, financial condition and operating results could be adversely affected. As a result, the trading price of our ordinary
shares or ADSs could decline and you could lose part or all of your investment.



Risks Related to Our Financial Position
and Capital Requirements



We have incurred substantial operating
losses since our inception. We expect to continue to incur losses in the future in our drug development activity and may never
become profitable.



You should consider our
prospects in light of the risks and difficulties frequently encountered by development stage companies. We have incurred operating
losses since our inception and expect to continue to incur operating losses for the foreseeable future. We have not yet commercialized
any of our drug candidates or technologies and cannot be sure we will ever be able to do so. Even if we commercialize one or more
of our drug candidates or technologies, we may not become profitable. Our ability to achieve profitability depends on a number
of factors, including our ability to complete our development efforts, consummate out-licensing agreements, obtain regulatory approval
for our drug candidates and technologies and successfully commercialize them.



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                                                                    
|  |                                                                                                             
|● | progress product candidates 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 require substantial
additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay,
limit, reduce or terminate our product development or commercialization efforts.



As of December 31, 2015,
we had approximately $3,817 thousand in cash, cash equivalents and bank deposits, working capital of approximately $3,829 thousand
and an accumulated deficit of approximately $152,487 thousand. As of December 31, 2015, we had sufficient cash and cash commitments
to fund operations based on existing business plans, for at least the next twelve months. We have expended and believe that we
will continue to expend significant operating and capital expenditures for the foreseeable future developing our product candidates.
These expenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting
preclinical experiments and clinical trials, contracting with contract manufacturing organizations (“CMOs”) and research
organizations (“CROs”), hiring additional management and other personnel and obtaining regulatory approvals, as well
as commercializing any products approved for sale. 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 and any other future product. 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. A failure to fund these activities may harm our growth strategy, competitive position, quality compliance
and financial condition.



Our future capital requirements
depend on many factors, including:



| | · | the number and characteristics of products we develop;
| | - | ------------------------------------------------------



| | · | the scope, progress, results and costs of researching and developing our product candidates and
conducting preclinical and clinical trials;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | · | the timing of, and the costs involved in, obtaining regulatory approvals;
| | - | -------------------------------------------------------------------------



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



| | · | the cost of manufacturing any product candidate we successfully commercialize;
| | - | ------------------------------------------------------------------------------



| | · | our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements
and the financial terms of such agreements;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent
claims, including litigation costs and the outcome of such litigation;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | hCDR1 patent expiration in 2024 and failure to obtain patent term extension, expand patent protection
or obtain data exclusivity in the U.S. and Europe;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | rHuEPO patent expiration in 2019 and failure to retain orphan drug designation in the U.S. or obtain
orphan drug designation in Europe;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | · | the costs of in-licensing further patents and technologies.
| | - | -----------------------------------------------------------



| | · | the cost of development of in-licensed technologies
| | - | ---------------------------------------------------



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



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



| | · | any product liability or other lawsuits related to existing and/or any future products.
| | - | ---------------------------------------------------------------------------------------



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 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 or any future products.



4







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.



Risks Related to Our Drug Development Business



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,
third-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.



If we are unable to successfully complete
our clinical trial programs for our drug candidates, or if such clinical trials take longer to complete than we project, our ability
to execute our current business strategy will be adversely affected.



Whether or not and how
quickly we complete clinical trials depends in part upon the rate at which we are able to engage clinical trial sites and, thereafter,
the rate of enrollment of patients, and the rate at which we are able to collect, clean, lock and analyze the clinical trial database.
Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical
sites, the eligibility criteria for the study, the existence of competitive clinical trials, and whether existing or new drugs
are approved for the indication we are studying. We are aware that other companies are planning clinical trials that will seek
to enroll patients with the same diseases and stages as we are studying. If we experience delays in identifying and contracting
with sites and/or in patient enrollment in our clinical trial programs, we may incur additional costs and delays in our development
programs, and may not be able to complete our clinical trials on a cost-effective or timely basis.



We have limited experience in conducting
and managing clinical trials necessary to obtain regulatory approvals. If our drug candidates and technologies do not receive the
necessary regulatory approvals, we will be unable to commercialize our products.



We have not received,
and may never receive, regulatory approval for commercial sale for hCDR1 or rHuEPO. We currently do not have any drug candidates
pending approval with the Food and Drug Administration (“FDA”) or with regulatory authorities of other countries. We
will need to conduct significant additional research and human testing before we can apply for product approval with the FDA or
with regulatory authorities of other countries. In order to obtain FDA approval to market a new drug product, we or our potential
partners must demonstrate proof of safety and efficacy in humans. To meet these requirements, we and/or our potential partners
will have to conduct “adequate and well-controlled” clinical trials.



Clinical development is
a long, expensive and uncertain process. Clinical trials are very difficult to design and implement, in part because they are subject
to rigorous regulatory requirements. Satisfaction of regulatory requirements typically depends on the nature, complexity and novelty
of the product and requires the expenditure of substantial resources. The commencement and rate of completion of clinical trials
may be delayed by many factors, including:



5







| | · | obtaining regulatory approvals to commence a clinical trial;
| | - | ------------------------------------------------------------



| | · | reaching agreement on acceptable terms with prospective CROs, and trial sites, the terms of which
can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | slower than expected rates of patient recruitment due to narrow screening requirements and competing
clinical studies;
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | the inability of patients to meet protocol requirements imposed by the FDA or other regulatory
authorities;
| | - | -----------------------------------------------------------------------------------------------------------



| | · | the need or desire to modify our manufacturing process;
| | - | -------------------------------------------------------



| | · | delays, suspension, or termination of the clinical trials due to the institutional review board
responsible for overseeing the study at a particular study site; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | governmental or regulatory delays or “clinical holds” requiring suspension or termination
of the trials.
| | - | --------------------------------------------------------------------------------------------------------



Following the completion
of a clinical trial, regulators may not interpret data obtained from pre-clinical and clinical tests of our drug candidates and
technologies the same way that we do, which could delay, limit or prevent our receipt of regulatory approval. In addition, the
designs of any clinical trials may not be reviewed or approved by the FDA prior to their commencement, and consequently the FDA
could determine that the parameters of any studies are insufficient to demonstrate proof of safety and efficacy in humans. Failure
to approve a completed study could also result from several other factors, including unforeseen safety issues, the determination
of dosing, low rates of patient recruitment, the inability to monitor patients adequately during or after treatment, the inability
or unwillingness of medical investigators to follow our clinical protocols, and the lack of effectiveness of the trials.



Additionally, the regulators
could determine that the studies indicate the drugs may have serious side effects. In the U.S., this is called a black box warning,
which is a type of warning that appears on the package insert for prescription drugs indicating that they may cause serious adverse
effects. A black box warning means that medical studies indicate that the drug carries a significant risk of serious or even life-threatening
adverse effects.



If the clinical trials
fail to satisfy the criteria required, the FDA and/or other regulatory agencies/authorities may request additional information,
including additional clinical data, before approval of marketing a product. Negative or inconclusive results or medical events
during a clinical trial could also cause us to delay or terminate our development efforts. If we experience delays in the testing
or approval process, or if we need to perform more or larger clinical trials than originally planned, our financial results and
the commercial prospects for our drug candidates and technologies may be materially impaired.



Clinical trials have a
high risk of failure. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant
setbacks in clinical trials, even after achieving promising results in earlier trials. It may take us many years to complete the
testing of our drug candidates and technologies, and failure can occur at any stage of this process.



Even if we receive regulatory
approval for our products, they and their manufacture will be subject to continual review, and there can be no assurance that such
approval will not be subsequently withdrawn or restricted. Changes in applicable legislation or regulatory policies, or discovery
of problems with the products or their manufacture, may result in the imposition of regulatory restrictions, including withdrawal
of the product from the market, or result in increased costs to us.



If third parties on which we will have
to rely for clinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval
for or commercialize our products.



We will have to depend
on independent clinical investigators, and other third-party service providers to conduct the clinical trials of our drug candidates
and technologies. We also may, from time to time, engage a clinical research organization for the execution of our clinical trials.
We will rely heavily on these parties for successful execution of our clinical trials, but we will not control many aspects of
their activities. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with
the general investigational plan and protocol. Our reliance on these third parties that we do not control does not relieve us of
our responsibility to comply with the regulations and standards of the FDA and/or other foreign regulatory agencies/authorities
relating to good clinical practices. Third parties may not complete activities on schedule or may not conduct our clinical trials
in accordance with regulatory requirements or the applicable trial’s plans and protocols. The failure of these third parties
to carry out their obligations could delay or prevent the development, approval and commercialization of our products, or could
result in enforcement action against us.



Our international clinical trials may
be delayed or otherwise adversely impacted by social, political and economic factors affecting the particular foreign country.



We may conduct clinical
trials in different geographical locations. Our ability to successfully initiate, enroll and complete a clinical trial in any of
these countries, or in any future foreign country in which we may initiate a clinical trial, are subject to numerous risks unique
to conducting business in foreign countries, including:



6







| | · | difficulty in establishing or managing relationships with clinical research organizations and physicians;
| | - | ---------------------------------------------------------------------------------------------------------



| | · | different standards for the conduct of clinical trials and/or health care reimbursement;
| | - | ----------------------------------------------------------------------------------------



| | · | our inability to locate qualified local consultants, physicians, and partners;
| | - | ------------------------------------------------------------------------------



| | · | the potential burden of complying with a variety of foreign laws, medical standards and regulatory
requirements, including the regulation of pharmaceutical products and treatment; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | general geopolitical risks, such as political and economic instability, and changes in diplomatic
and trade relations.
| | - | ----------------------------------------------------------------------------------------------------------------------



Any disruption to our
international clinical trial program could significantly delay our product development efforts.



If the clinical data related to our drug
candidates and technologies do not confirm positive early clinical data or preclinical data, our corporate strategy and financial
results will be adversely impacted.



Our drug candidates and
technologies are in clinical stages. Specifically, our product candidates, hCDR1 and rHuEPO, are each planned for and/or ready
for advanced clinical studies. In order for our candidates to proceed to later stage clinical testing or marketing approval, they
must show positive clinical results.



Preliminary results of
pre-clinical, clinical observations or clinical tests do not necessarily predict the final results, and promising results in pre-clinical,
clinical observations or early clinical testing might not be obtained in later clinical trials. Drug candidates in the later stages
of clinical development may fail to show the desired safety and efficacy traits despite having progressed through initial clinical
testing. Any negative results from future tests may prevent us from proceeding to later stage clinical testing or marketing approval
would materially impact our corporate strategy and adversely impact our financial results.



If we do not establish or maintain drug
development and marketing arrangements with third parties, we may be unable to commercialize our drug candidates and technologies
into products.



We do not possess all
of the capabilities to fully commercialize our drug candidates and technologies on our own. From time to time, we may need to contract
with third parties to:



| | · | assist us in developing, testing and obtaining regulatory approval for some of our compounds and
technologies;
| | - | --------------------------------------------------------------------------------------------------------------



| | · | manufacture our drug candidates; and
| | - | ------------------------------------



| | · | market and distribute our products.
| | - | -----------------------------------



We can provide no assurance
that we will be able to successfully enter into agreements with such third-parties on terms that are acceptable to us. If we are
unable to successfully contract with third parties for these services when needed, or if existing arrangements for these services
are terminated, whether or not through our actions, or if such third parties do not fully perform under these arrangements, we
may have to delay, scale back or end one or more of our drug development programs or seek to develop or commercialize our drug
candidates and technologies independently, which could result in delays. Further, such failure could result in the termination
of license rights to one or more of our drug candidates and technologies. Moreover, if these development or marketing agreements
take the form of a partnership or strategic alliance, such arrangements may provide our collaborators with significant discretion
in determining the efforts and resources that they will apply to the development and commercialization of our products. Accordingly,
to the extent that we rely on third parties to research, develop or commercialize our products, we may be unable to control whether
such products will be scientifically or commercially successful.



Even if we or our collaborative/strategic
partners or potential collaborative/strategic partners receive approval to market our drug candidates, if our products fail to
achieve market acceptance, we will never record meaningful revenues.



Even if our products are
approved for sale, they may not be commercially successful in the marketplace. Market acceptance of our product candidates will
depend on a number of factors, including:



| | · | perceptions by members of the health care community, including physicians, of the safety and efficacy
of our products;
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | the rates of adoption of our products by medical practitioners and the target populations for our
products;
| | - | -----------------------------------------------------------------------------------------------------------



| | · | the potential advantages that our products offer over existing treatment methods or other products
that may be developed;
| | - | -------------------------------------------------------------------------------------------------------------------------



| | · | the cost-effectiveness of our products relative to competing products including potential generic
competition;
| | - | --------------------------------------------------------------------------------------------------------------



7







| | · | the availability of government or third-party pay or reimbursement for our products;
| | - | ------------------------------------------------------------------------------------



| | · | the side effects of our products which may lead to unfavorable publicity concerning our products
or similar products; and
| | - | -------------------------------------------------------------------------------------------------------------------------



| | · | the effectiveness of our and/or our partners’ sales, marketing and distribution efforts.
| | - | ----------------------------------------------------------------------------------------



Specifically, each of
hCDR1 or rHuEPO, if successfully developed and commercially launched for the treatment of systemic lupus erythematosus (“SLE”)
or multiple myeloma, respectively, will compete with both currently marketed and new products marketed by other companies. Health
care providers may not accept or utilize any of our product candidates. Physicians and other prescribers may not be inclined to
prescribe our products unless our products bring clear and demonstrable advantages over other products currently marketed for the
same indications. Because we expect sales of our products to generate substantially all of our revenues in the long-term, the failure
of our products to find market acceptance would harm our business and could require us to seek additional financing or other sources
of revenue.



If the third parties upon whom we rely
to manufacture our products do not successfully manufacture our products, our business will be harmed.



We do not currently have
the ability to manufacture the compounds that we need to conduct our clinical trials and, therefore, rely upon, and intend to continue
to rely upon, certain manufacturers to produce and supply our drug candidates for use in clinical trials and for future sales.
In order to commercialize our products, such products will need to be manufactured in commercial quantities while adhering to all
regulatory and other local requirements, all at an acceptable cost. We may not be able to enter into future third-party contract
manufacturing agreements on acceptable terms, if at all.



If our contract manufacturers
or other third parties fail to deliver our product candidates for clinical use on a timely basis, with sufficient quality, and
at commercially reasonable prices, and we fail to find replacement manufacturers or sources, we may be required to delay or suspend
clinical trials or otherwise discontinue development and production of our drug candidates.



Our contract manufacturers
will be required to produce our clinical drug candidates under strict compliance with current Good Manufacturing Practices (“cGMP”),
in order to meet acceptable regulatory standards for our clinical trials. If such standards change, the ability of contract manufacturers
to produce our drug candidates on the schedule we require for our clinical trials may be affected. In addition, contract manufacturers
may not perform their obligations under their agreements with us or may discontinue their business before the time required by
us to successfully produce and market our drug candidates. Any difficulties or delays in our contractors’ manufacturing and
supply of drug candidates could increase our costs, cause us to lose revenue or make us postpone or cancel clinical trials.



In addition, our contract
manufacturers will be subject to ongoing periodic, unannounced inspections by the FDA and corresponding foreign or local governmental
agencies to ensure strict compliance with, among other things, cGMP, in addition to other governmental regulations and corresponding
foreign standards. We will not have control over, other than by contract, third-party manufacturers’ compliance with these
regulations and standards. No assurance can be given that our third-party manufacturers will comply with these regulations or other
regulatory requirements now or in the future.



In the event that we are
unable to obtain or retain third-party manufacturers, we will not be able to commercialize our products as planned. If third-party
manufacturers fail to deliver the required quantities of our products on a timely basis and at commercially reasonable prices,
our ability to develop and deliver products on a timely and competitive basis may be adversely impacted and our business, financial
condition or results of operations will be materially harmed.



If our competitors develop and market
products that are less expensive, more effective or safer than our products, our revenues and results may be harmed and our commercial
opportunities may be reduced or eliminated.



The pharmaceutical industry
is highly competitive. Our commercial opportunities may be reduced or eliminated if our competitors develop and market products
that are less expensive, more effective or safer than our products. Other companies have drug candidates in various stages of pre-clinical
or clinical development to treat diseases for which we are also seeking to discover and develop drug candidates. Some of these
potential competing drugs are already commercialized or are further advanced in development than our drug candidates and may be
commercialized earlier. Even if we are successful in developing safe, effective drugs, our products may not compete successfully
with products produced by our competitors, who may be able to market their drugs more effectively.



Our competitors include
pharmaceutical companies and biotechnology companies, as well as universities and public and private research institutions. In
addition, companies that are active in different but related fields present substantial competition for us. Many of our competitors
have significantly greater capital resources, larger research and development staffs and facilities and greater experience in drug
development, regulation, manufacturing and marketing than we do. These organizations also compete with us to recruit qualified
personnel, attract partners for joint ventures or other collaborations, and license technologies that are competitive with ours.
As a result, our competitors may be able to more easily develop products that could render our technologies or our drug candidates
obsolete or noncompetitive. Development of new drugs, medical technologies and competitive medical devices may damage the demand
for our products without any certainty that we will successfully and effectively contend with those competitors.



8







If we lose our key personnel or are unable
to attract and retain additional personnel, our business could be harmed.



To successfully develop
our drug candidates and technologies, we must be able to attract and retain highly skilled personnel, including consultants and
employees. The retention of their services cannot be guaranteed. Our failure to retain and/or recruit such professionals might
impair our performance and materially affect our technological and product development capabilities and our product marketing ability.



Any acquisitions or in-licensing transactions
we make may dilute your equity or require a significant amount of our available cash and may not be scientifically or commercially
successful.



As part of our business
strategy, we may effect acquisitions or in-licensing transactions to obtain additional businesses, products, technologies, capabilities
and personnel. If we complete one or more such transactions in which the consideration includes our ordinary shares or other securities,
your equity may be significantly diluted. If we complete one or more such transactions in which the consideration includes cash,
we may be required to use a substantial portion of our available cash.



Acquisitions and in-licensing
transactions also involve a number of operational risks, including:



| | · | difficulty and expense of assimilating the operations, technology or personnel of the business;
| | - | -----------------------------------------------------------------------------------------------



| | · | our inability to attract and retain management, key personnel and other employees necessary to
conduct the business;
| | - | --------------------------------------------------------------------------------------------------------------------



| | · | our inability to maintain relationships with key third parties, such as alliance partners, associated
with the business;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | exposure to legal claims for activities of the business prior to the acquisition;
| | - | ---------------------------------------------------------------------------------



| | · | the diversion of our management’s attention from our other drug development businesses; and
| | - | -------------------------------------------------------------------------------------------



| | · | the potential impairment of goodwill and write-off of in-process research and development costs,
adversely affecting our reported results of operations.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, the basis
for completing the acquisition or in-licensing could prove to be unsuccessful as the drugs or processes involved could fail to
be scientifically or commercially viable. We may also be required to pay third parties substantial transaction fees, in the form
of cash or ordinary shares, in connection with such transactions.



If any of these risks
occur, it could have an adverse effect on both the business we acquire or in-license and our existing operations.



We face product liability risks and may
not be able to obtain adequate insurance.



The use of our drug candidates
and technologies in clinical trials, and the sale of any approved products, exposes us to liability claims. If we cannot successfully
defend ourselves against product liability claims, we may incur substantial liabilities or be required to cease clinical trials
of our drug candidates and technologies or limit commercialization of any approved products.



We believe that we will
be able to obtain sufficient product liability insurance coverage for our planned clinical trials. We intend to expand our insurance
coverage to include the commercial sale of any approved products if marketing approval is obtained; however, insurance coverage
is becoming increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost. We may not be able
to obtain additional insurance coverage that will be adequate to cover product liability risks that may arise. Regardless of merit
or eventual outcome, product liability claims may result in:



| | · | decreased demand for a product;
| | - | -------------------------------



| | · | damage to our reputation;
| | - | -------------------------



| | · | inability to continue to develop a drug candidate or technology;
| | - | ----------------------------------------------------------------



| | · | withdrawal of clinical trial volunteers; and
| | - | --------------------------------------------



| | · | loss of revenues.
| | - | -----------------



Consequently, a product
liability claim or product recall may result in material losses.



9







Risks Related to Our Intellectual Property



Because all of our proprietary drug candidates
and technologies are licensed to us by third parties, termination of these license agreements could prevent us from developing
our drug candidates.



We do not own any of our
drug candidates and technologies. We have licensed the rights, patent or otherwise, to our drug candidates from third parties.
We have licensed hCDR1 from Yeda Research and Development Company Ltd., or Yeda. We licensed a use patent for the use of rHuEPO
from Yeda and Mor Research Applications Ltd., or Mor which we acquired from Bio-Gal Limited, or Bio-Gal.



These license agreements
require us to meet development or financing milestones and impose development and commercialization due diligence requirements
on us. In addition, under these agreements, we must pay royalties on sales of products resulting from licensed drugs and technologies
and pay the patent filing, prosecution and maintenance costs related to the licenses. While we have the right to defend patent
rights related to our licensed drug candidates and technologies, we are not obligated to do so. In the event that we decide to
defend our licensed patent rights, we will be obligated to cover all of the expenses associated with that effort. If we do not
meet our obligations in a timely manner, or if we otherwise breach the terms of our agreements, our licensors could terminate the
agreements, and we would lose the rights to our drug candidates and technologies. From time to time, in the ordinary course of
business, we may have disagreements with our licensors or collaborators regarding the terms of our agreements or ownership of proprietary
rights, which could lead to delays in the research, development, collaboration and commercialization of our drug candidates, or
could require or result in litigation or arbitration, which could be time-consuming and expensive.



If we are unable to adequately protect
our intellectual property, third parties may be able to use our technology, which could adversely affect our ability to compete
in the market.



Our commercial success
will depend in part on our ability and the ability of our licensors to obtain and maintain patent protection on our drug products
and technologies and successfully defend these patents and technologies against third-party challenges. As part of our business
strategy, our policy is to actively file patent applications in the U.S. and internationally to cover methods of use, new chemical
compounds, pharmaceutical compositions and dosing of the compounds and composition and improvements in each of these. Because of
the extensive time required for development, testing and regulatory review of a potential product, it is possible that before we
commercialize any of our products, any related patent may expire or remain in force for only a short period following commercialization,
thus reducing any advantage of the patent.



The patent positions of
pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. No consistent
policy regarding the breadth of claims allowed in biotechnology patents has emerged to date. Accordingly, the patents we use may
not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Furthermore,
others may independently develop similar or alternative technologies or design around our patented technologies. The patents we
use may be challenged or invalidated or may fail to provide us with any competitive advantage.



Generally, patent applications
in the U.S. are maintained in secrecy for a period of at least 18 months. Since publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, we are not certain that we were the first to make the inventions covered
by each of our pending patent applications or that we were the first to file those patent applications. We cannot predict the breadth
of claims allowed in biotechnology and pharmaceutical patents, or their enforceability. Third parties or competitors may challenge
or circumvent our patents or patent applications, if issued. If our competitors prepare and file patent applications in the U.S.
that claim compounds or technology also claimed by us, we may be required to challenge competing patent rights, which could result
in substantial cost, even if the eventual outcome is favorable to us. While we have the right to defend patent rights related to
the licensed drug candidates and technologies, we are not obligated to do so. In the event that we decide to defend our licensed
patent rights, we will be obligated to cover all of the expenses associated with that effort.



We also rely on trade
secrets to protect technology where we believe patent protection is not appropriate or obtainable. Trade secrets are difficult
to protect. While we require our employees, collaborators and consultants to enter into confidentiality agreements, this may not
be sufficient to protect our trade secrets or other proprietary information adequately. In addition, we share ownership and publication
rights to data relating to some of our drug candidates and technologies with our research collaborators and scientific advisors.
If we cannot maintain the confidentiality of this information, our ability to protect our proprietary information will be at risk.



Litigation or third-party claims of intellectual
property infringement could require us to spend substantial time, money and other resources defending such claims and adversely
affect our ability to develop and commercialize our products.



Third parties may assert
that we are using their proprietary technology without authorization. In addition, third parties may have or obtain patents in
the future and claim that our products infringe their patents. If we are required to defend against patent suits brought by third
parties, or if we sue third parties to protect our patent rights, we may be required to pay substantial litigation costs, and our
management’s attention may be diverted from operating our business. In addition, any legal action against our licensors or
us that seeks damages or an injunction of our commercial activities relating to the affected products could subject us to monetary
liability and require our licensors or us to obtain a license to continue to use the affected technologies. We cannot predict whether
our licensors or we would prevail in any of these types of actions or that any required license would be made available on commercially
acceptable terms, if at all. In addition, any legal action against us that seeks damages or an injunction relating to the affected
activities could subject us to monetary liability and/or require us to discontinue the affected technologies or obtain a license
to continue use thereof.



10







In addition, there can
be no assurance that our patents or patent applications or those licensed to us will not become involved in opposition or revocation
proceedings instituted by third parties. If such proceedings were initiated against one or more of our patents, or those licensed
to us, the defense of such rights could involve substantial costs and the outcome could not be predicted.



Competitors or potential
competitors may have filed applications for, may have been granted patents for, or may obtain additional patents and proprietary
rights that may relate to compounds or technologies competitive with ours. If patents are granted to other parties that contain
claims having a scope that is interpreted to cover any of our products (including the manufacture thereof), there can be no assurance
that we will be able to obtain licenses to such patents at reasonable cost, if at all, or be able to develop or obtain alternative
technology.



Risks Related to Our ADSs



Our ADSs are traded in small volumes,
limiting your ability to sell your ADSs that represent ordinary shares at a desirable price, if at all.



The trading volume of
our ADSs has historically been low. Even if the trading volume of our ADSs increases, we can give no assurance that it will be
maintained or will result in a desirable stock price. As a result of this low trading volume, it may be difficult to identify buyers
to whom you can sell your ADSs in desirable volume and you may be unable to sell your ADSs at an established market price, at a
price that is favorable to you, or at all. A low volume market also limits your ability to sell large blocks of our ADSs at a desirable
or stable price at any one time. You should be prepared to own our ADSs indefinitely.



Our stock price can be volatile, which
increases the risk of litigation and may result in a significant decline in the value of your investment.



The trading price of our
ADSs representing our ordinary shares is likely to be highly volatile and subject to wide fluctuations in price in response to
various factors, many of which are beyond our control. These factors include:



| | · | developments concerning our drug candidates;
| | - | --------------------------------------------



| | · | announcements of technological innovations by us or our competitors;
| | - | --------------------------------------------------------------------



| | · | introductions or announcements of new products by us or our competitors;
| | - | ------------------------------------------------------------------------



| | · | developments in the markets of the field of activities and changes in customer attributes;
| | - | ------------------------------------------------------------------------------------------



| | · | announcements by us of significant acquisitions, in/out license transactions, strategic partnerships, joint ventures or capital
commitments;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | · | changes in financial estimates by securities analysts;
| | - | ------------------------------------------------------



| | · | actual or anticipated variations in interim operating results and near-term working capital as well as failure to raise required
funds for the continued development and operations of the company;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | expiration or termination of licenses, patents, research contracts or other collaboration agreements;
| | - | -----------------------------------------------------------------------------------------------------



| | · | conditions or trends in the regulatory climate and the biotechnology and pharmaceutical industries;
| | - | ---------------------------------------------------------------------------------------------------



| | · | failure to obtain orphan drug designation status for the relevant drug candidates in the relevant regions;
| | - | ----------------------------------------------------------------------------------------------------------



| | · | increase in costs and lengthy timing of the clinical trials according to regulatory requirements;
| | - | -------------------------------------------------------------------------------------------------



| | · | failure to increase awareness of our products;
| | - | ----------------------------------------------



| | · | changes in reimbursement policy by governments or insurers in markets we operate or may operate in the future;
| | - | --------------------------------------------------------------------------------------------------------------



| | · | any changes in the regulatory environment relating to our drug candidates;
| | - | --------------------------------------------------------------------------



| | · | changes in the market valuations of similar companies; and
| | - | ----------------------------------------------------------



| | · | additions or departures of key personnel.
| | - | -----------------------------------------



In addition, equity markets
in general, and the market for biotechnology and life sciences companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating performance of companies traded in those markets.
These broad market and industry factors may materially affect the market price of our ADSs, regardless of our development and operating
performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action
litigation has often been instituted against that company. Such litigation, if instituted against us, could cause us to incur substantial
costs to defend such claims and divert management’s attention and resources even if we prevail in the litigation, all of
which could seriously harm our business.



11







Future issuances or sales of our ADSs
could depress the market for our ADSs.



Future issuances of a
substantial number of our ADSs, or the perception by the market that those issuances could occur, could cause the market price
of our ordinary shares or ADSs to decline or could make it more difficult for us to raise funds through the sale of equity in the
future. Also, if we make one or more significant acquisitions in which the consideration includes ordinary shares or other securities,
your portion of shareholders’ equity in us may be significantly diluted.



Concentration of ownership of our ordinary
shares among our principal stockholders may prevent new investors from influencing significant corporate decisions.



There are three shareholders
(Mr. Alexander Rabinovitch, Sabby Management LLC and Mr. David Bassa), who each beneficially hold more than 5% of our outstanding
ordinary shares (approximately 34% cumulative, as of the date hereof). As a result, these persons, either acting alone or together,
may have the ability to significantly influence the outcome of all matters submitted to our shareholders for approval, including
the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition,
such persons, acting alone or together, may have the ability to effectively control our management and affairs. Accordingly, this
concentration of ownership may depress the market price of our ordinary shares or ADSs.



Notwithstanding the aforesaid,
in connection with Section 239 of the Israeli Companies Law that focuses on the number of votes required to appoint external directors,
and in connection with Section 121(c) of the Israeli Companies Law that focuses on the number of votes required to authorize the
Chairman of the Board in a company to act also as the Chief Executive Officer of such company, we will deem these three shareholders
as controlling shareholders, for as long as such individuals are interested parties. In addition, any contractual arrangement as
detailed in Section 270 (4) of the Israeli Companies Law with any of these three shareholders and/or their relatives will be presented
for approval in accordance with the provisions of Section 275 of the Israeli Companies Law. In all of these situations, we will
consider any of these three parties, who are not part of the transaction presented for approval, as individual interested parties
in such transaction so that their vote will not be included in the quorum comprising a majority (50%) of the votes who are not
interested parties in such transaction.



Our ordinary shares and ADSs trade on
two different markets, and this may result in price variations and regulatory compliance issues.



ADSs representing our
ordinary shares are listed for trading on the Nasdaq Capital Market and our ordinary shares are traded on the TASE. Trading in
our securities on these markets is made in different currencies and at different times, including as a result of different time
zones, different trading days and different public holidays in the U.S. and Israel. Consequently, the effective trading prices
of our securities on these two markets may differ. Any decrease in the trading price of our securities on one of these markets
could cause a decrease in the trading price of our securities on the other market.



Holders of our ordinary shares or ADSs
who are U.S. citizens or residents may be required to pay additional income taxes.



There is a risk that we
will be classified as a passive foreign investment company (“PFIC”), for certain tax years. If we are classified as
a PFIC, a U.S. holder of our ordinary shares or ADSs representing our ordinary shares will be subject to special federal income
tax rules that determine the amount of federal income tax imposed on income derived with respect to the PFIC shares. We will be
a PFIC if either 75% or more of our gross income in a tax year is passive income or the average percentage of our assets (by value)
that produce or are held for the production of passive income in a tax year is at least 50%. The risk that we will be classified
as a PFIC arises because cash balances, even if held as working capital, are considered to be assets that produce passive income.
Therefore, any determination of PFIC status will depend upon the sources of our income and the relative values of passive and non-passive
assets, including goodwill. A determination as to a corporation’s status as a PFIC must be made annually. 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. Although we may not be a PFIC in any one year, the PFIC taint remains with
respect to those years in which we were or are a PFIC and the special PFIC taxation regime will continue to apply.



In view of the complexity
of the issues regarding our treatment as a PFIC, U.S. shareholders are urged to consult their own tax advisors for guidance as
to our status as a PFIC.



12







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



As a foreign private issuer,
we are permitted to follow certain home country corporate governance practices instead of those otherwise required under Nasdaq
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 Nasdaq, 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 Nasdaq, including the requirement that
a majority of the Board of Directors be independent. Following our home country governance practices as opposed to the requirements
that would otherwise apply to a United States company listed on Nasdaq may provide less protection than is accorded to investors
under Nasdaq applicable to domestic issuers.



In addition, as a foreign
private issuer, we are 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
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 domestic companies whose securities are registered under the Exchange Act.



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



The Bank of New York Mellon,
as depositary, executes and delivers our ADSs on our behalf. Each ADS is a certificate evidencing a specific number of ADSs. The
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 our ADSs. Holders of our ADSs will have ADS holder rights. A deposit agreement among us, the depositary and
the 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 our ADSs. Our shareholders have shareholder rights prescribed by Israeli law. Israeli
law and our Articles of Association (“Articles”), govern such shareholder rights. The 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 on a show of hands. Every shareholder present (in person or by proxy, attorney or representative)
and entitled to vote has one vote per fully paid ordinary share on a poll. This is subject to any other rights or restrictions
which may be attached to any shares. The ADS holders may instruct the depositary to vote the ordinary shares underlying their ADSs,
but only if we ask the depositary to ask for their instructions. If we do not ask the depositary to ask for their instructions,
the ADS holders are not entitled to receive our notices of general meeting or instruct the depositary how to vote. The ADS holders
will not be entitled to attend and vote at a general meeting unless they withdraw the ordinary shares from the depository. However,
the ADS holders may not know about the meeting far enough in advance to withdraw the ordinary shares. If we ask for the ADS holders’
instructions, the depositary will notify the ADS holders of the upcoming vote and arrange to deliver our voting materials and form
of notice to them. The depositary will try, as far as is practical, subject to the provisions of the deposit agreement, to vote
the shares as the ADS holders instruct. The depositary will not vote or attempt to exercise the right to vote other than in accordance
with the instructions of the ADS holders. We cannot assure the ADS holders that they will receive the voting materials in time
to ensure that they can instruct the depositary to vote their shares. In addition, there may be other circumstances in which the
ADS holders may not be able to exercise voting rights.



The 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 stock 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 will be paid to the depositary, which has agreed to pay to the 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. The ADS holders will
receive these distributions in proportion to the number of shares their ADSs represent. In addition, there may be certain circumstances
in which the depositary may not pay to the ADS holders amounts distributed by us as a dividend or distribution.



There are circumstances where it may
be unlawful or impractical to make distributions to the holders of our ADSs.



The deposit agreement
with the depositary allows the depositary to distribute foreign currency only to those ADS holders to whom it is possible to do
so. If a distribution is payable by us in New Israeli Shekels, the depositary will hold the foreign currency it cannot convert
for the account of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for
any interest. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, the ADS holders
may lose some of the value of the distribution.



The depositary is not
responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. This means that
the ADS holders may not receive the distributions we make on our shares or any value for them if it is illegal or impractical for
the depository to make such distributions available to them.



13







Risks Relating to Operations in Israel



Conditions in the Middle East and in
Israel may harm our operations.



Our head executive office,
our research and development facilities, as well as some of our planned clinical sites are or will be located in Israel. Our 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 and operations. Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its neighboring countries. Any hostilities involving Israel or the interruption or
curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. In
recent years, the hostilities involved missile strikes against civilian targets in various parts of Israel, including areas in
which our employees and some of our consultants are located, and negatively affected business conditions in Israel. Our offices,
located in Raanana, Israel, are within the range of the missiles and rockets that have been fired sporadically at Israeli cities
and towns from Gaza and South Lebanon since 2006, with escalations in violence during which there were a substantially larger number
of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and
an increase in terrorist activity in the Sinai Peninsula. Such political turbulence and violence may damage peaceful and diplomatic
relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred
in other countries in the region, including Syria, Lebanon and Jordan which share common borders with Israel, and is affecting
the political stability of those countries. This instability and any outside intervention may lead to deterioration of the political
and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causing
additional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear
weapons. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah
in Lebanon, and various rebel militia groups in Syria. Additionally, a violent jihadist group named Islamic State of Iraq and Levant
(IS or ISIL or ISIS) is involved in hostilities in Iraq, Syria and other countries and has been growing in influence. Although
ISIL’s activities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose
is to take control of the Middle East, including Israel. Since September 2015, there has been an increase in terrorist attacks
on Israeli civilians including shootings, stabbings and car rammings which has impacted the general feeling of personal safety
in the country. These situations may potentially escalate in the future to more violent events which may affect Israel and us.
Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and
could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business
may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when
necessary in order to meet our business partners face to face. 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. Further, in the past, the State
of Israel and Israeli companies have been subjected to economic boycotts. 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 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.



Our results of operations may be adversely
affected by inflation and foreign currency fluctuations.



We hold most of our cash,
cash equivalents and bank deposits in U.S. dollars. As we are located in Israel, a significant portion of our expenses are in New
Israeli Shekels mainly due to payment to Israeli employees and suppliers. As a result, we could be exposed to the risk that the
U.S. dollar will be devalued against the NIS or other currencies, and consequentially our financial results could be harmed. To
protect against currency fluctuations we may decide to hold a significant portion of our cash, cash equivalents, bank deposits
and marketable securities in NIS, as well as to enter into currency hedging transactions. These measures, however, may not adequately
protect us from the adverse effects of inflation in Israel. In addition, we are exposed to the risk that the rate of inflation
in Israel will exceed the rate of devaluation of the New Israeli Shekel in relation to the U.S. dollar or that the timing of any
devaluation may lag behind inflation in Israel.



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, the holder of 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 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), 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).



14







Furthermore, Israeli tax
considerations may make potential transactions unappealing to us or to those of 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.



It may be difficult to enforce a U.S.
judgment against us, our officers or our directors or to assert U.S. securities law claims in Israel.



Service of process upon
us, since we are incorporated in Israel, and upon our directors and officers, who reside outside the U.S., may be difficult to
obtain within the U.S. In addition, because substantially all of our assets and most of our directors and officers are located
outside the U.S., any judgment obtained in the U.S. against us or any of our directors and officers may not be collectible within
the U.S. There is a doubt as to the enforceability of civil liabilities under the Securities Act or the Exchange Act pursuant to
original actions instituted in Israel. Subject to particular time limitations and provided certain conditions are met, executory
judgments of a U.S. court for monetary damages in civil matters may be enforced by an Israeli court.



Under applicable U.S. and Israeli law,
we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from
the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions
irrespective of their agreements with us, which in turn could impact our future profitability.



We generally enter into
non-competition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants,
if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period of
time. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be
difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed
while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former
employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests
of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information
or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable to
prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive
may be diminished.



In addition, Chapter 8
to the Israeli Patents Law, 5727-1967, or the Patents Law, deals with inventions made in the course of an employee’s service
and during his or her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the
Patents Law, sets forth that if there is no agreement which explicitly determines whether the employee is entitled to compensation
for the service inventions and the extent and terms of such compensation, such determination will be made by the Compensation and
Rewards Committee, a statutory committee of the Israeli Patents Office. As a result, it is unclear if, and to what extent, our
research and development employees may be able to claim compensation with respect to our future revenue. As a result, we may receive
less revenue from future products if such claims are successful, which in turn could impact our future profitability.



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.



15







ITEM 4. INFORMATION ON THE COMPANY



A. History and Development of XTL



We are a biopharmaceutical
company engaged in the acquisition and development of pharmaceutical drugs for the treatment of unmet medical needs. Our current
drug development program is focused on the treatment of SLE.



Company Information and History



Our legal and commercial
name is XTL Biopharmaceuticals Ltd. We were established as a private company limited by shares under the laws of the State of Israel
on March 9, 1993, under the name Xenograft Technologies Ltd. We re-registered as a public company on June 7, 1993, in Israel, and
changed our name to XTL Biopharmaceuticals Ltd. on July 3, 1995. We commenced operations to use and commercialize technology developed
at the Weizmann Institute, in Rehovot, Israel. Until 1999, our therapeutic focus was on the development of human monoclonal antibodies
to treat viral, autoimmune and oncological diseases. Our first therapeutic programs focused on antibodies against the hepatitis
B virus, interferon – γ and the Hepatitis C virus. Our current drug development program is currently focused on the
treatment of SLE.



In March 2009 we signed
an asset purchase agreement to acquire the rights to develop rHuEPO for the treatment of Multiple Myeloma in exchange for the issuance
of ordinary shares of XTL representing approximately 69.44% of our then issued and outstanding ordinary share capital. Under the
agreement we are obligated to pay 1% royalties on net sales of rHuEPO, as well as a fixed royalty payment in the total amount of
$350 thousand upon the success of Phase 2. Such payment of $350 thousand mentioned above shall be made to Yeda upon the earlier
of (i) six months from the successful completion of Phase 2 or (ii) the completion of a successful fundraising by XTL at any time
after the completion of Phase 2 of at least $2 million.



On March 24, 2011, we entered
into a Memorandum of Understanding with MinoGuard, pursuant to which we agreed to acquire the exclusive rights to SAM-101 by obtaining
an exclusive license to use MinoGuard’s entire technology. SAM-101 is based on a combination of anti-psychotic drugs with
minocycline, a recognized medicinal compound. On November 30, 2011, we received a worldwide exclusive license from MinoGuard under
which we agreed to develop and commercialize MinoGuard’s technology for the treatment of psychotic disorders focusing on
schizophrenia. Under the agreement, we agreed to conduct clinical trials, develop, register, market, distribute and sell the drugs
that will emerge from MinoGuard’s technology, with no limitations for a specific disorder. In consideration, we agreed to
pay MinoGuard accumulated clinical development and marketing approvals milestone-based payments of approximately $2.5 million.
In addition, we agreed to pay MinoGuard royalty-based payments on products that are based on the technology, equal to 3.5% of its
net sales and/or percentage from the Company third-party out–license receipts in the range of 7.5%-20% according to the clinical
phase of the drug at the time of an out-license transaction. It should be noted that the Company had the sole discretion to
pay any of the above amounts in cash or by way of issuing ordinary shares of the Company to MinoGuard. In addition to the above
payments, and in accordance with the above agreement, as of June 30, 2013, and as XTL had not commenced a phase 2 clinical trial
as of that date, XTL paid MinoGuard an annual license fee, by way of the issuance of 175,633 ordinary shares of the Company, representing
a value of $45 thousand, for the 12 month period between July 1, 2013 and June 30, 2014. On September 3, 2014, the Company issued
an additional 889,822 ordinary shares, representing a value of $135 thousand, for the 12 month period between July 1, 2014 and
June 30, 2015. On May 25, 2015, the Company provided MinoGuard with a notice of termination whereby, as of June 24, 2015, the rights
and license granted according to the license agreement were terminated and all rights in and to the licensed technology reverted
to MinoGuard.



On January 7, 2014, the
Company entered into a licensing agreement with Yeda to research, develop and commercialize hCDR1, a Phase II-ready asset for the
treatment of SLE, among other indications. Lupus is a debilitating disease affecting approximately five million people worldwide,
according to the Lupus Foundation of America. hCDR1 is a peptide, short chains of amino acid monomers, and acts as a disease-specific
treatment to modify the SLE-related autoimmune process. It does so by specific upstream immunomodulation through the generation
of regulatory T cells, reducing inflammation and resuming immune balance. More than 40 peer-reviewed papers have been published
on hCDR1.



Prior to being licensed
to the Company by Yeda, hCDR1 was licensed to Teva Pharmaceutical Industries Ltd. (“Teva”), which performed
two placebo controlled Phase I trials and a placebo controlled Phase II trial (the “PRELUDE trial”). The studies
consisted of over 400 patients, demonstrating that hCDR1 is well tolerated by patients and has a favorable safety profile. The
PRELUDE trial did not achieve its primary efficacy endpoint based on the SLEDAI scale, resulting in Teva returning the asset to
Yeda. However, the PRELUDE trial showed encouraging results in its secondary clinical endpoint, the BILAG index, and, in fact,
the 0.5 mg weekly dose showed a substantial effect. Multiple post-hoc analyses also showed impressive results for this dose using
the BILAG index. It is currently planned by the Company that such dose will be the focus of the clinical development plan moving
forward. Following Teva’s return of the program to Yeda, the FDA directed that the primary endpoint in future trials for
Lupus therapies, including those for hCDR1, should be based on either the BILAG index or the SLE Responder Index (SRI). The FDA
has provided the Company with written guidance confirming the acceptability of BILAG as the primary endpoint in our planned study.
Given the FDA’s recommendation and the positive findings from the PRELUDE trial (which showed a substantial effect in the
BILAG index), the Company is planning to initiate a new Phase II clinical trial, which will include the 0.5 mg and a lower weekly
dose of hCDR1.



On November 2, 2014, InterCure’s
Audit Committee and Board of Directors approved the signing of an agreement with Green Forest Global Ltd. (the “Agreement”
and “Green Forest”, respectively) a company wholly owned by Mr. Alexander Rabinovitch, an interested party in
the Company.



16







Pursuant to the Agreement,
Green Forest will be allotted 2,622,647 ordinary shares of InterCure (the “First RoundAllotted Shares”) representing
34.23% of the issued and outstanding shares of InterCure at the time of the allotment for an investment of $ 230 thousand. Further,
upon InterCure’s shares' return to the main list of the TASE, an additional 2,622,648 ordinary shares of InterCure will be
allotted to Green Forest for an additional investment of $ 230 thousand (the “Second Round Allotted Shares”).



On December 23, 2014, the
extraordinary general meeting of shareholders of InterCure approved the Agreement.



The Agreement was approved
by the TASE and is effective as of February 12, 2015. After the execution of the Agreement and the conversion of an outstanding
loan, the Company’s holdings in InterCure’s issued and outstanding share capital decreased to 36.53%.



On March 23, 2015, InterCure issued 37,804,012
ordinary shares as part of a rights offering, thus diluting the Company’s holding in InterCure’s issued and outstanding
share capital to approximately 6.16%.



On April 2, 2015, InterCure issued the Second
Round Allotted Shares, thus diluting the Company’s holding in InterCure’s issued and outstanding share capital to approximately
5.82%.



We currently have one subsidiary, Xtepo Ltd.,
a private company limited by shares under the laws of the State of Israel which holds a license for the exclusive use of rHuEPO
for the treatment of multiple myeloma.



The ADSs are listed for
trading on the Nasdaq Capital Market under the symbol “XTLB.” Our ordinary shares are traded on the TASE under the
symbol “XTLB.” We operate under the laws of the State of Israel under the Israeli Companies Law, and in the U.S., the
Securities Act and the Exchange Act.



Our principal offices
are located at 5 HaCharoshet Street, Raanana 4365603, Israel, and our telephone number is +972-9-955-7080. Our primary internet
address is www.xtlbio.com. None of the information on our website is incorporated by reference herein.



Since January 1, 2013
to the date hereof, our principal capital expenditures (divestitures) are as follows (in thousands of US dollars):



|                                                        |  | Year ended December 31, |    
|------------------------------------------------------- |  | ----------------------- | ---
|                                                        |  | 2015                    |    
|                                                        |  |                         |    
|InterCure                                               |  |                         |    
|Conversion of loan convertible into shares of InterCure |  |                         | 50 
|Sale of shares and rights to shares                     |  |                         | (20
|                                                        |  |                         |    
|Proteologics Ltd.                                       |  |                         |    
|Purchase of shares by means of equity issuance          |  |                         | -  
|Sale of investment in Proteologics Ltd.                 |  |                         | -  
|                                                        |  |                         |    
|Total                                                   |  |                         | 30 



B. Business Overview



Introduction



We are a biopharmaceutical
company engaged in the acquisition and development of pharmaceutical drugs for the treatment of unmet medical needs. Our current
drug development program is focused on the treatment of SLE.



Our lead drug candidate
is hCDR1, a Phase II-ready asset for the treatment of SLE, the most prominent type of lupus. There is currently no known cure for
SLE. Only one new treatment, Benlysta, has been approved by the U.S. Food and Drug Administration, or FDA, in the last 50 years
for SLE. Lupus is a chronic autoimmune disease involving many systems in the human body, including joints, kidneys, the central
nervous system, heart, the hematological system and others. The biologic basis of the disease is a defect in the immune (defense)
system, leading to production of self (auto) antibodies, attacking healthy organs and causing irreversible damage. According to
research estimates of the Lupus Foundation of America, at least 1.5 million Americans have the disease (more than 5 million worldwide)
with more than 16,000 new cases diagnosed each year in the United States.



hCDR1 is a peptide that
is administered subcutaneously and acts as a disease-specific treatment to modify the SLE-related autoimmune process. It does so
by specific upstream immunomodulation through the generation of regulatory T cells, reducing inflammation and resuming immune balance.
More than 40 peer-reviewed papers have been published on hCDR1. Two placebo controlled Phase I trials and a placebo controlled
Phase 2 trial, or the PRELUDE trial, were conducted by Teva Pharmaceutical Industries, Ltd., or Teva, which had previously in-licensed
hCDR1 from Yeda. The studies consisted of over 400 patients and demonstrated that hCDR1 is well tolerated by patients and has a
favorable safety profile. The PRELUDE trial did not achieve its primary efficacy endpoint based on the SLE Disease Activity Index,
or SLEDAI scale, resulting in Teva returning the asset to Yeda. However, the PRELUDE trial showed encouraging results in its
secondary clinical endpoint, the British Isles Lupus Activity Group (“BILAG”) index and, in fact, the 0.5 mg weekly
dose showed a substantial effect. Multiple post-hoc analyses also showed impressive results for this dose using the BILAG index.
Such dose will be the focus of the clinical development plan moving forward. Subsequent to Teva’s return of the program to
Yeda, the FDA directed that the primary endpoint in future trials for Lupus therapies, including those for hCDR1, should be based
on either the BILAG index or the SLE Responder Index (“SRI”). The FDA has provided the Company with written guidance
confirming the acceptability of BILAG as the primary endpoint in our planned study. Given the FDA’s recommendation and the
positive findings from the PRELUDE trial (which showed a substantial effect in the BILAG index), we intend to initiate a new advanced
clinical trial, which will include the 0.5 mg and a lower weekly dose of hCDR1.



17







Our second drug
candidate is recombinant human erythropoietin, or rHuEPO, which we have licensed from Yeda Research and Development (“Yeda”),
and Mor Research Applications, or Mor, for the extension of survival of patients with advanced/end-stage multiple myeloma. Multiple
myeloma is a severe and incurable malignant hematological cancer of plasma cells. Erythropoietin, or EPO is a glycoprotein hormone
produced mainly by the kidney. It is the major growth regulator of the erythroid lineage. EPO stimulates erythropoiesis, the production
of red blood cells, by binding to its receptor on the surface of erythroid progenitor cells, promoting their proliferation and
differentiation and maintaining their viability. Over the last decade, several reports have indicated that the action of EPO is
not restricted to the erythroid compartment, but may have additional biological, and consequently potential therapeutic, properties,
broadly beyond erythropoiesis. Erythropoietin is available as a therapeutic agent produced by recombinant DNA technology in mammalian
cell culture. rHuEPO is used in clinical practice for the treatment of various anemias including anemia of kidney disease and cancer-related
anemia.



A clinical observation
confirmed the high success rate of rHuEPO in treating the anemia in patients with multiple myeloma. Six patients with very poor
prognostic features of multiple myeloma, whose expected survival was less than six months continued treatment with rHuEPO beyond
the initial designed 12 week period, and they lived for 45-133 months cumulatively with the multiple myeloma diagnosis and 38-94
months with rHuEPO (with a good quality of life). We were granted an Orphan-drug designation from the FDA in May 2011, for rHuEPO.



As our focus is currently
on the development of our lead drug candidate, we do not anticipate conducting material research and development activities for
rHuEPO before 2017 and are exploring opportunities to sell or license rHuEPO or collaborate with partners in its development.



Our Strategy



Our objective is to be
a leading biopharmaceutical company engaged in the acquisition and development of pharmaceutical products for the treatment of
autoimmune diseases.



Under our current near-term
strategy with respect to our pharmaceutical and biopharmaceutical products, we plan to:



| | · | initiate an international, prospective advanced clinical study intended to assess the safety and
efficacy of hCDR1 when given to patients with SLE;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | · | continually build our pipeline of therapeutic candidates; and
| | - | -------------------------------------------------------------



| | · | develop collaborations with large pharmaceutical companies to sublicense/develop, and market our
hCDR1 and rHuEPO drug development programs.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



Recent Developments



Registered Direct Offering



In April 2015, we entered
into security purchase agreements providing for the issuance of an aggregate of 1,777,778 ADSs representing 35,555,560 ordinary
shares in a registered direct offering at $2.25 per ADS for aggregate gross proceeds of $4,000 thousand. In addition, we issued
unregistered warrants to purchase 888,889 ADSs representing 17,777,778 ordinary shares in a private placement. At the closing,
we also issued placement agent warrants to purchase up to 89,888 ADSs representing 1,797,760 ordinary shares. The warrants may
be exercised at any time for a period of five and one-half years from issuance and have an exercise price of $2.25 per ADS, subject
to adjustment as set forth therein.



InterCure Transactions



In July 2012, we acquired
control over InterCure Ltd, (“InterCure”), a public company whose shares are traded on the TASE and which develops
a home therapeutic device for non-medicinal and non-invasive treatment of various diseases such as hypertension, heart failure,
sleeplessness and mental stress and markets and sells a home therapeutic device for hypertension.



18







On November 2, 2014, Intercure’s
Audit Committee and Board of Directors approved the signing of an agreement with Green Forest Global Ltd. (the “Agreement”
and “Green Forest”, respectively) a company wholly owned by Mr. Alexander Rabinovitch, an interested party in
the Company.



Pursuant to the Agreement,
Green Forest will be allotted 2,622,647 ordinary shares of InterCure (the “First RoundAllotted Shares”) representing
34.23% of the issued and outstanding shares of InterCure at the time of the allotment for an investment of $ 230 thousand. Further,
upon InterCure’s shares' return to the main list of the TASE, an additional 2,622,648 ordinary shares of InterCure will be
allotted to Green Forest for an additional investment of $ 230 thousand (the “Second Round Allotted Shares”).



On December 23, 2014, the
extraordinary general meeting of shareholders of InterCure approved the Agreement.



The Agreement was approved
by the TASE and is effective as of February 12, 2015. After the execution of the Agreement and the conversion of an outstanding
loan, the Company’s holdings in InterCure’s issued and outstanding share capital decreased to 36.53%.



On March 23, 2015, InterCure issued 37,804,012
ordinary shares as part of a rights offering, thus diluting the Company’s holding in InterCure’s issued and outstanding
share capital to approximately 6.16%.



On April 2, 2015, InterCure issued the Second
Round Allotted Shares, thus diluting the Company’s holding in InterCure’s issued and outstanding share capital to approximately
5.82%.



Products Under Development



hCDR1 for the Treatment of Systemic Lupus Erythematosus



Market Opportunity



hCDR1 (edratide) is a
Phase 2-ready asset for the treatment of SLE, the most prominent type of lupus. SLE is a heterogenous, chronic, debilitating inflammatory
autoimmune disease characterized by the production of an array of autoantibodies, including antibodies to double-stranded DNA,
to other nuclear antigens, and to ribonucleoproteins. Although SLE can affect any part of the body, most patients experience systemic
symptoms including fever, fatigue and malaise along with symptoms in one or only a few organs. The most common signs and symptoms
are arthralgia, arthritis, fatigue, fever, skin rashes, including a characteristic butterfly-shaped rash across the cheeks and
nose, anemia and pleurisy. The clinical course of SLE may also include periods in which few, if any, symptoms are evident and other
times when the disease becomes more active.



According to research
estimates of the Lupus Foundation of America, at least 1.5 million Americans have the disease (more than 5 million worldwide) with
more than 16,000 new cases diagnosed each year in the United States. The Lupus Foundation of America reports that lupus affects
mostly women of childbearing age (15-44). SLE is one of the most common forms of lupus, affecting over 70% of lupus patients.



SLE treatment is highly
individualized and is based on a patient’s response. Mild forms of SLE may be treated with antimalarial medications, non-steroidal
anti-inflammatory drugs, and topical and/or low-dose glucocorticoids, although more aggressive treatment with methotrexate may
be needed. In addition, low-dose oral steroids or intramuscular injections of depot steroid preparations can be used for mild disease.
More severe cases of SLE may be treated with high-dose glucocorticoids and cytotoxic drugs to block cell growth and suppress the
immune system. GlaxoSmithKline’s Benlysta (belimumab), a monoclonal antibody, is a newer medication that is FDA-approved
for patients with mild to moderate SLE currently taking standard therapy who have not yet experienced an adequate response. Benlysta
is the first product to gain marketing approval for patients with SLE in more than 50 years, paving the way for the introduction
of new disease-modifying therapies and reigniting the interest of pharmaceutical developers in this therapy area. GlaxoSmithKline
reported that its 2015 sales of Benlysta were £230 million, up 25% on the year before.



Decision Resources estimates
the drug sales for SLE in 2012 were approximately $900 million across the markets covered in its forecast. By the end of the forecast
period of 2022, sales are estimated to grow to $4.0 billion with a CAGR of 16.1%. This growth is expected to be driven by improved
uptake of Benlysta, the introduction of new biological therapies and the overall increase in prevalent cases of SLE, mainly due
to the increasing population in these markets.



hCDR1: General &
Mechanism of Action



hCDR1 is a synthetic peptide
composed of 19 amino-acid residues. It was developed by Teva in collaboration with Prof. Edna Mozes of the Weizmann Institute of
Science, Rehovot, Israel. The sequence of the peptide is based on the complementarity determining region 1 (CDR1) of a pathogenic
human anti-dsDNA mAb that bears the 16/6 idiotype. The idiotype was found to have clinical relevance in SLE patients.



19











Accumulating data fromin vivo andin vitro studies demonstrate that hCDR1 functions by inducing regulatory T cell function through multiple
pathways. Administration of hCDR1 to mice has been shown to induce CD4+ CD25+ cells using regulatory and suppressor characteristics such as CD45RBLOW,
TGF-, CTLA-4 and Foxp3. This induction suppresses autoreactive CD4+ cell activation,
indicated by the reduced expression of CD69 and Fas ligand; ultimately, resulting in reduced rates of activation-induced apoptosis.
Inhibition by hCDR1-induced CD4+ CD25+
cells is mediated through the immunosuppressive cytokine TGF-. TGF- secretion is up regulated and activated autoreactive cells
are decreased; both are associated with a decrease of pathogenic cytokines such as interferon gamma (IFN-), interleukin-10 (IL-10),
interleukin-1 beta (IL-1), and tumor necrosis factor-alpha (TNF-). Effects on TGF- and Foxp3 have been shown to correlate with
a significant decrease in SLEDAI-2K and BILAG scores in patients treated with hCDR1 in comparison with patients treated with placebo.
Another subset of T cells (CD8+ CD28-)
expresses Foxp3 and has been shown to be essential for the induction and the optimal suppressive function of CD4+ CD25+ cells. The function of hCDR1-induced subsets of regulatory
T cells result in the effective suppression, ultimately leading to the modulation of the underlying aberrancy of the immune system,
which culminates in the diminished activity of the disease.



hCDR1 is currently under
investigation for its ability to down-regulate the autoimmune response elicited by the pathogenic antibodies and autoreactive T
cells in SLE and up-regulate the expression of gene markers, such as TGF- and FoxP3. hCDR1 may attenuate the general SLE-associated
autoimmune process and provide effective treatment for many clinical manifestations of SLE. The clinical development plan is thus
designed to demonstrate the efficacy of hCDR1 in the systemic disease.



Clinical Trial History



Prior to being licensed
to the Company by Yeda, hCDR1 was licensed to Teva which performed two placebo controlled Phase I trials and a placebo controlled
Phase 2 trial, or the PRELUDE trial. The Phase I and Phase 2 studies consisted of over 400 patients, demonstrating that hCDR1 is
well tolerated by patients and has a favorable safety profile.



The PRELUDE trial was
a 26-week study conducted at 48 centers in 12 countries: Canada, France, Germany, Holland, Hungary, Israel, Italy, Mexico, Russia,
Spain, UK and U.S. enrolling 340 patients with mild to moderate SLE. The PRELUDE trial did not achieve its primary efficacy endpoint
based on the SLEDAI scale, resulting in Teva returning the asset to Yeda in 2009. However, the PRELUDE trial showed encouraging
results in its secondary clinical endpoint, the BILAG index, and, in fact, the 0.5 mg weekly dose showed a substantial effect.
Multiple post-hoc analyses also showed impressive results for this dose using the BILAG index. Such dose will be the focus of clinical
development moving forward. Subsequent to Teva’s return of the program to Yeda, in 2010 the FDA directed that the primary
endpoint in future trials for lupus therapies, including those for hCDR1, should be based on either the BILAG index or the Systemic
Lupus Erythematosus Responder Index. The FDA has provided the Company with written guidance confirming the acceptability of BILAG
as the primary endpoint in our planned study.



Planned Clinical Trial



Given the FDA’s recommendation and the
positive findings from the PRELUDE trial (which showed a substantial effect in the BILAG index), we intend to initiate an advanced,
multinational, randomized, double blind, placebo-controlled, multiple dose, parallel group study to assess the efficacy, tolerability
and safety of hCDR1 administered subcutaneously to patients with active SLE. We estimate that the trial will take over one year
to enroll patients, 26 weeks for the treatment phase, and additional time to analyze the results for a total of approximately two
years.



The Company submitted
a pre-Investigational New Drug (“IND”) meeting package, including a draft protocol for our planned clinical trial,
to the FDA in December 2015. In January 2016, the Company received a written response to its pre-IND meeting package in which the
FDA provided guidance on several key aspects of its proposed clinical trial including: acceptance of the primary efficacy endpoint
to be based on the BILAG index, a measure of lupus disease activity which was the secondary efficacy endpoint in the PRELUDE trial
and confirmation of the appropriate patient population and total number of patients required to prove safety for a new drug application
(NDA) for marketing approval. The FDA recommended that the trial be a Phase 2 study and also provided additional guidance on other
aspects of the trial design including doses and study duration. Based on the FDA’s response, XTL plans to file its IND, and
in the coming quarters initiate a global clinical trial for hCDR1 in the treatment of systemic lupus erythematosus (SLE).



20







rHuEPO for the Treatment
of Multiple Myeloma



Market Opportunity



Currently incurable, multiple
myeloma is a severe plasma cell malignancy characterized by the accumulation and proliferation of clonal plasma cells in the marrow,
leading to the gradual replacement of normal hematopoiesis. The course of the disease is progressive, and various complications
occur, until death. This devastating disease affects the bone marrow, bones, kidneys, heart and other vital organs. It is characterized
by pain, recurrent infections, anemia and pathological fractures. In the course of the disease, many patients become gradually
disabled and bed-ridden. The overall survival duration today with chemotherapy and other novel treatments is less than five years.
These treatments have severe side effects, including the suppression of the immune system, susceptibility to infections, nausea,
vomiting and bleeding disorders.



According to the Leukemia
and Lymphoma Society, in the U.S. alone, there are approximately 81,000 people living with or are in remission from multiple myeloma
and according to the National Cancer Institute, each year in the U.S., 20,000 people learn they have this disease. Most people
are diagnosed with multiple myeloma after age 65 and it is more common in men than women and in African Americans than Caucasians.



rHuEPO: General &
Mechanism of Action



rHuEPO, which stands for
recombinant human erythropoietin, is a hormone, produced by the kidneys, and is responsible for red blood cell production in bone
marrow. Erythropoietin (“EPO”), a glycoprotein hormone produced mainly by the kidney, is the major growth regulator
of the erythroid lineage. EPO stimulates erythropoiesis by binding to its receptor on the surface of erythroid progenitor cells,
promoting their proliferation and differentiation and maintaining their viability. The cloning of the EPO gene led to the introduction
of rHuEPO into clinical practice for the treatment of various anemias including anemia of kidney disease and cancer-related anemia.



Clinical Trial History



Over the last decade,
several reports have indicated that the action of EPO is not restricted to the erythroid compartment, but may have additional biological,
and consequently potential therapeutic, properties, broadly beyond erythropoiesis. A clinical observation confirmed the high success
rate of rHuEPO in treating the anemia in patients with multiple myeloma. Six patients with very poor prognostic features of multiple
myeloma, whose expected survival was less than six months continued treatment with rHuEPO beyond the initial designed 12 week period,
and lived for 45-133 months cumulatively with the Multiple Myeloma diagnosis and 38-94 months with rHuEPO (with a good quality
of life).



We were granted an Orphan-drug
designation from the FDA in May 2011, for rHuEPO. Orphan-drug designation is granted by the FDA Office of Orphan Drug Products
to novel drugs or biologics that treat a rare disease or condition affecting fewer than 200,000 patients in the U.S. The designation
provides the drug developer with a seven-year period of U.S. marketing exclusivity if the drug is the first of its type approved
for the specified indication or if it demonstrates superior safety, efficacy, or a major contribution to patient care versus another
drug of its type previously granted the designation for the same indication, as well as with tax credits for clinical research
costs, the ability to apply for annual grant funding, clinical research trial design assistance and waiver of Prescription Drug
User Fee Act filing fees.



We have begun regulatory
work and have held preliminary discussions with potential drug suppliers, clinical sites and third party vendors for the planned
study. As part of those preparations, we conducted a study which consists of collecting preliminary data on the existence of specific
proteins in the blood of a group of multiple myeloma patients.



As our focus is currently
on the development of our lead drug candidate, we do not anticipate conducting material research and development activities for
rHuEPO before 2017 and are exploring opportunities to sell or license rHuEPO or collaborate with partners in its development.



Intellectual Property



Patents



General



Patents and other proprietary
rights are very important to the development of our business. We will be able to protect our proprietary technologies from unauthorized
use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively
maintained as trade secrets. We intend to seek and maintain patent and trade secret protection for our drug candidates and our
proprietary technologies. As part of our business strategy, our policy is to file patent applications in the U.S. and internationally
to cover methods of use, new chemical compounds, pharmaceutical compositions and dosing of the compounds and compositions and improvements
in each of these. We also rely on trade secret information, technical know-how, innovation and agreements with third parties to
continuously expand and protect our competitive position. Because of the extensive time required for development, testing and regulatory
review of a potential product, it is possible that before we commercialize any of our products, any related patent may expire or
remain in existence for only a short period following commercialization, thus reducing any commercial advantage or financial value
attributable to the patent.



21







Generally, patent applications
in the U.S. are maintained in secrecy for a period of at least 18 months. Since publication of discoveries in the scientific
or patent literature often lag behind actual discoveries, we are not certain that we were the first to make the inventions covered
by each of our pending patent applications or that we were the first to file those patent applications. The patent positions of
biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions. Therefore, we
cannot predict the breadth of claims allowed in biotechnology and pharmaceutical patents, or their enforceability. To date, there
has been no consistent policy regarding the breadth of claims allowed in biotechnology patents. Third parties or competitors may
challenge or circumvent our patents or patent applications, if issued. Granted patents can be challenged and ruled invalid at any
time; therefore the grant of a patent is not of itself sufficient to demonstrate our entitlement to a proprietary right. The disallowance
of a claim or invalidation of a patent in any one territory can have adverse commercial consequences in other territories.



If our competitors prepare
and file patent applications in the U.S. that claim technology also claimed by us, we may choose to challenge competing patent
rights, which could result in substantial cost, even if the eventual outcome is favorable to us. While we have the right to defend
patent rights related to our licensed drug candidates and technologies, we are not obligated to do so. In the event that we decide
to defend our licensed patent rights, we will be obligated to cover all of the expenses associated with that effort.



If a patent is issued
to a third party containing one or more preclusive or conflicting claims, and those claims are ultimately determined to be valid
and enforceable, we may be required to obtain a license under such patent or to develop or obtain alternative technology. In the
event of a litigation involving a third party claim, an adverse outcome in the litigation could subject us to significant liabilities
to such third party, require us to seek a license for the disputed rights from such third party, and/or require us to cease use
of the technology. Further, our breach of an existing license or failure to obtain a license to technology required to commercialize
our products may seriously harm our business. We also may need to commence litigation to enforce any patents issued to us or to
determine the scope, validity and/or enforceability of third-party proprietary rights. Litigation would involve substantial costs.



hCDR1 for
the Treatment of SLE



We have exclusively licensed
from Yeda, two families of patents relating to hCDR1.



| | · | A basic patent family entitled “Synthetic Human Peptides and Pharmaceutical Compositions
Comprising them” for the Treatment of Systemic Lupus Erythematosus” that covers the active pharmaceutical agent, the
Edratide peptide. The patent has been granted in a large number of jurisdictions: U.S., Europe (Austria, Denmark, Finland, France,
Germany, Hungary, Ireland, Italy, Liechtenstein, Spain, Sweden, Switzerland, The Netherlands and the UK), Australia, Canada, Hong
Kong, India, Israel, Japan, Korea, Mexico, Norway, and Russia. The patent expires on February 26, 2022 except in the case of the
U.S., which expires on September 22, 2022.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | A patent family for the formulation entitled “Parenteral Formulations of Peptides for the
Treatment of Systemic Lupus Erythematosus” that covers a very specific pharmaceutical composition comprising Edratide. It
has been granted in the U.S., China, India, Israel, Japan, and Mexico, and is under examination in Europe and Canada. The patent
expires on January 14, 2024.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



rHuEPO for
the Treatment of Multiple Myeloma



We have exclusively licensed
from Yeda and Mor a family of patents relating to rHuEPO.



| | · | A main use patent entitled “Use of Erythropoietin in the Treatment of Multiple Myeloma that
covers the active pharmaceutical agent, EPO. The main claims of this patent is directed to a method for the treatment of a multiple
myeloma patient, comprising the administration of Erythropoietin or Recombinant Human Erythropoietin, for the inhibition of tumor
growth, triggering of tumor regression or inhibition of multiple myeloma cell metastasis in the said patient. The patent was granted
in the United States, Europe (Austria, Belgium, France, Germany, Great Britain, Ireland, Italy, Netherlands, Spain, Sweden and
Switzerland), Israel, Japan, Hong Kong and Canada. The issued patent will expire on March 30, 2019.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other Intellectual
Property Rights



We depend upon trademarks,
trade secrets, know-how and continuing technological advances to develop and maintain our competitive position. To maintain the
confidentiality of trade secrets and proprietary information, we require our employees, scientific advisors, consultants and collaborators,
upon commencement of a relationship with us, to execute confidentiality agreements and, in the case of parties other than our research
and development collaborators, to agree to assign their inventions to us. These agreements are designed to protect our proprietary
information and to grant us ownership of technologies that are developed in connection with their relationship with us. These agreements
may not, however, provide protection for our trade secrets in the event of unauthorized disclosure of such information.



22







Licensing
Agreements and Collaborations



hCDR1



On January 7, 2014, we
entered into a license agreement with Yeda, as amended on September 6, 2015, which grants us the exclusive worldwide right to research,
develop, and commercialize hCDR1, a Phase 2-ready asset for the treatment of SLE, among other indications. Yeda is the commercial
arm of the Weizmann Institute of Science.



In consideration, we are
responsible for a patent expense reimbursement to Yeda in six installments totaling $382,989. On May 14, 2014, we issued 222,605
of our ordinary shares to Yeda, as the first of six installments, representing a value of approximately $38 thousand. On January
21, 2015, we issued a further 802,912 of our ordinary shares to Yeda as the second of six installments, representing a value of
approximately $84 thousand. The remaining installments of approximately $64 thousand each, payable in cash, are due every six months
commencing on July 1, 2015, with the final payment due on January 1, 2017, provided that if we receive funding of at least $5,000
thousand then we shall be required to promptly pay Yeda any unpaid patent expense reimbursement in one lump-sum cash payment.



Under the license agreement,
we are required to make milestone payments of up to $2.2 million: $200 thousand upon starting a Phase 3 clinical trial, $1 million
upon FDA approval to market in the U.S., and $250 thousand for marketing approval in each of China and three of the European Union’s
Group of Five. In addition, we are required to pay 2-3% royalties of annual net sales and sublicense fees of 15-20% of whatever
we receive from any sub-licensee. Under the license agreement, we are also required to meet certain development milestones including
the delivery of a trial protocol to Yeda by January 1, 2016 (which we delivered), receipt of investment of at least $5 million
by August 1, 2016 (of which $4 million was received in April 2015) and commencement of a Phase II clinical trial by January 1,
2017.



The term of the license
agreement is the later of the date of expiry of the last of the licensed patents or the expiry of a continuous period of 11 years
after first commercial sale in any country during which there shall not have been a first commercial sale in the U.S., EU, Japan,
China or any OECD member. The license agreement may be terminated by us without cause upon 60 days prior written notice. The license
agreement may also be terminated by Yeda if either we fail to meet certain development milestones or commercial sale shall have
commenced and there shall be a period of 6 months of no sales, subject to certain exceptions. Yeda shall also be entitled to terminate
the license agreement if we were to commence legal action against Yeda challenging the validity of any of the licensed patents,
and we were unsuccessful in such challenge, in which event we would be required to pay to Yeda liquidated damages of $8 million.
Either party may also terminate the license agreement in the case of a material breach that remains uncured or certain bankruptcy
events.



rHuEPO



In August 2010 we acquired
from Bio-Gal, the rights to develop rHuEPO for the treatment of multiple myeloma under a research and license agreement with Yeda
and Mor. Bio-Gal had previously performed certain research and development studies under the research and license agreement. Mor
is the Israeli corporation and licensing arm of Kupat Holim Clalit, one of the largest HMOs in Israel.



We are obligated to pay
1% royalties on net sales of the product, as well as a fixed royalty payment in the total amount of $350 thousand upon the successful
completion of Phase 2. Such payment of $350 thousand is payable to Yeda upon the earlier of (i) six months from the successful
completion of Phase 2 or (ii) the completion of a successful fundraising by XTL at any time after the completion of the Phase 2
of at least $2 million.



Competition



Competition in the pharmaceutical
and biotechnology industries is intense. Our competitors include pharmaceutical companies and biotechnology companies, as well
as universities and public and private research institutions. In addition, companies that are active in different but related fields
represent substantial competition for us. Many of our competitors have significantly greater capital resources, larger research
and development staffs and facilities and greater experience in drug development, regulation, manufacturing and marketing than
we do. These organizations also compete with us to recruit qualified personnel, attract partners for joint ventures or other collaborations,
and license technologies that are competitive with ours. To compete successfully in this industry, we must identify novel and unique
drugs or methods of treatment and then complete the development of those drugs as treatments in advance of our competitors.



The drugs that we are
attempting to develop will have to compete with existing therapies. In addition, a large number of companies are pursuing the development
of pharmaceuticals that target the same diseases and conditions that we are targeting. Other companies have products or drug candidates
in various stages of pre-clinical or clinical development to treat diseases for which we are also seeking to discover and develop
drug candidates. Some of these potential competing drugs are further advanced in development than our drug candidates and may be
commercialized earlier.



23







Competing Products
for Treatment of SLE



There is only one drug
that has been approved for SLE in the last 50 years, GlaxoSmithKline’s Benlysta (belimumab) which was approved in 2011. Other
current therapies include non-steroidal anti-inflammatory drugs, corticosteroids, anti-malarials and immunosuppressants. Corticosteroids
and immunosuppressants lead to broad, non-selective immunosuppression often associated with significant adverse events. In addition
these therapies are not effective in all SLE patients.



Despite initial enthusiasm
following approval of Benlysta as the first drug approved for SLE with a selective target, efficacy has been tested only in patients
with mild to moderate disease, without active renal or CNS disease, its onset of action is slow and sales have been lower than
expected. Additional drugs are being developed to treat SLE including, among others, anifrolumab developed by MedImmune, belimumab
developed by GlaxoSmithKline, blisibimod developed by Anthera Pharmaceuticals, forigerimod acetate (lupuzor) developed by Immupharma,
abatacept developed by Bristol-Myers Squibb, ACT-334441 developed by Actelion, atacicept developed by Merck Serono, CC-220 developed
by Celgene, and INV-103 being developed by Invion. In the past eighteen months, there have been two late stage drugs, tabalumab
developed by Eli Lilly and epratuzumab developed by UCB/Immunomedics, for the treatment of SLE which have both failed to meet the
primary endpoint in Phase 3 trials.



Competing Products for Treatment
of Multiple Myeloma



rHuEPO may be supplementary
to the following drugs including, but not limited to, Thalidomid (thalomide), Revlimid (lenalidomide) Velcade (bortezomib), Krypolis
(carfilzomib), and Pomalyst (pomalidomide). Other potential therapies are in clinical development for multiple myeloma. Vorinistat,
being developed by Merck & Co., and panobinostat, being developed by Novartis AG, are being studied in combination
with bortezomib for relapsed myeloma; and elotuzumab, being developed by Abbott Laboratories. In addition, in the future allogeneic
haematopoietic stem cell transplantation might potentially cure a proportion of patients through immunologically mediated graft
versus myeloma effect. However, this procedure remains highly experimental at the present time.



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 hCDR1 and rHuEPO 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 currently have no manufacturing
capabilities and do not intend to establish any such capabilities.



With respect to our drug
candidate, hCDR1, we believe that we will be able to outsource production to a contract manufacturer in order to obtain sufficient
inventory to satisfy the clinical supply needs for our future development for the treatment of SLE. With respect to our drug candidate
rHuEPO, we believe that we will either be able to purchase rHuEPO from existing pharmaceutical companies or to enter into collaborative
agreements with contract manufacturers or other third-parties.



At the time of commercial
sale, to the extent that it is possible and commercially practicable, we plan to engage a back-up supplier for each of our product
candidates. Until such time, we expect that we will rely on a single contract manufacturer to produce each of our product candidates
under cGMP regulations. Our third-party manufacturers have a limited number of facilities in which our product candidates can be
produced and will have limited experience in manufacturing our product candidates in quantities sufficient for conducting clinical
trials or for commercialization. Our third-party manufacturers will have other clients and may have other priorities that could
affect our contractor’s ability to perform the work satisfactorily and/or on a timely basis. Both of these occurrences would
be beyond our control. We anticipate that we will similarly rely on contract manufacturers for our future proprietary product candidates.



We expect to similarly
rely on contract manufacturing relationships for any products that we may in-license or acquire in the future. However, there can
be no assurance that we will be able to successfully contract with such manufacturers on terms acceptable to us, or at all.



Contract manufacturers
are subject to ongoing periodic inspections by the FDA, the U.S. Drug Enforcement Agency and corresponding state and local agencies
to ensure strict compliance with cGMP and other state and federal regulations. We do not have control over third-party manufacturers’
compliance with these regulations and standards, other than through contractual obligations.



If we need to change manufacturers,
the FDA and corresponding foreign regulatory agencies must approve these new manufacturers in advance, which will involve testing
and additional inspections to ensure compliance with FDA regulations and standards and may require significant lead times and delay.
Furthermore, switching manufacturers may be difficult because the number of potential manufacturers is limited. It may be difficult
or impossible for us to find a replacement manufacturer quickly or on terms acceptable to us, or at all.



24







Environmental Matters



We may from time to time
be 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. 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.



Government and Industry Regulation



Numerous governmental
authorities, principally the FDA and corresponding state and foreign regulatory agencies, impose substantial regulations upon the
clinical development, manufacture and marketing of our drug candidates and technologies, as well as our ongoing research and development
activities. None of our drug candidates have been approved for sale in any market in which we have marketing rights. Before marketing
in the U.S., any drug that we develop must undergo rigorous pre-clinical testing and clinical trials and an extensive regulatory
approval process implemented by the FDA, under the Federal Food, Drug and Cosmetic Act of 1938, as amended. The FDA regulates,
among other things, the pre-clinical and clinical testing, safety, efficacy, approval, manufacturing, record keeping, adverse event
reporting, packaging, labeling, storage, advertising, promotion, export, sale and distribution of biopharmaceutical products.



The regulatory review
and approval process is lengthy, expensive and uncertain. We are required to submit extensive pre-clinical and clinical data and
supporting information to the FDA for each indication or use to establish a drug candidate’s safety and efficacy before we
can secure FDA approval. The approval process takes many years, requires the expenditure of substantial resources and may involve
ongoing requirements for post-marketing studies or surveillance. According to the FDA, before commencing clinical trials in humans,
we must submit an IND to the FDA containing, among other things, pre-clinical data, chemistry, manufacturing and control information,
and an investigative plan. Our submission of an IND may not result in FDA authorization to commence a clinical trial.



We were granted an Orphan-drug
designation from the FDA in May 2011, for rHuEPO. In the U.S., Orphan-drug designation is granted by the FDA Office of Orphan Drug
Products to novel drugs or biologics that treat a rare disease or condition affecting fewer than 200,000 patients in the U.S. The
designation provides the drug developer with a seven-year period of U.S. marketing exclusivity if the drug is the first of its
type approved for the specified indication or if it demonstrates superior safety, efficacy, or a major contribution to patient
care versus another drug of its type previously granted the designation for the same indication, as well as with tax credits for
clinical research costs, the ability to apply for annual grant funding, clinical research trial design assistance and waiver of
Prescription Drug User Fee Act filing fees.



We may apply to the European
Medicines Agency in order to obtain Orphan-drug designation for Recombinant Erythropoietin in Europe. Orphan designation is granted
by the European Medicines Agency, following a positive opinion from the Committee for Orphan Medicinal Products, to a medicinal
product that is intended for the diagnosis, prevention or treatment of a life-threatening or a chronically debilitating condition
affecting not more than five in 10,000 persons in the European Community when the application for designation is submitted.
Orphan drug designation provides the sponsor with access to the Centralized Procedure for the application for marketing authorization,
protocol assistance, up to a 100% reduction in fees related to a marketing authorization application, pre-authorization inspection
and post-authorization activities, and could provide ten years of market exclusivity in the EU, once approved for the treatment
of Multiple Myeloma.



The FDA may permit expedited
development, evaluation, and marketing of new therapies intended to treat persons with serious or life-threatening conditions for
which there is an unmet medical need under its fast track drug development programs. A sponsor can apply for fast track designation
at the time of submission of an IND, or at any time prior to receiving marketing approval of the NDA. To receive fast track designation,
an applicant must demonstrate that the drug:



| | · | is intended to treat a serious or life-threatening condition;
| | - | -------------------------------------------------------------



| | · | is intended to treat a serious aspect of the condition; and
| | - | -----------------------------------------------------------



| | · | has the potential to address unmet medical needs, and this potential is being evaluated in the
planned drug development program.
| | - | --------------------------------------------------------------------------------------------------------------------------------



Clinical testing must meet
requirements for institutional review board oversight, informed consent and good clinical practices, and must be conducted pursuant
to an IND, unless exempted.



For purposes of NDA approval,
clinical trials are typically conducted in the following sequential phases:



25







| | · | Phase 1: The drug is administered to a small group of humans, either healthy volunteers or patients,
to test for safety, dosage tolerance, absorption, metabolism, excretion, and clinical pharmacology.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Phase 2: Studies are conducted on a larger number of patients to assess the efficacy of the product,
to ascertain dose tolerance and the optimal dose range, and to gather additional data relating to safety and potential adverse
events.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Phase 3: Studies establish safety and efficacy in an expanded patient population.
| | - | ---------------------------------------------------------------------------------



| | · | Phase 4: The FDA may require Phase 4 post-marketing studies to find out more about the drug’s
long-term risks, benefits, and optimal use, or to test the drug in different populations, such as children.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The length of time necessary
to complete clinical trials varies significantly and may be difficult to predict. Clinical results are frequently susceptible to
varying interpretations that may delay, limit or prevent regulatory approvals. Additional factors that can cause delay or termination
of our clinical trials, or that may increase the costs of these trials, include:



| | · | slow patient enrollment due to the nature of the clinical trial plan, the proximity of patients
to clinical sites, the eligibility criteria for participation in the study or other factors, and the number of sites participating
in the trial;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | inadequately trained or insufficient personnel at the study site to assist in overseeing and monitoring
clinical trials or delays in approvals from a study site’s review board;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | longer treatment time required to demonstrate efficacy or determine the appropriate product dose;
| | - | -------------------------------------------------------------------------------------------------



| | · | insufficient supply of the drug candidates;
| | - | -------------------------------------------



| | · | adverse medical events or side effects in treated patients; and
| | - | ---------------------------------------------------------------



| | · | ineffectiveness of the drug candidates.
| | - | ---------------------------------------



In addition, the FDA may
place a clinical trial on hold or terminate it if it concludes that subjects are being exposed to an unacceptable health risk.
Any drug is likely to produce some toxicity or undesirable side effects when administered at sufficiently high doses and/or for
a sufficiently long period of time. Unacceptable toxicity or side effects may occur at any dose level at any time in the course
of studies designed to identify unacceptable effects of a drug candidate, known as toxicological studies, or clinical trials of
drug candidates. The appearance of any unacceptable toxicity or side effect could bring us or regulatory authorities to interrupt,
limit, delay or abort the development of any of our drug candidates and could ultimately prevent approval by the FDA or foreign
regulatory authorities for any or all targeted indications.



Before receiving FDA approval
to market a product, we must demonstrate that the product is safe and effective for its intended use by submitting to the FDA an
NDA containing the pre-clinical and clinical data that have been accumulated, together with chemistry and manufacturing and controls
specifications and information, and proposed labeling, among other things. The FDA may refuse to accept an NDA for filing if certain
content criteria are not met and, even after accepting an NDA, the FDA may often require additional information, including clinical
data, before approval of marketing a product.



As part of the approval
process, the FDA must inspect and approve each manufacturing facility. Among the conditions of approval is the requirement that
a manufacturer’s quality control and manufacturing procedures conform to cGMP. Manufacturers must expend time, money and
effort to ensure compliance with cGMP, and the FDA conducts periodic inspections to certify compliance. It may be difficult for
our manufacturers or us to comply with the applicable cGMP and other FDA regulatory requirements. If we or our contract manufacturers
fail to comply, then the FDA will not allow us to market products that have been affected by the failure.



If the FDA grants approval,
the approval will be limited to those disease states, conditions and patient populations for which the product is safe and effective,
as demonstrated through clinical studies. Further, a product may be marketed only in those dosage forms and for those indications
approved in the NDA. Certain changes to an approved NDA, including, with certain exceptions, any changes to labeling, require approval
of a supplemental application before the drug may be marketed as changed. Any products that we manufacture or distribute pursuant
to FDA approvals are subject to continuing regulation by the FDA, including compliance with cGMP and the reporting of adverse experiences
with the drugs. The nature of marketing claims that the FDA will permit us to make in the labeling and advertising of our products
will be limited to those specified in an FDA approval, and the advertising of our products will be subject to comprehensive regulation
by the FDA. Claims exceeding those that are approved will constitute a violation of the Federal Food, Drug, and Cosmetic Act. Violations
of the Federal Food, Drug, and Cosmetic Act or regulatory requirements at any time during the product development process, approval
process, or after approval may result in agency enforcement actions, including withdrawal of approval, recall, seizure of products,
injunctions, fines and/or civil or criminal penalties. Any agency enforcement action could have a material adverse effect on our
business.



26







Should we wish to market
our products in countries other than the U.S., we must receive marketing authorization from the appropriate regulatory authorities.
The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from
country to country. At present, companies are typically required to apply for foreign marketing authorizations at a national level.
However, within the EU, registration procedures are available to companies wishing to market a product in more than one EU member
state. Typically, if the regulatory authority is satisfied that a company has presented adequate evidence of safety, quality and
efficacy, then the regulatory authority will grant a marketing authorization. This regulatory approval process, however, involves
risks similar or identical to the risks associated with FDA approval discussed above, and therefore we cannot guarantee that we
will be able to obtain the appropriate marketing authorization for any product in any particular country. Our current development
strategy calls for us to seek marketing authorization for our drug candidates in countries other than the United States.



Failure to comply with
applicable laws and regulations would likely have a material adverse effect on our business. In addition, laws and regulations
regarding the manufacture and sale of new drugs are subject to future changes. We cannot predict the likelihood, nature, effect
or extent of adverse governmental regulation that might arise from future legislative or administrative action.



Organizational structure



Our legal and commercial
name is XTL Biopharmaceuticals Ltd. We were established as a private company limited by shares under the laws of the State of Israel
on March 9, 1993, under the name Xenograft Technologies Ltd. We re-registered as a public company on June 7, 1993, in Israel, and
changed our name to XTL Biopharmaceuticals Ltd. on July 3, 1995.



We currently have one subsidiary, Xtepo Ltd.,
a private company limited by shares under the laws of the State of Israel which holds a license for the exclusive use of rHuEPO
for the treatment of multiple myeloma.



Property, Plant and Equipment



Since April 2015 we lease
offices in Ra’anana, Israel. The basic lease period is for 24 months with an option for an additional 12-month period.



To our knowledge, there
are no environmental issues that affect our use of the properties that we lease.



ITEM 4A. UNRESOLVED STAFF COMMENTS



None.



ITEM 5. OPERATING AND FINANCIAL REVIEW
AND PROSPECTS



You should read the following
discussion and analysis in conjunction with our audited consolidated financial statements, including the related notes, prepared
in accordance with IFRS (International Financial Reporting Standards) for the years ended December 31, 2015, 2014 and 2013, and
as of December 31, 2015 and 2014, contained in “Item 18. Financial Statements” and with any other selected financial
data included elsewhere in this annual report.



Selected Financial Data



The tables below present
selected financial data for the fiscal years ended as of December 31, 2015, 2014 and 2013 and as of December 31, 2015 and 2014.
The balance sheet information as of December 31, 2013 has been derived from audited financial statements not included elsewhere
in this report. We have derived this selected financial data from our audited consolidated financial statements, included elsewhere
in this report and prepared in accordance with IFRS issued by the IASB. You should read the selected financial data in conjunction
with “Item 3. Key Information” and “Item 8. Financial Information” and “Item 18. Financial Statements.”



27







Consolidated Statements of Comprehensive
income:



|                                                                                                |  | Year ended December 31,                           |       
|----------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ------
|                                                                                                |  | 2015                                              |       
|                                                                                                |  | U.S. dollars in thousands (except per share data) |       
|                                                                                                |  |                                                   |       
|Continuing operations:                                                                          |  |                                                   |       
|Research and development expenses                                                               |  |                                                   | (578  
|General and administrative expenses                                                             |  |                                                   | (1,419
|Impairment of intangible assets                                                                 |  |                                                   | (1,604
|Other gains, net                                                                                |  |                                                   | (10   
|                                                                                                |  |                                                   |       
|Operating loss                                                                                  |  |                                                   | (3,611
|                                                                                                |  |                                                   |       
|Finance income                                                                                  |  |                                                   | 4     
|Finance expenses                                                                                |  |                                                   | (15   
|                                                                                                |  |                                                   |       
|Finance income (expenses), net                                                                  |  |                                                   | (11   
|                                                                                                |  |                                                   |       
|Earnings (loss) from investment in associate                                                    |  |                                                   | -     
|                                                                                                |  |                                                   |       
|Loss from continuing operations                                                                 |  |                                                   | (3,622
|                                                                                                |  |                                                   |       
|Loss from discontinued operations                                                               |  |                                                   | (689  
|                                                                                                |  |                                                   |       
|Total loss for the year                                                                         |  |                                                   | (4,311
|                                                                                                |  |                                                   |       
|Other comprehensive income (loss):                                                              |  |                                                   |       
|Items that might be classified to profit or loss:                                               |  |                                                   |       
|Foreign currency translation adjustments                                                        |  |                                                   | -     
|Reclassification of foreign currency translation adjustments to Other gains, net                |  |                                                   | -     
|                                                                                                |  |                                                   |       
|Total other comprehensive income (loss)                                                         |  |                                                   | -     
|                                                                                                |  |                                                   |       
|Total comprehensive loss                                                                        |  |                                                   | (4,311
|                                                                                                |  |                                                   |       
|Total loss attributable to:                                                                     |  |                                                   |       
|Equity holders of the Company                                                                   |  |                                                   | (4,313
|Non-controlling interests                                                                       |  |                                                   | 2     
|                                                                                                |  |                                                   |       
|                                                                                                |  |                                                   | (4,311
|                                                                                                |  |                                                   |       
|Total comprehensive loss attributable to:                                                       |  |                                                   |       
|Equity holders of the Company                                                                   |  |                                                   | (4,313
|Non-controlling interests                                                                       |  |                                                   | 2     
|                                                                                                |  |                                                   |       
|                                                                                                |  |                                                   | (4,311
|                                                                                                |  |                                                   |       
|Basic and diluted loss per share from continuing and discontinued operations (in U.S. dollars): |  |                                                   |       
|From continuing operations                                                                      |  |                                                   | (0.014
|From discontinued operations                                                                    |  |                                                   | (0.003
|                                                                                                |  |                                                   |       
|Loss per share for the period                                                                   |  |                                                   | (0.017



28







Consolidated Statements of Financial Position Data:



|                                         |  | As of December 31,       |      
|---------------------------------------- |  | ------------------------ | -----
|                                         |  | 2015                     |      
|                                         |  | U.S Dollars in thousands |      
|                                         |  |                          |      
|Cash, cash equivalents and bank deposits |  |                          | 3,817
|Working capital                          |  |                          | 3,829
|Total assets                             |  |                          | 5,323
|Long term liabilities                    |  |                          | -    
|Total shareholders’ equity               |  |                          | 4,887
|Non-controlling interests                |  |                          | -    



Overview



We are a biopharmaceutical
company engaged in the acquisition and development of pharmaceutical drugs for the treatment of unmet medical needs. Our current
drug development program is focused on the treatment of SLE.



We were established as
a corporation under the laws of Israel in 1993, and commenced operations to use and commercialize technology developed at the Weizmann
Institute, in Rehovot, Israel. Since commencing operations, our activities have been primarily devoted to developing our technologies
and drug candidates, acquiring pre-clinical and clinical-stage compounds, raising capital, purchasing assets for our facilities,
and recruiting personnel. We are a development stage company. We have had no drug product sales to date and the sales of our medical
devices are as yet insufficient to generate operating income. Our major sources of working capital have been proceeds from various
private placements of equity securities, option and warrant exercises, our initial public offering, our placing and open offer
transaction, and private investments in public equities.



We have incurred negative
cash flow from operations each year since our inception and we anticipate incurring negative cash flows from operating activities
for the foreseeable future. We have spent, and expect to continue to spend, substantial amounts in connection with implementing
our business strategy, including our planned product development efforts, our clinical trials, marketing efforts of our medical
devices and potential in-licensing and acquisition opportunities.



Our research and development
expenses in 2015, 2014 and 2013 primarily consisted of expenses related to the hCDR1, and to a lesser degree, rHuEPO development
plans. As part of the preparations for hCDR1 in 2015, the Company engaged regulatory and clinical consultants and commenced work
on Chemistry, Manufacturing and Control, or CMC, including production and testing of the drug substance.



Our general and administrative
expenses consist primarily of salaries, consultant fees, and related expenses for executive, finance and other administrative personnel,
professional fees, director fees and other corporate expenses, including investor relations, business development costs and facilities
related expenses. We expense our general and administrative expenses as incurred.



Our results of operations
include non-cash compensation expense as a result of the grants of XTL stock options. Compensation expense for awards of options
granted to employees and directors represents the fair value of the award (measured using the Black-Scholes valuation model) recorded
over the respective vesting periods of the individual stock options (see details below.)



For awards of options and
warrants to consultants and other third-parties, according to IFRS 2, the treatment of such options and warrants is the same as
employee options compensation expense (see note 2m to the consolidated financial statements). We record compensation expenses based
on the fair value of the award at the grant date according to the Black-Scholes valuation model. According to the IFRS 2, in non-performance-based
options, the Company recognizes options expenses using the graded vesting method (accelerated amortization). Graded vesting means
that portions of a single option grant will vest on several dates, equal to the number of tranches. The Company treats each tranche
as a separate share option grant; because each tranche has a different vesting period, and hence the fair value of each tranche
is different. Therefore, under this method the compensation cost amortization is accelerated to earlier periods in the overall
vesting period.



Our planned clinical trials
will be lengthy and expensive. Even if these trials show that our drug candidates are effective in treating certain indications,
there is no guarantee that we will be able to record commercial sales of any of our product candidates in the near future or generate
licensing revenues from upfront payments associated with out-licensing transactions. In addition, we expect losses in our drug
development activity to continue as we continue to fund development of our drug candidates. As we continue our development efforts,
we may enter into additional third-party collaborative agreements and may incur additional expenses, such as licensing fees and
milestone payments. As a result, our periodical results may fluctuate and a period-by-period comparison of our operating results
may not be a meaningful indication of our future performance.



29







A. Results of Operations



Year ended December 31, 2015 compared to the year ended December
31, 2014



Research and Development
Expenses. Research and development expenses in the years ended December 31, 2015 and 2014 totaled approximately $578 thousand
and $278 thousand, respectively. Research and development expenses are comprised mainly of expenses related to preparations for
initiating the phase 2 clinical trials of the hCDR1 drug designed to treat SLE patients. The increase in expenses in 2015 compared
to 2014 is mainly due to expenses related to our hCDR1 drug. Expenses incurred in 2015 include, among other things, chemistry,
manufacturing and control (CMC) costs for production of the drug substance and drug product, as well as clinical and regulatory
consulting fees related to the preparation and submission to the U.S. FDA of our pre-IND meeting package for our planned clinical
study of the hCDR1 drug for the treatment of SLE patients.



General and Administrative
Expenses. General and administrative expenses for the years ended December 31, 2015 and 2014 totaled approximately $1,419 thousand
and $1,744 thousand, respectively. The decrease in 2015 compared to 2014 is mainly due to the Company's efforts to reduce overhead
costs as well as lower share-based compensation expenses.





Impairment of intangible
assets. The Company is required to determine, on an annual basis and as of year-end, whether the fair value of its unamortized
intangible assets exceeds their book value. As of December 31, 2015, the Company recognized an impairment in the amount of $1,604
thousand with regard to the rHuEPO intangible asset. For further information, see note 11 of the financial statements for the year
ended December 31, 2015.



Finance expenses, net.
Finance expenses, net for the years ended December 31, 2015 and 2014 totaled approximately $11 thousand and $97 thousand, respectively.
The decrease in finance expenses in 2015 compared to 2014 derives mainly from a reduced exposure to NIS/USD exchange rate fluctuations
due to lower NIS cash balances in 2015 compared to 2014.



Total loss from discontinued
operations. Total loss from discontinued operations of approximately $689 thousand and $746 thousand, is derived from the Company’s
investment in InterCure, a former subsidiary. Such loss for the year ended December 31, 2015 represents a loss from the deconsolidation
of InterCure.



Income Taxes. We
had no income tax expense for the years ended December 31, 2015 and 2014 due to losses incurred and we did not recognize any deferred
tax benefits, since it is not “more likely than not” that we will be able to generate profits in the future to realize
the deferred taxes.



Years Ended December 31, 2014 and 2013



Research and Development
Expenses. Research and development expenses in the years ended December 31, 2014 and 2013 totaled approximately $278 thousand
and $82 thousand, respectively. Research and development expenses are comprised mainly of expenses related to preparations for
initiating the phase 2 clinical trials of the hCDR1 and, to a lesser extent, rHuEPO drugs designed to treat SLE and multiple myeloma
patients, respectively. The increase in expenses in 2014 compared to 2013 is mainly due to expenses related to our hCDR1 drug,
in-licensed in January 2014.



General and Administrative
Expenses. General and administrative expenses for the years ended December 31, 2014 and 2013 totaled approximately $1,744 thousand
and $1,329 thousand, respectively. The increase in 2014 compared to 2013 is mainly due to a $0.5 million reversal of expenses in
2013 due to forfeitures of stock options by a director who resigned from the Company.



Finance income (expenses),
net. Finance income (expenses), net for the years ended December 31, 2014 and 2013 totaled approximately ($97 thousand) and
$59 thousand, respectively. The decrease in finance income in 2014 compared to 2013 derives mainly from an increase in the NIS/USD
exchange rate during 2014.



Total loss from discontinued
operations. Total loss from discontinued operations totaled approximately $746 thousand and $2,575 thousand, and represents
InterCure’s net results for the years ended December 31, 2014 and 2013, respectively. Such loss in 2013 includes an impairment
of $1.7 million in intangible assets recognized in the acquisition of InterCure in 2012.



Income Taxes. We
had no income tax expense for the years ended December 31, 2014 and 2013 due to losses incurred and we did not recognize any deferred
tax benefits, since it is not “more likely than not” that we will be able to generate profits in the future to realize
the deferred taxes.



Significant Accounting Policies



Basis of presentation
of the financial statements. The financial statements of the Company and its subsidiaries (the “Group”)
as of December 31, 2015 and 2014, and for each of the three years in the period ended December 31, 2015 have been prepared in accordance
with International Financial Reporting Standards which are standards and interpretations issued by the International Accounting
Standards Board (“IFRS”).



30







The significant accounting
policies described below are consistent with those of all periods presented, unless indicated otherwise.



The preparation of financial
statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Company’s
management to exercise its judgment in the process of applying the Group’s accounting policies. The areas that involve judgment
which has significant effect or complexity or where assumptions and estimates are significant to the consolidated financial statements
are disclosed in Note 3 to the annual consolidated financial statements. Actual results could significantly differ from the estimates
and assumptions used by the Group’s management.



The Company analyzes the
expenses recognized in the statement of comprehensive loss by classification based on the function of expense.



We define critical accounting
policies as those that are reflective of significant judgments and uncertainties and which may potentially result in materially
different results under different assumptions and conditions. In applying these critical accounting policies, our management uses
its judgment to determine the appropriate assumptions to be used in making certain estimates. These estimates are subject to an
inherent degree of uncertainty. Our critical accounting policies include the following:



Subsidiaries consolidation and business
combinations



The consolidated financial
statements include the accounts of the Company and entities controlled by the Company. Control exists when the Company has the
power over the investee, has exposure, or rights, to variable returns from involvement in the investee, and has the ability to
use its power over the investee to affect its returns.



The Company examines whether
it controls another entity even when it does not hold more than 50% of the voting rights, but can control the entity’s financial
and operating policies by de-facto control. De-facto control can be created under circumstances in which the ratio of the Company’s
voting rights in the entity to the percentage and dispersion of the holdings of the other shareholders grants the Company the power
to control the entity’s financial and operating policies.



Subsidiaries are fully
consolidated starting from the date on which control therein is attained by the Company. Their consolidation ceases when such control
is discontinued.



Intra-group balances and
transactions, including revenues, expenses and dividends in respect of transactions between the Group companies, are eliminated.
Gains and losses arising from intra-group transactions that have been recognized as assets (such as inventories and property, plant
and equipment) are also eliminated. Such intra-group losses may point to the impairment of assets which is tested and accounted
for as specified in g below.



Transactions with non-controlling
interests in subsidiaries which do not result in loss of control in the subsidiaries are accounted for as transactions with owners.
In these transactions, the difference between the fair value of any consideration paid or received and the amount of adjustment
of the non-controlling interests to reflect the changes in their relative rights in the subsidiaries is directly recognized in
equity and attributed to the equity holders of the parent.



Associate



An associate is an entity
over which the Group exercises significant influence, but not control, which is usually expressed in holding 20%-50% of the voting
rights. The investment in an associate is presented using the equity method of accounting. According to the equity method of accounting,
the investment is initially recognized at cost and its carrying amount varies to the extent that the Group recognizes its share
of the associate’s earnings or losses from the acquisition date.



The Group’s share
in the earnings or losses of associates after the acquisition date is carried to profit or loss and its share in the other comprehensive
income movements after the acquisition date is carried to other comprehensive income against the carrying amount of the investment.

Intangible assets



| | 1. | Brand name and technology:
| | -- | --------------------------



Brand name and technology acquired
in a business combination are recognized at fair value on the acquisition date. Brand name and technology have a finite useful
life and are presented at cost net of accumulated amortization and impairment losses. The amortization is calculated using the
straight-line method over the expected useful life (9-10 years).



| | 2. | Computer software:
| | -- | ------------------



Acquired licenses to use computer
software are capitalized based on costs incurred in acquiring the specific software and preparing it for use. These costs are amortized
using the straight-line method over the estimated useful life (five years). Costs relating to computer software upkeep are recognized
as expenses as incurred.



31







| | 3. | Unamortized intangible assets (licenses and patent rights)
| | -- | ----------------------------------------------------------



The amortization of an asset on
a straight-line basis over its useful life begins when the development procedure is completed and the asset is available for use.
These assets are reviewed for impairment once a year or whenever there are indicators of a possible impairment, in accordance with
the provisions of IAS 36, “Impairment of Assets”.



| | 4. | Research and development
| | -- | ------------------------



Research expenditures are recognized
as expenses when incurred. Costs arising from development projects are recognized as intangible assets when the following criteria
are met:



| | · | it is technically feasible to complete the intangible asset so that it will be available for use;
| | - | -------------------------------------------------------------------------------------------------



| | · | management intends to complete the intangible asset and use or sell it;
| | - | -----------------------------------------------------------------------



| | · | there is an ability to use or sell the intangible asset;
| | - | --------------------------------------------------------



| | · | it can be demonstrated how the intangible asset will generate probable future economic benefits;
| | - | ------------------------------------------------------------------------------------------------



| | · | adequate technical, financial and other resources to complete the development and to use or sell
the intangible asset are available; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | the expenditure attributable to the intangible asset during its development can be reliably measured.
| | - | -----------------------------------------------------------------------------------------------------



Other development expenditures that do not
meet these criteria are recognized as an expense when incurred. Development costs that were previously recognized as an expense
are not recognized as an asset in a later period. During the three years ended December 31, 2015, the Group did not capitalize
development costs to intangible assets.



Impairment of non-financial assets



Intangible assets which
are not yet available for use are not depreciated and impairment in their respect is tested every year. Depreciable assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment,
assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial
assets that sustained impairment are reviewed for possible reversal of the impairment at each date of the statement of financial
position.



As for testing impairment
of acquired intangible assets, see intangible assets above.



32







Inventories



Inventories are measured
at the lower of cost and net realizable value. The cost of inventories comprises costs of purchase and costs incurred in bringing
the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course
of business less the estimated costs of completion and the estimated selling costs. The Company periodically evaluates the condition
and age of inventories and makes provisions for slow moving inventories accordingly.



Cost of inventories is
determined as follows:



Raw materials - at cost
of purchase using the “first-in, first-out” method.



Purchased merchandise and
products - using the “first-in, first-out” method.



Share capital



The Company’s ordinary
shares are classified as share capital. Incremental costs directly attributable to the issuance of new shares or options are shown
in equity as a deduction, net of tax, from the issuance proceeds.



When Group companies purchase
Company shares (treasury shares), the consideration paid, including incremental costs directly attributable to the purchase (less
the effect of taxes on income), is deducted from the equity attributable to equity holders of the parent until the shares are eliminated
or reissued. When these shares are reissued in subsequent periods, the consideration received, less incremental costs directly
attributable to the transaction and less the effect of taxes on income, is included in equity attributable to equity holders of
the parent.



Share-based payment



The Group operates a number
of share-based payment plans to employees and to other service providers who render services that are similar to employees’
services that are settled with the Group’s equity instruments. In this framework, the Group grants employees, from time to
time, and at its sole discretion, options to purchase shares of the Group companies. The fair value of services received from employees
in consideration of the grant of options is recognized as an expense in the statement of comprehensive income (loss) and correspondingly
carried to equity. The total amount recognized as an expense over the vesting term of the options (the term over which all pre-established
vesting conditions are expected to be satisfied) is determined by reference to the fair value of the options granted at grant date,
except the effect of any non-market vesting conditions.



Non-market vesting
conditions are included in the assumptions used in estimating the number of options that are expected to vest. The total expense
is recognized over the vesting period, which is the period over which all of the specified vesting conditions of the share-based
payment arrangement are to be satisfied.



In each reporting date,
the Company revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions
and recognizes the impact of the revision to original estimates, if any, in the statement of comprehensive income (loss) with a
corresponding adjustment in equity.



When the options are exercised,
the Company issues new shares. The proceeds net of any directly attributable transaction costs are credited to share capital (nominal
value) and share premium.



Share-based payment transactions
in which the Company acquired assets as consideration for the Company’s equity instruments are measured at the value of the
assets acquired.



Provisions



A provision in accordance
to IAS 37 is recognized when the Group has a present obligation (legal or constructive) as a result of an event that occurred in
the past, it is probable that the Group will be required to use economic resources to settle the obligation and it can be reliably
estimated. The group recognizes a provision for warranty when the product is sold to the customer or when the service is provided
to the customer. Initial recognition is based on past experience. The estimated provision is re-tested every year.



33







Revenue recognition



Revenues are recognized
in profit or loss when the revenues can be measured reliably, it is probable that the economic benefits associated with the transaction
will flow to the Company, and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenues
are measured at the fair value of the consideration received less any trade discounts, volume rebates and returns.



Following are the specific
revenue recognition criteria which must be met before revenue is recognized:



Revenues from sale of
goods to retail customers:



Revenues from the sale
of goods are recognized when all the significant risks and rewards of ownership of the goods have passed to the buyer and the seller
no longer retains continuing managerial involvement. The delivery date to the customer is usually the date on which ownership passes.



Revenues from sale of
goods to distributors:



InterCure sells its products
to distributors as well. Revenues from such sales are recognized when InterCure or its subsidiaries deliver the goods to the distributor,
when sales channel and selling price are at the distributor’s sole discretion, and when there are no ongoing obligations
to prevent the distributor from receiving the goods. Revenue is only recognized when goods were delivered to the designated site,
risks of loss and damage are transferred to the distributor and distributor had received the goods in accordance with the sales
agreement, conditions for receipt of goods had expired or InterCure holds objective evidence that goods receipt criteria had been
met.



Sales do not include a
finance component, as they are made with a 60 days credit period, considered as consistent with the market in which InterCure operates.



Non-current assets (or disposal groups)
held for sale



Non-current assets (or
disposal groups) are classified as held for sale when their carrying amount will be recovered principally through a sale transaction
rather than through continuing use.



Discontinued operations



A discontinued operation
is a component of an entity that either has been disposed of, or is classified as held for sale, and represents a separate major
line of business or geographical area of operations, or is part of a single coordinated plan to dispose of a separate major line
of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale.



Revenues and expenses attributable
to discontinued operations are presented in the statement of comprehensive loss under the item “Total loss from discontinued
operations”, for all years presented.



Critical Accounting Estimates and Judgments



Estimates and judgments
are continually evaluated and are based on historical experience and other factors, including expectations of future events that
are believed to be reasonable under the circumstances.



| | 1. | Critical accounting estimates and assumptions
| | -- | ---------------------------------------------



Accounting estimates will, by definition,
seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next financial year are addressed below.



| | · | Intangible assets
| | - | -----------------



| | (i) | In testing impairment of research and development assets, the Company’s management is required
to estimate, among other things, the probable endpoints of trials conducted by the Company, the commercial technical feasibility
of the development and the resulting economic benefits. Actual results and estimates to be made in the future may significantly
differ from current estimates.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



34







| | (ii) | The Group is required to determine at the end of each reporting period whether there is any indication
that an asset may be impaired. If indicators for impairment are identified, the Group estimates the assets’ recoverable amount,
which is the higher of an asset’s fair value less costs to sell and its value-in-use. The value-in-use calculations require
management to make estimates of the projected future cash flows. Determining the estimates of the future cash flows is based on
management past experience and best estimate for the economic conditions that will exist over the remaining useful economic life
of the CGU.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Share-based payments – in evaluating the fair value and the recognition method of share-based
payment, the Company’s management is required to estimate, among others, different parameters included in the computation
of the fair value of the options and the Company’s results and the number of options that will vest.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Judgments that have a critical effect on the adoption of the entity’s accounting policies:
| | -- | ------------------------------------------------------------------------------------------



| | · | The existence of control over InterCure – As of December 31, 2014, and effective as of May
16, 2013, the Company held 54.72% of InterCure’s issued and outstanding share capital, following the conversion of the loan
granted to InterCure into 7,620,695 shares of InterCure. In the reporting period ended December 31, 2012, the Group’s management
had estimated the degree of effect it had in InterCure and had determined that it was able to govern InterCure’s financial
and operating policies despite holding less than 50% of InterCure’s issued and outstanding share capital at the time, through
de-facto control, this following an examination of InterCure’s entire equity instruments. This conclusion was reached mainly
since the Company was able to convert the aforementioned loan into shares of InterCure, a conversion which will have conferred
the Company a stake of approximately 54.72% of InterCure’s issued and outstanding share capital.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | During the year ended December 31, 2015,
events pertaining to the investment in InterCure reduced the Company’s stake in InterCure to 5.82%. Considering the Company’s
diluted voting rights in InterCure, the Company’s management determined that a loss of control in InterCure occurred on February
12, 2015.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Impact of Inflation and Currency Fluctuations



We generate most of our
revenues and hold most of our cash, cash equivalents and bank deposits in US dollars. While a substantial amount of our operating
expenses are in US dollars, we incur a portion of our expenses in New Israeli Shekels. In addition, we also pay for some of our
services and supplies in the local currencies of our suppliers. As a result, we are exposed to the risk that the US dollar will
be devalued against the New Israeli Shekel or other currencies, and as result our financial results could be harmed if we are unable
to protect against currency fluctuations in Israel or other countries in which services and supplies are obtained in the future.
Accordingly, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the
exchange rates of currencies. The Company’s treasury’s risk management policy is to hold NIS-denominated cash and cash
equivalents and short-term deposits in the amount of the anticipated NIS-denominated liabilities for six consecutive months from
time to time in line with the directives of the Company’s Board. These measures, however, may not adequately protect us from
the adverse effects of inflation in Israel. In addition, we are exposed to the risk that the rate of inflation in Israel will exceed
the rate of devaluation of the New Israeli Shekel in relation to the US Dollar or that the timing of any devaluation may lag behind
inflation in Israel. Future activities may lead us to perform a clinical trial in Israel, which may lead us to reassess our use
of the US dollar as our functional currency.



As of December 31, 2015,
had the Group’s functional currency weakened by 10% against the NIS with all other variables remaining constant, post-tax
loss for the year would have been $ 20 thousand lower (2014 – post-tax loss approximately $ 85 thousand lower;
2013 - post-tax loss approximately $ 157 thousand lower), mainly as a result of exchange rate changes on translation of other
accounts receivable, net and exchange rate changes on NIS-denominated cash and cash equivalents and short-term deposits. Loss was
less sensitive to fluctuations in the exchange rate in relation to the NIS in 2015 than in 2014 mainly because of the decreased
amount of the NIS-denominated balances in the items of cash, receivables and payables of the Group.



35







Governmental Economic, Fiscal, Monetary
or Political Policies that Materially Affected or Could Materially Affect Our Operations



The income of the Company
is subject to corporate tax at the regular rate; the guidance of the amendment to the Israeli Income Tax Ordinance, 2005 from August
2005 prescribes a gradual reduction in the corporate tax rates and the resulting corporate tax rates starting 2009 are as follows:
2009 - 26% and 2010 and thereafter - 25%.



On July 14, 2009,
the “Knesset” (Israeli Parliament) passed the Law for Economic Efficiency (Amended Legislation for Implementing the
Economic Plan for 2009 and 2010), 2009, which prescribes, among other things, an additional gradual reduction in the corporate
tax rates starting 2011 to the following tax rates: 2011 - 24%, 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and thereafter
- 18%.



In December 2011, following
the enactment of the Law for the Changing the Tax Burden (Legislative Amendments), 2011 (hereafter – “Tax Burden Distribution
Law”), the phased reduction in the corporate tax was eliminated, and corporate tax rate in 2012 and thereafter was set to
25%.



On August 5, 2013, the
Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013-2014), 2013 (the “Law”)
was published in the Government’s records. The Law prescribes, among other things, the Law prescribes from the 2014 tax year
and thereafter, an increase in the Israeli corporate tax rate to 26.5% (instead of 25%).



On January 5, 2016, the
Israeli Parliament officially published the Law for the Amendment of the Israeli Tax Ordinance (Amendment 216), that reduces the
corporate tax rate from 26.5% to 25%, effective for the year beginning January 1, 2016.



As of December 31, 2015,
XTL Biopharmaceuticals Ltd. did not have any taxable income. As of December 31, 2015, our net operating loss carry forwards for
Israeli tax purposes registered on behalf of XTL Biopharmaceuticals Ltd. amounted to approximately $ 28 million. Under Israeli
law, these net-operating losses may be carried forward indefinitely and offset within XTL Biopharmaceuticals Ltd only, against
future taxable income, including capital gains from the sale of assets used in the business, with no expiration date.



Since April 7, 2009, we
have not had a “permanent establishment” or activity in the US, and our subsidiaries do not perform any activities
in the US. Our board of directors consists of a majority of Israeli residents and our management is domiciled in Israel.



B. Liquidity and Capital Resources



We have financed our operations
from inception primarily through various private placement transactions, our initial public offering, a placing and open offer
transaction, option and warrant exercises, and private investments in public equities. As of December 31, 2015, we had received
net proceeds of approximately $80.2 million from various public offerings and private placement transactions, including net proceeds
of approximately $45.7 million from our initial public offering in September 2000, net proceeds of approximately $15.4 million
from the 2004 placement and open offer transaction, net proceeds of approximately $1.5 million from the Bio-Gal transaction in
August 2010, net proceeds of approximately $1.75 million from our public offering on TASE in March 2011, net proceeds of $2.4 million
from our private placement in March 2012, net proceeds of approximately $3.4 million from our public offering on Nasdaq in April
2015, and proceeds of approximately $4.0 million from the exercise of options and warrants.



As of December 31, 2015,
we had approximately $3.8 million in cash and cash equivalents, an increase of $1.7 million from December 31, 2014.



Cash flows used in operating
activities for the year ended December 31, 2015 totaled approximately $1.9 million, compared to cash flows used in operating activities
of approximately $2.5 million for the year ended December 31, 2014. The decrease in cash used in operating activities compared
to the corresponding period last year mainly arises from the Company’s divestment of InterCure, as cash flows in 2015 exclude
any cash flows incurred in InterCure.



Cash flows used in investing
activities in the year ended December 31, 2015 totaled approximately $35 thousand compared to cash flows provided by investing
activities of approximately $1.5 million in the previous year. Cash flows in 2015 mainly originated from payment made to Yeda in
connection with the hCDR1 asset, offset by cash received from the sale of a small portion of InterCure shares held by the Company.
Activities in 2014 included withdrawal of short-term deposits in a total amount of $1.2 million, as well as receipt of the final
payment from the sale of Proteologics in the amount of $0.3 million.



Cash flows provided by
financing activities in the year ended December 31, 2015 totaled approximately $3.6 million compared to cash flows provided by
investing activities of approximately $0.3 million in the previous year. Amount for the year ended December 31, 2015 reflects net
cash flows during the period in connection with the April 2015 public offering, while the amount for the year ended December 31,
2014 mostly reflects the sale of treasury shares held by InterCure.



36







The Company has incurred
continuing losses and depends on outside financing resources to continue its activities. Based on existing business plans, the
Company’s management estimates that its outstanding cash and cash equivalent balances, including short-term deposits, will
allow the Company to finance its activities for a period of at least twelve months from the date hereof. However, the amount of
cash which the Company will need in practice to finance its activities depends on numerous factors which include, but are not limited
to, the timing, planning and execution of clinical trials of existing drugs and future projects which the Company might acquire
or other business development activities such as acquiring new technologies and/or changes in circumstances which are liable to
cause significant expenses to the Company in excess of management’s current and known expectations as of the date of these
financial statements and which will require the Company to reallocate funds against plans, also due to circumstances beyond its
control.



The Company expects to
incur additional losses in 2016 arising from research and development activities, testing additional technologies and operating
activities, which will be reflected in negative cash flows from operating activities. In order to perform the clinical trials aimed
at developing a product until obtaining its marketing approval, the Company may be required to raise additional funds in the future
by issuing securities. Should the Company fail to raise additional capital in the future under standard terms, it will be required
to minimize its activities or sell or grant a sublicense to third parties to use all or part of its technologies.



37







C. Research and Development, Patents and
Licenses



Research and development costs in 2015, 2014 and 2013 substantially
derived from costs related to the hCDR1 and, to a lesser degree, rHuEPO, development plans. As part of the preparations for a planned
clinical study of hCDR1, the Company engaged regulatory and clinical consultants in 2015 and commenced work on CMC, including production
and testing of the drug substance and drug product.



hCDR1 for the Treatment of SLE



The Company intends to initiate a new Phase
II clinical trial, which will include the 0.5 mg and a lower weekly dose. We estimate that the trial will take over one year to
enroll patients, 26 weeks for the treatment phase, and additional time to analyze the results for a total of approximately two
years.



rHuEPO for the Treatment of Multiple Myeloma



The clinical trial’s preliminary plan
received as part of the Bio-Gal transaction, planned a prospective, multi-center, phase 2 study intended to assess safety of rHuEPO
when given to patients with advanced Multiple Myeloma and demonstrate its effects on survival, biological markers related to the
disease, immune improvements and quality of life. We have not yet submitted the preliminary plan, which may be updated, to the
authorities and/or the applicable IRB. We have decided to concentrate our efforts and resources on the development of hCDR1 and
therefore do not expect to initiate any activities related to rHuEPO before 2017 and are exploring opportunities to sell or license
rHuEPO or collaborate with partners in its development.



The following table sets forth the research
and development costs for the years 2015, 2014 and 2013 including all costs related to the clinical-stage projects, our pre-clinical
activities, and all other research and development. We in-licensed hCDR1 in January 2014 and started preparations for clinical
development of this asset during the year. We started preparations for rHuEPO clinical development in the last quarter of 2010
(after the completion of the Bio-Gal transaction on August 2010). We in-licensed SAM-101 in November 2011 and in June 2015, the
Company terminated the license agreement and all rights in and to the licensed technology reverted to MinoGuard. Whether or not
and how quickly we commence and complete development of our clinical stage projects is dependent on a variety of factors, including
the rate at which we are able to engage clinical trial sites and the rate of enrollment of patients. As such, the costs associated
with the development of our drug candidates will probably increase significantly.



|                               |  | Research and development Expenses in thousand US$ |    
|------------------------------ |  | ------------------------------------------------- | ---
|                               |  | Year ended December 31,                           |    
|                               |  | 2015                                              |    
|                               |  |                                                   |    
|hCDR1                          |  |                                                   | 549
|rHuEPO                         |  |                                                   | 29 
|SAM-101                        |  |                                                   | -  
|Other                          |  |                                                   | -  
|Total Research and Development |  |                                                   | 578



38







| | 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.



| | E. | Off-Balance Sheet Arrangements
| | -- | ------------------------------



We have not entered into
any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative
instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other
obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit
risk support.



| | F. | Tabular disclosure of contractual Obligations
| | -- | ---------------------------------------------



As of December 31,
2015, we had known contractual obligations, commitments and contingencies of approximately $40 thousand which relate to lease obligations
for our offices, all of which is due within the next year. In April 2015, we signed an operational lease agreement for our new
offices in Ra’anana. Under the new lease agreement, we will pay a monthly rent of approximately $2,500.



We entered into an agreement
with subtenants to lease part of the office space in exchange for approximately $ 1,200 per month. The agreement is in effect
until April 2017.



We do not carry any contractual
obligations, commitments or contingencies relates to research and development operations.



|Payment due by period as of December 31, 2015 (in thousands of US$)
|-------------------------------------------------------------------
|Contractual obligations                                            
|                                                                   
|Operating lease obligations                                        
|                                                                   
|Total                                                              



Pursuant to our asset purchase
agreement to acquire the rights to develop rHuEPO for the treatment of Multiple Myeloma from Bio-Gal Ltd., we are obligated to
pay 1% royalties on net sales of the product, as well as a fixed royalty payment in the total amount of $350 thousand upon the
successful completion of Phase 2. The payment of $350 thousand is to be made to Yeda upon the earlier of (i) six months from the
successful completion of Phase 2 or (ii) the completion of a successful fundraising by XTL at any time after the completion of
the Phase 2 in an amount of at least $2 million.



According to the agreement
with MinoGuard we were obligated to pay milestone payments to MinoGuard of up to $2.5 million based on development and marketing
milestones as well as 3.5% royalty of our net sales of the product and 7.5%-20% from our third-party out-license receipts, depending
on the phase of the drug at the time of an out-license transaction. In addition to the above payments, and in accordance with the
above agreement, since as of June 30, 2013, XTL had not commenced a phase 2 clinical trial, we were obligated to pay MinoGuard
an annual license fee representing a value of $45 thousand, for the 12 month period between July 1, 2013 and June 30, 2014. On
September 3, 2014, we issued an additional 889,822 ordinary shares, representing a value of $135 thousand, for the 12 month period
between July 1, 2014 and June 30, 2015. On May 25, 2015, the Company provided Minoguard with a notice of termination whereby, as
of June 24, 2015, the rights and license granted according to the license agreement were terminated and all rights in and to the
licensed technology reverted to MinoGuard.



According to our strategic
collaboration master agreement with the Institute and Mor, we are obligated to pay the Institute for the services provided by them
the cost basis related to the Institute’s activity in the framework of any project plus an additional 10% of the total royalties
to which Mor is entitled pursuant to its agreements with the Company in connection with each technology for which rights were granted
to the Company.



According to the licensing
agreement signed with Yeda to develop hCDR1, a Phase II-ready asset for the treatment of Systemic Lupus Erythematosus (“SLE”).
The terms of the licensing agreement include, among other things, expense reimbursement for patent expenses payable in six installments,
certain milestone payments to Yeda, low single-digit royalties based on net sales, and additional customary royalties to the Office
of the Chief Scientist.



39







ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES



A. Directors and Senior Management



B. The following sets forth information with respect to our
directors and executive officers as of the date hereof.



|Name                  |  | Age |  | Position                           
|--------------------- |  | --- |  | -----------------------------------
|Shlomo Shalev         |  | 54  |  | Chairman of the Board of Directors 
|Osnat Hillel Fain     |  | 50  |  | Non-Executive and External Director
|Oded Nagar            |  | 47  |  | Non-Executive and External Director
|David Bassa           |  | 54  |  | Non-Executive Director             
|Doron Turgeman        |  | 47  |  | Non-Executive Director             
|Dr. Jonathan Schapiro |  | 55  |  | Non-Executive Director             
|Dr. Dobroslav Melamed |  | 38  |  | Non-Executive Director             
|Josh Levine           |  | 51  |  | Chief Executive Officer            
|David Kestenbaum      |  | 51  |  | Chief Financial Officer            



Shlomo Shalev joined
our Board of Directors in December 2014 and in August 2015 was appointed to serve as Chairman. He most recently served as Chairman
of the Board of Micronet, a TASE listed company. In addition to serving as a board member on a number of NASDAQ and TASE listed
companies, such as OphirOptronics, Arel Communications and PowerDsine, Mr. Shalev was the Senior Vice President of Investments
for Ampal. He has also worked on a number of transactions in mergers and acquisitions and initial public offerings. With an educational
background in economics, Mr. Shalev was Israel’s Consul for Economic Affairs and the Economic Advisor to the Director General,
Ministry of Industry and Trade. Mr. Shalev holds an MBA from the University of San Francisco and a B.A. degree in Economics from
the University of Ben Gurion, Beer Sheva, Israel.



Osnat Hillel
Fain joined our Board of Directors in March 2015. She most recently served as Founder, Director and Managing Partner
of Newton Propulsion Technologies LTD. In addition to serving as a board member on a number of TASE listed companies, including
First ET View LTD, Priortech LTD, Aran R&D (1982) LTD, LeumiStart Fund and SDS LTD, Ms. Fain was the Business Development Manager
at Giora Eiland Ltd., a representative of The Cheyne Capital Group in Israel, CEO of InterVision, Co-manager of the Aran Medical
Ventures hedge fund, Marketing Manager at Datasphere Ltd. and an independent marketing consultant for TCB. She earned an Executive
MBA and a BA in Humanities at Tel Aviv University and completed a one year course in Management at the Tel Aviv campus of the College
of Management.



Oded Nagar
joined our Board of Directors in March 2015. He currently serves as CEO and Owner of ABC - Advance Business Consulting Ltd, as
the CEO of Galaxy Properties and Real Estate LTD and as a board member of Bunkersec Ltd. In addition to serving as a board member
on a number of TASE listed companies, including IDB Development LTD, Gamatronic Electronic Industries LTD and Biri-Barashi Ltd.,
Mr. Nagar was the CEO and Founder of Pretium Group LTD/Pretium Renewable Energy LTD, VP Finance and Operations at Matrix IT (Formula
Group) and the CFO of Bashan Systems (Formula Group). Previously, Oded worked in the Department of the General Controller at the
Ministry of Finance in Israel, as an accountant at KPMG Israel and as an Economist at Bank Leumi. He earned an MBA in Finance and
Banking and Information Systems and a BA in Accounting and Economics from the Hebrew University of Jerusalem. Mr. Nagar is also
a Certified Public Accountant in Israel.



David Bassa
joined our Board of Directors in November 2013 and served as Chairman from June 2014 until August 2015. He is the CEO and co-founder
of Sela Software Ltd., a leading knowledge center and software house for the high-tech and IT industry, since 1990. In 2000, Mr.
Bassa founded Bio-Gal, a biopharmaceutical company which subsequently merged into XTL, for the purpose of developing Erythropoietin
(EPO) for the treatment of Multiple Myeloma. Mr. Bassa graduated with a B.A in Economics from Bar-Ilan University and an M.Sc in
Computer Science studies (without thesis), also from Bar-Ilan University. Mr. Bassa was twice awarded the President Excellency
Award (1981, 2002) and managed the Israeli branch of the international AIESEC organization, of which he is a Hall of Fame member.



Doron Turgeman joined
our Board of Directors in December 2014. He has significant public company experience with both NASDAQ and TASE listed companies.
Mr. Turgeman is currently the Chief Executive Officer of B Communications (BCOM) and Internet Gold (IGLD), both of which are listed
on the NASDAQ. He has gained considerable experience in mergers and acquisitions involving both debt and equity, with, among other
things, the purchase of the controlling interest of Bezeq by B Communications. He is knowledgeable in capital markets in Israel,
the U.S. and Europe as well as SEC and TASE reporting standards. Mr. Turgeman holds a B.A. degree in Economics and Accounting from
the Hebrew University of Jerusalem and is a certified public accountant in Israel.



Dr. Jonathan Schapiro joined
our Board of Directors in December 2014. He is currently an Adjunct Clinical Assistant Professor in the Department of Medicine,
Division of Infectious Diseases and Geographic Medicine at Stanford University School of Medicine and a Director of HIV/AIDS at
the National Hemophilia Center at Sheba Medical Center in Tel-Aviv, Israel. He has served as a committee member on the United States
Food and Drug Administration Antiviral Drugs Advisory Committee and is a member of the World Health Organization Global HIV Drug
Resistance Network Steering Group. Dr. Schapiro is on the organizing and scientific committee of international conferences on antiviral
drug development, clinical pharmacology and resistance, as well as contributing to guidelines publications. His research has appeared
in major journals such as Lancet and Annals of Internal Medicine. He has served on the scientific advisory boards of major pharmaceutical
and molecular diagnostic companies and has been involved in the development of multiple antiviral drugs over the last 20 years.
Dr. Schapiro has devoted his career to HIV clinical care, research and education since completing his Fellowship in Infectious
Diseases and Geographic Medicine at Stanford University School of Medicine, Stanford CA. He graduated from the Ben Gurion University
School of Medicine and completed his Medical Residency at the Rabin Medical Center in Israel.



40







Dr. Dobroslav Melamed joined
our Board of Directors in December 2014. He is a biotech entrepreneur with over 10 years of experience in the life science industry.
Until September 2014, he was the President of SciVac (formerly SciGen IL), a high growth biopharmaceutical company that develops,
manufactures and markets recombinant human health care biotechnology derived products, including vaccines. Dr. Melamed was responsible
for SciVac’s operations, clinical trials and new business. Dr. Melamed is the co-founder of Periness LTD, a developer of
new drugs for male infertility and Oshadi LTD, a developer of oral carriers for proteins like insulin. He has also been a researcher
at Bar-Ilan University’s Male Fertility clinic, where he assisted in the development of new drugs for male infertility; and
QBI, where he worked in the Pre-clinical and Research Pharmacology Department establishing In-Vivo models for drug discovery and
delivery. Dr. Melamed earned a PhD in Biotechnology and a Bachelor of Arts degree in Biotechnology from the Bar-Ilan University,
Israel.



Josh Levine
was appointed our Chief Executive Officer in October 2013. Mr. Levine was the Chief Executive Officer of Proteologics Ltd. (TASE:
PRTL) from January 2011 until October 2013. Previously, from September 2008 until September 2010, he was Chairman of the Board
of Proteologics Ltd. Concurrently, he was Senior Director at Teva Innovative Ventures responsible for, among other things, business
development as well as alliance management for the unit. He had also held several executive positions within venture capital funds
and boutique investment banks. Previously, he was a corporate attorney at a large New York City law firm. Mr. Levine holds a JD
degree from Columbia University Law School and a BA degree in Chemistry from Yeshiva University.



David Kestenbaum
was appointed our Chief Financial Officer in January 2014. Before joining XTL, he served as CFO of Zenith Solar Ltd., from 2010
to 2012. Prior positions include Finance Director of Colbar Lifescience Ltd., a medical device/biotech company and division of
Johnson and Johnson (NYSE:JNJ) from 2007 to 2010, CFO of ZAG Industries Ltd., a division of The Stanleyworks (NYSE:SWK) from 2003
to 2007, and CFO and other senior financial positions at affiliates of Unilever NV (NYSE: UN) in the U.S. and Israel. He worked
in public accounting at PriceWaterhouseCoopers in NY from 1986 to 1990. Mr. Kestenbaum is a U.S. Certified Public Accountant and
holds a BSc in Accounting from Yeshiva University (NY), and a MBA in Finance and International Business from Columbia University
(NY).



| | B. | Compensation
| | -- | ------------



The aggregate compensation
paid by us to all persons who served as directors or officers for the year 2015 (11 persons) was approximately $0.6 million. This
amount includes payments of approximately $0.1 million made for social security, pension, disability insurance and health insurance
premiums, severance accruals, payments made in lieu of statutory severance, payments for continuing education plans and payments
made for the redemption of accrued vacation.



All members of our Board
of Directors who are not our employees are reimbursed for their expenses for each meeting attended, save for Mr. David Bassa, who
is a significant shareholder of our Company. Our directors are eligible to receive stock options under our stock option plans.
With the exception of the Chairman of the Board of Directors who receives monthly compensation, non-executive directors do not
receive any remuneration from us other than fees for their services as members of the board or committees of the board and expense
reimbursement, save for one director who is eligible for fees for consulting services provided to the Company.



In March 2012, we granted
to each of our former external directors, Jaron Diament and Dafna Cohen, options to purchase 150,000 ordinary shares exercisable
at an exercise price of NIS 0.58633 per share (which is the average of the three-day closing price on TASE prior to the issuance).
33% of the options are vested and the remaining 67% shall vest and be exercisable on a monthly basis, commencing from the date
of the mentioned shareholders meeting, for the duration of two years. Ms. Cohen and Mr. Diament ceased serving on the Board of
Directors on March 18, 2015 and the 300,000 vested options granted to them expired on March 17, 2016.



On December 30, 2014,
we granted to each of four of our directors – Mr. Doron Turgeman, Mr. Shlomo Shalev, Dr. Jonathan Schapiro and Dr. Dobroslav
Melamed - options to purchase 150,000 ordinary shares exercisable at an exercise price of NIS 0.4325 per share. One third of the
options vest on the twelve month anniversary of the grant date, and the remaining two thirds vest on a quarterly basis over the
following two years provided the respective director provides services to us. The options have a term of ten years.



On March 25, 2015, we
granted to each of two of our directors - Osnat Hillel Fain and Oded Nagar - options to purchase 150,000 ordinary shares at an
exercise price of NIS 0.40 per share. One third of the options vest on the twelve month anniversary of the grant date, and the
remaining two thirds vest on a quarterly basis over the following two years provided the respective director provides services
to us. The options have a term of ten years.



In March 2015, we fixed
the monetary compensation for non-executive directors as follows: annual consideration of $10 thousand (to be paid in 4 equal quarterly
payments), payments of NIS 1,460 for attendance at each board or committee meeting in person, NIS 744 for meetings held by teleconference,
NIS 620 for unanimous written board resolutions and reimbursement of reasonable out-of-pocket expenses.



41







We previously granted
to each of our three former directors, Mr. Yonay, Mr. Shweiger and Mr. Allouche, options to purchase 150,000 ordinary shares exercisable
at NIS 0.298 per share (which is the average of the three-day closing price on TASE prior to the issuance). 33% of the options
are vested and the remaining 67% vest on a monthly basis from March 2, 2010 over two years. On November 22, 2010, Mr. Shweiger
ceased serving on our Board of Directors and therefore 63,747 of the total options granted to him were forfeited. Upon his departure,
Mr. Shweiger exercised the vested 86,253 options. Mr. Allouche ceased serving on our Board of Directors on May 18, 2014, and during
August 2014 he exercised the 150,000 vested options granted to him. Mr. Yonay ceased serving on our Board of Directors on December
30, 2014 and the 150,000 vested options granted to him expired on December 29, 2015.



On March 31, 2016, a general
meeting of shareholders of the Company approved the remuneration terms of the Chairman of the Board of Directors of the Company,
retroactive to as of September 1, 2015. The terms include monthly remuneration in the amount of NIS 20 thousand, as well as the
allocation of 1,500,000 stock options, exercisable into 1,500,000 ordinary shares of NIS 0.1 par value each of the Company, for
an exercise price of NIS 0.6 per stock option. The exercise period of the stock options is a maximum of ten years from the grant
date. The stock options vest in twelve equal portions each quarter over a period of three years from the grant date.



For further details regarding
share options granted to our employees, directors and service providers, see Note 18 to the consolidated financial statements for
the year ended December 31, 2015.



Employment Agreements



Joshua Levine



We entered into an employment
agreement dated as of September 11, 2013, as amended on January 30, 2014, with Mr. Joshua Levine, our Chief Executive Officer,
or CEO. Mr. Levine commenced his term as CEO on October 15, 2013 and is entitled to a monthly gross base salary of NIS 40 thousand
(NIS 480 thousand annually), paid retroactively, effective from said commencement date.



The employment agreement
provides that upon the successful completion of cash fund raising of at least $3 million in a public offering or private placement
of equity securities, including securities convertible or exercisable into equity of the Company or any entity under its control
(which for this purpose means ownership by the Company of greater than 50% of the outstanding voting securities), as long as Mr.
Levine is appointed as such entity’s CEO, during the thirty six month period from the date of the agreement, the Company
will pay Mr. Levine a bonus equal to 1% of the above fund raising amount, up to a maximum aggregate amount of $200 thousand in
any calendar year. The employment agreement further provides that in the event the Company or any of its wholly-owned subsidiaries
or any entity under its control, as long as Mr. Levine is appointed as such entity’s CEO, receives payment in connection
with any collaboration or other transaction relating to their respective products or technologies, excluding payments made to finance
specific research and development activity and royalty payments, Mr. Levine shall be entitled to payment of 1% of the cash actually
received by the Company in such transaction, up to an aggregate maximum amount of $200 thousand in any calendar year. Furthermore,
the employment agreement provides that in the event the Company or any of its wholly-owned subsidiaries or any entity under its
control, as long as Mr. Levine is appointed as such entity’s CEO, receives payment in connection with payments made to finance
specific research and development activity, Mr. Levine shall be entitled to receive payment of 0.5% of such funding actually received
by the Company up to an aggregate maximum of $200 thousand in any calendar year and per single research and development funding.
The aggregate of all such bonuses payable to Mr. Levine in any calendar year cannot exceed $300 thousand. In addition, the employment
agreement provides that Mr. Levine shall be entitled to an annual bonus of NIS 66 thousand upon meeting goals set by the Board
of Directors. The employment agreement also provides that Mr. Levine will be entitled to benefits such as convalescence pay, managers’
insurance, a study fund and a company car.



In consideration for his
service as our CEO, under the employment agreement, on March 17, 2014, Mr. Levine was granted options to purchase 1,500,000 ordinary
shares. 600,000 of the options are exercisable at NIS 0.60 each and 900,000 of the options are exercisable at NIS 0.90 each. The
options vest over 36 months from October 20, 2013 in 12 equal installments at the end of each calendar quarter for as long as Mr.
Levine’s employment with us has not terminated. The options have a term of ten years.



The employment agreement
is in effect as of the date of approval at our general meeting of shareholders on March 17, 2014, and continues for a three-year
term as of that date. Either party may terminate the employment agreement without cause upon three months’ advance written
notice during the first year of the agreement and four months’ advance written notice thereafter. In the case of death or
disability, as such terms are defined in the employment agreement, Mr. Levine or his heirs shall be entitled to four months’
salary in addition to any severance pay under applicable law.



On March 25, 2015, a special
meeting of shareholders approved a grant to Mr. Levine of an additional bonus of 0.5% of any funds raised by us from any non-existing
shareholder of ours up to $36 thousand as well as options to purchase 100,000 ordinary shares exercisable at NIS 0.40 per share.
Half the options vest upon grant and half vest in equal quarterly installments over 36 months provided Mr. Levine remains employed
or provides services to us. The options have a term of ten years. Such grant was made in consideration of Mr. Levine’s consent
to waive 10% of his monthly compensation until the later of a qualified financing and December 31, 2015.



42







On March 31, 2016, a general
meeting of shareholders of the Company approved the allocation of 1,000,000 stock options to the Company’s Chief Executive
Officer, exercisable into 1,000,000 ordinary shares of NIS 0.1 par value each of the Company, for an exercise price of NIS 0.6
per stock option. The exercise period of the stock options is a maximum of ten years from the grant date. 33.33% of the stock options
vest following the lapse of 12 months from the grant date, and the remaining 66.67% vest in eight equal portions each quarter over
a period of two years from the first anniversary.



David Kestenbaum



We entered into an employment
agreement dated as of January 9, 2014 with Mr. David Kestenbaum, our Chief Financial Officer, or CFO. Mr. Kestenbaum is entitled
to a monthly gross base salary of NIS 33 thousand (NIS 396 thousand annually).



The employment agreement
provides that upon the successful completion of fund raising of at least $3 million in a public offering or private placement of
equity securities, including securities convertible or exercisable into equity by the Company within a period of three years as
of the effective date and, as long as Mr. Kestenbaum is employed by us as CFO, Mr. Kestenbaum shall be entitled to a one-time bonus
payment equal to 0.6% of the funds raised, and up to maximum aggregate payment of $120 thousand per year. The employment agreement
further provides that upon the successful completion of a transaction made by the Company or any of its fully owned subsidiaries
or any entity in its controls receives payment in connection with any collaboration or other transaction relating to their respective
products or technologies, excluding payments made to finance specific research and development activity and royalty payment, as
long as the Mr. Kestenbaum is employed by us as CFO, Mr. Kestenbaum shall be entitled to a one-time payment equal to 0.5% of the
transaction amount actually received by us in such transaction, whether as upfront payments, milestone payments or payments of
any other form, and up to maximum aggregate payment of $100 thousand per year. Furthermore, the employment agreement provides that
upon the successful completion of a research and development funding in the Company, Mr. Kestenbaum shall be entitled to a one-time
bonus payment equal to 0.4% of the funding amount, and up to a maximum aggregate payment of $75 thousand per year. The aggregate
of all such bonuses payable to Mr. Kestenbaum in any calendar year cannot exceed $150 thousand. The employment agreement also provides
that Mr. Kestenbaum will be entitled to pension and severance benefits, managers’ insurance as commonly acceptable for office
holders and a company car.



In consideration for his
service as our CFO, under the employment agreement, on December 30, 2013, Mr. Kestenbaum was granted options to purchase 750,000
ordinary shares at an exercise price of NIS 0.5328 per share. The options vest over 36 months in 12 equal installments at the end
of each calendar quarter following the grant date for as long as Mr. Kestenbaum’s employment with us has not terminated.
The options have a term of ten years.



The employment agreement
has a three-year term from the effective date of January 5, 2014. Either party may terminate the employment agreement without cause
upon 60 days’ advance written notice. In the case of death or disability, as such terms are defined in the employment agreement,
Mr. Kestenbaum or his heirs shall be entitled to four months’ salary in addition to any severance pay under applicable law.



On March 25, 2015, we
granted to Mr. Kestenbaum options to purchase 100,000 ordinary shares at an exercise price of NIS 0.40 per share. Half the options
vest upon grant and half vest in equal quarterly installments over 36 months provided Mr. Kestenbaum remains employed or provides
services to us. The options have a term of ten years.



On June 1, 2015, we granted
to Mr. Kestenbaum options to purchase 200,000 ordinary shares at an exercise price of NIS 0.4283 per share. One third of the options
vest on the twelve month anniversary of the grant date, and the remaining two thirds vest on a quarterly basis over the following
two years provided Mr. Kestenbaum remains employed or provides services to us. The options have a term of ten years.



Shlomo Shalev



On December 28, 2015,
our Board of Directors approved the terms upon which Shlomo Shalev shall serve as Chairman, subject to shareholder approval. Commencing
September 1, 2015, Mr. Shalev shall be entitled to a monthly fee of NIS 20 thousand for at least 65 hours per month. In addition,
Mr. Shalev shall be entitled to options to purchase 1,500,000 ordinary shares at an exercise price of NIS 0.60 per share. One third
of the options vest on the twelve month anniversary of the grant date, and the remaining two thirds vest on a quarterly basis over
the following two years provided Mr. Shalev provides services to us. The options have a term of ten years. On March 31, 2016, Mr.
Shalev’s remuneration as Chairman was approved by an annual general meeting of the Company’s shareholders.



Jonathan Schapiro



We entered into a consulting
agreement dated January 1, 2015 with Dr. Jonathan Schapiro, a director. Commencing on such date, Dr. Schapiro shall serve as a
consultant to us for a monthly fee of $1.5 thousand increasing to $3 thousand upon the successful completion of a cash fund raising
of at least $3 million in a public offering or private placement of equity securities, including securities convertible or exercisable
into equity by us or any entity in our control. In addition under the consulting agreement, on December 30, 2014, Dr. Schapiro
was granted options to purchase 150,000 ordinary shares at an exercise price of NIS 0.4915 per share (in addition to the options
granted to him as a director on the same day as described above). One third of the options vest on the twelve month anniversary
of the grant date, and the remaining two thirds vest on a quarterly basis over the following two years provided Dr. Schapiro provides
services to us. The options have a term of ten years. The consulting agreement continues in force unless terminated without cause
upon 30 days’ advance written notice.



43







In accordance with the
requirements of Israeli Law, we determine our directors’ compensation in the following manner:



| | · | first, our compensation committee reviews the proposal for compensation.
| | - | ------------------------------------------------------------------------



| | · | second, provided that the compensation committee approves the proposed compensation, the proposal
is then submitted to our Board of Directors for review, except that a director who is the beneficiary of the proposed compensation
does not participate in any discussion or voting with respect to such proposal; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | finally, if our Board of Directors approves the proposal, it must then submit its recommendation
to our shareholders, which is usually done in connection with our shareholders’ general meeting.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The approval of a majority of the shareholders
voting at a duly convened shareholders meeting is required to implement any such compensation proposal.



| | C. | Board Practices
| | -- | ---------------



Election of Directors and Terms of Office



Our Board of Directors
currently consists of seven members, including our non-executive Chairman. 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 a nomination committee of our Board of Directors, whose proposal is then approved by the board. The current members of the nomination
committee are David Bassa, Osnat Hillel Fain and Oded Nagar. Our board, following receipt of a proposal of the nomination committee,
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, all of our directors, other than our external directors, will serve as directors
until our next annual general meeting of shareholders. On December 30, 2014, the annual general meeting of our shareholders appointed
four new members to the Company’s board of directors - Dr. Jonathan Schapiro, Dr. Dobroslav Melamed, Doron Turgeman and Shlomo
Shalev. At the same annual general meeting, Mr. David Bassa was re-elected to serve as a director of the Company. On March 25,
2015, Osnat Hillel Fain and Oded Nagar were elected as external directors to serve for a three-year term until March 24, 2018.
On August 31, 2015, David Bassa resigned as Chairman of the Board of Directors (though he remains as a director) and Shlomo Shalev
was appointed to serve as interim Chairman of the Board of Directors on such date. On March 31, 2016, an annual general meeting
of the Company’s shareholders approved the appointment of Shlomo Shalev as Chairman of the Board of Directors. At the same
general meeting, Dr. Jonathan Schapiro, Dr. Dobroslav Melamed, Doron Turgeman and David Bassa were re-elected to serve as directors
of the Company.



None of our directors
or officers has any family relationship with any other director or officer.



Our Articles 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 Israeli Companies Law.



There are no service contracts
or similar arrangements with any director that provide for benefits upon termination of a directorship.



External and Independent Directors



The Israeli Companies
Law requires Israeli companies with shares that have been offered to the public either in or outside of Israel to appoint two external
directors. No person may be appointed as an external director if that person or that person’s relative, partner, employer
or any entity under the person’s control, has or had, on or within the two years preceding the date of that person’s
appointment to serve as an external director, any affiliation with the company or any entity controlling, controlled by or under
common control with the company. The term affiliation includes:



| | · | an employment relationship;
| | - | ---------------------------



| | · | a business or professional relationship maintained on a regular basis;
| | - | ----------------------------------------------------------------------



| | · | control; and
| | - | ------------



44







| | · | service as an office holder, other than service as an officer for a period of not more than three
months, during which the company first offered shares to the public.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



No person may serve as
an external director if that person’s position or business activities create, or may create, a conflict of interest with
that person’s responsibilities as an external director or may otherwise interfere with his/her ability to serve as an external
director. If, at the time external directors are to be appointed, all current members of the Board of Directors are of the same
gender, then at least one external director must be of the other gender. A director in one company shall not be appointed as an
external director in another company if at that time a director of the other company serves as an external director in the first
company. In addition, no person may be appointed as an external director if he/she is a member or employee of the Israeli Security
Authority, and also not if he/she is a member of the Board of Directors or an employee of a stock exchange in Israel.



External directors are
to be elected by a majority vote at a shareholders’ meeting, provided that either:



| | · | the majority of shares voted at the meeting, including at least one-half of the shares held by
non-controlling shareholders or other shareholders who have a personal interest in such election voted at the meeting, vote in
favor of election of the director, with abstaining votes not being counted in this vote; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the total number of shares held by non-controlling shareholders voted against the election of the
director does not exceed two percent of the aggregate voting rights in the company.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The initial term of an
external director is three years and may be extended for two additional three-year terms. An external director may be removed only
by the same percentage of shareholders as is required for their election, or by a court, and then only if such external director
ceases to meet the statutory qualifications for their appointment or violates his or her duty of loyalty to the company. Both external
directors must serve on every committee that is empowered to exercise one of the functions of the Board of Directors.



An external director is
entitled to compensation as provided in regulations adopted under the Israeli Companies Law and is otherwise prohibited from receiving
any other compensation, directly or indirectly, in connection with service provided as an external director.



Osnat Hillel Fain and
Oded Nagar serve as external directors pursuant to the provisions of the Israeli Companies Law. They both serve on our audit committee,
our committee for the approval of financial statements, our nomination 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 the company’s 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. 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 serve as members 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 Osnat Hillel Fain, with Doron
Turgeman, who serves as the audit committee financial expert, and Oded Nagar as members. The 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.



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.



Financial Statement Examination Committee



The Israeli Companies
Law regulations require each public company to appoint a committee that examines the financial statements (the “Committee”)
which shall be compounded from at least three (3) members, of which the majority among them shall be independent directors and
the Committee’s Chairman shall be an external director. The Committee’s duties are, among other things, to examine
the Company’s financial statements and to recommend and report to the board of directors of the Company regarding any problem
or defect found in such financial statements.



45







In addition to the above-said,
all of the Committee’s members must meet 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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company is in full
compliance with the requirements outlined above.



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 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 the 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. The approval of the compensation committee is required in order to approve terms of office and/or employment of
office holders. The Company’s Compensation Policy was duly approved on November 19, 2013.



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 the company’s 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 other things, 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 the 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.



Amendment no. 20 details
the considerations that should be taken into account in determining the Compensation Policy and certain issues which the Compensation
Policy should include.



46







Doron Turgeman is the
chairman of our compensation committee. Osnat Hillel Fain and Oded Nagar serve as the other members of our compensation committee.



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.



As detailed above, our
compensation committee consists of three independent directors: Doron Turgeman, Osnat Hillel Fain and Oded Nagar. 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 the company’s 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 the company’s 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 member of the company’s independent accounting firm.
| | - | ------------------------------------------------------



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.



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.



| | D. | Employees
| | -- | ---------



As of the date hereof, the Company has three full-time employees,
and three part-time service providers. We and our Israeli employees are subject, by an extension order of the Israeli Ministry
of Welfare, to certain provisions of collective bargaining agreements between the Histadrut, the General Federation of Labor Unions
in Israel and the Coordination Bureau of Economic Organizations, including the Industrialists Associations. These provisions principally
address cost of living increases, recreation pay, travel expenses, vacation pay and other conditions of employment. We provide
our employees with benefits and working conditions equal to or above the required minimum. Other than those provisions, our employees
are not represented by a labor union.



47







E. Share Ownership



The following table
sets forth information regarding the beneficial ownership of our outstanding ordinary shares as of the date hereof by the members
of our senior management, board of directors, individually and as a group. The beneficial ownership of ordinary shares is based
on 273,865,799 ordinary shares outstanding as of the date hereof 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 the date hereof, 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 and Directors                        |  |                           |            |     |                      | 
|                                                       |  |                           |            |     |                      | 
|Shlomo
    ShalevChairman of the Board                 |  |                           | 62,500     | (1) |                      | 
|Josh
    Levine Chief Executive Officer                |  |                           | 1,316,667  | (2) |                      | 
|David
    Kestenbaum Chief Financial Officer           |  |                           | 679,167    | (3) |                      | 
|Osnat
    Hillel Fain Director                         |  |                           | 50,000     | (4) |                      | 
|Oded
    Nagar Director                                |  |                           | 50,000     | (4) |                      | 
|David
    Bassa Director                               |  |                           | 23,839,347 | (5) |                      | 
|Jonathan
    Schapiro Director                         |  |                           | 125,000    | (6) |                      | 
|Doron
    Turgeman Director                            |  |                           | 620,000    | (7) |                      | 
|Dobroslav
    Melamed Director                         |  |                           | 62,500     | (8) |                      | 
|                                                       |  |                           |            |     |                      | 
|Directors and Senior Management as a group (9 persons) |  |                           | 26,805,181 |     |                      | 



* Denotes less than 1%



| | (1) | Includes 62,500 ordinary shares issuable upon the exercise of options at an exercise price of NIS
0.4325 per share exercisable until December 29, 2024. Excludes options to purchase 1,587,500 ordinary shares that vest in more
than 60 days from the date hereof.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Includes (i) 500,000 ordinary shares issuable upon the exercise of options at an exercise price
of NIS 0.60 per share exercisable until March 16, 2024, (ii) 750,000 ordinary shares issuable upon the exercise of options at an
exercise price of NIS 0.90 per share exercisable until March 16, 2024, and (iii) 66,667 ordinary shares issuable upon the exercise
of options at an exercise price of NIS 0.40 per share exercisable until March 24, 2025. Excludes 1,283,333 ordinary shares issuable
upon the exercise of options that vest in more than 60 days from the date hereof.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Includes (i) 562,500 ordinary shares issuable upon the exercise of options at an exercise price
of NIS 0.5328 per share exercisable until December 29, 2023, (ii) 66,667 ordinary shares issuable upon the exercise of options
at an exercise price of NIS 0.40 per share exercisable until March 24, 2025, and (iii) 50,000 ordinary shares issuable upon exercise
of options at an exercise price of NIS 0.4283 per share until May 31, 2025. Excludes 370,833 ordinary shares issuable upon the
exercise of options that vest in more than 60 days from the date hereof.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Includes 50,000 ordinary shares issuable upon the exercise of options at an exercise price of NIS
0.4 per share exercisable until March 24, 2025. Excludes options to purchase 100,000 ordinary shares that vest in more than 60
days from the date hereof.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



48







| | (5) | Includes (i) 21,705,987 ordinary shares, (ii) 71,112 ADSs representing 1,422,240 ordinary shares, and (iii) warrants to purchase
35,556 ADSs representing 711,120 ordinary shares at $2.25 per ADS until October 6, 2020. Pursuant to the terms of the foregoing
warrants the holder cannot exercise such warrants if it would beneficially own, after any such exercise, more than 4.99% of the
outstanding ordinary shares. The percentage in the table above does not give effect to the blocker.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Includes (i) 62,500 ordinary shares issuable upon the exercise of options at an exercise price of NIS 0.4325 per share exercisable
until December 29, 2024, and (ii) 62,500 ordinary shares issuable upon the exercise of options at an exercise price of NIS 0.4915
per share exercisable until December 29, 2024. Excludes options to purchase 175,000 ordinary shares that vest in more than 60 days
from the date hereof.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Includes (i) 340,000 ordinary shares represented by 17,000 ADSs, (ii) 230,000 ordinary shares, and (iii) 62,500 ordinary shares
issuable upon the exercise of options at an exercise price of NIS 0.4325 per share exercisable until December 29, 2024. Excludes
options to purchase 87,500 ordinary shares that vest in more than 60 days from the date hereof.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Includes (i) 62,500 ordinary shares issuable upon the exercise of options at an exercise price of NIS 0.4325 per share exercisable
until December 29, 2024. Excludes options to purchase 87,500 ordinary shares that vest in more than 60 days from the date hereof.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 18 of our consolidated financial statements for the year ended December 31, 2015.



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 the date hereof,
we have granted to employees, directors and consultants options that are outstanding to purchase up to 6,430,000 ordinary shares
under two share option plans.



2001 Share Option Plan



Under a share option
plan established in 2001, referred to as the 2001 Plan, we granted options between 2001 and 2011, at exercise prices between $0.03
and $1.58 per ordinary share. Up to 2,200,000 ordinary shares were available to be granted under the 2001 Plan. On July 29, 2009,
the option pool was increased by 5,000,000 unissued additional ordinary shares, as well as forfeited and expired options that reverted
to the pool due to departure of employees. Options granted to Israeli employees were made in accordance with section 102 of the
Tax Ordinance, under the capital gains option set out in section 102(b)(2) of the ordinance. The options are non-transferable.



As of the date hereof,
options to purchase 60,000 ordinary shares were outstanding, all of which were fully vested. The option term is for a period of
ten years from the grant date. On May 2, 2011, the 2001 Plan expired and no further options may be granted under this plan.



2011 Share Option Plan



On August 29, 2011,
our Board of Directors approved the adoption of an employee stock option scheme for the grant of options exercisable into shares
of the Company according to section 102 to the Israeli Tax Ordinance, or the 2011 Plan, and to reserve up to 10 million ordinary
shares in the framework of the 2011 Plan, for options allocation to employees, directors and consultants.



The 2011 Plan shall
be subject to section 102 of the Israeli Tax Ordinance. According to the Capital Gain Track, which was adopted by us and the abovementioned
section 102, we are not entitled to receive a tax deduction that relates to remuneration paid to our employees, including amounts
recorded as salary benefit in our accounts for options granted to employees in the framework of the 2011 Plan, except the yield
benefit component, if available, that was determined on the grant date. The terms of the options which will be granted according
to the 2011 Plan, including option period, exercise price, vesting period and exercise period, shall be determined by our Board
of Directors on the date of the actual allocation.



As of the date hereof,
we have granted options to purchase 6,370,000 ordinary shares under the 2011 Plan at exercise prices between $0.10 and $0.23 per
ordinary share.



For further details
regarding share options granted to our employees, directors and service providers, see note 17 to the consolidated financial statements
for the year ended December 31, 2015.



49







ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS



A. Major shareholders



As of the date
hereof, there were 4,403,267 ADSs outstanding, held by 49 DTC participants and  1 registered shareholder, whose holdings
represented approximately 32 % of the total outstanding ordinary shares.



The following table
sets forth the number of our ordinary shares owned by any person known to us to be the beneficial owner of 5% or more of our ordinary
shares as of the date hereof. The information in this table is based on 273,865,799 outstanding ordinary shares as of such date.
The number of Ordinary Shares beneficially owned by a person includes Ordinary Shares subject to options held by that person that
were currently exercisable. None of the holders of the Ordinary Shares listed in this table have voting rights different from other
holders of the Ordinary Shares.



|Name                      |  | Number of shares owned |            |  | Percent of ordinary shares | 
|------------------------- |  | ---------------------- | ---------- |  | -------------------------- | 
|Alexander Rabinovitch     |  |                        | 48,857,076 |  |                            | 
|                          |  |                        |            |  |                            | 
|Sabby Management, LLC (1) |  |                        | 22,239,240 |  |                            | 
|                          |  |                        |            |  |                            | 
|David Bassa               |  |                        | 23,839,347 |  |                            | 



(1) Based on information in Schedule 13G/A
filed with the SEC on January 12, 2016. Sabby Management, LLC and Hal Mintz do not directly own any shares of ADRs, but each indirectly
owns 1,111,962 shares of ADRs. Sabby Management, LLC, a Delaware limited liability company, indirectly owns 1,111,962 shares of
ADRs because it serves as the investment manager of Sabby Healthcare Master Fund, Ltd. and Sabby, Volatility Warrant Master Fund,
Ltd., Cayman Islands companies. Mr. Mintz indirectly owns 1,111,962 shares of ADRs in his capacity as manager of Sabby Management,
LLC.



B. Related Party Transactions



The following is a
description of some 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 “Management-Compensation-Employment
Agreements”.



InterCure



In July 2012, we acquired
the control over InterCure Ltd, or InterCure, a public company whose shares are traded on the TASE and which develops a home therapeutic
device for non-medicinal and non-invasive treatment of various diseases such as hypertension, heart failure, sleeplessness and
mental stress and markets and sells a home therapeutic device for hypertension. As a result of a series of transactions including
a transaction, that closed in February 2015, between InterCure and Green Forest Global Ltd., or Green Forest, a company wholly
owned by Mr. Alexander Rabinovitch (a greater than 5% shareholder of ours), our holdings in InterCure were diluted to 5.82% of
the issued and outstanding share capital of InterCure.



More specifically,
on November 3, 2014, InterCure announced that on November 2, 2014, its Audit Committee and Board of Directors approved the signing
of an agreement with Green Forest which was then approved by InterCure’s shareholders on December 23, 2014. The agreement
closed on February 15, 2015 with the following material events occurring between February 1, 2015 and April 2, 2015:



| | · | On February 1, 2015, in accordance with a request made by the Israeli Securities Authority to increase public holdings in InterCure
prior to the execution of the agreement, we sold 2,166,667 shares of InterCure to a non-related third party, for an amount of approximately
$17 thousand.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On February 8, 2015, InterCure effected a 1 for 10 reverse split.
| | - | -----------------------------------------------------------------



50







| | · | On February 15, 2015, an outstanding loan of $50 thousand owed by InterCure to us was converted into 569,470 ordinary shares
of InterCure. At the same time, Green Forest was issued 2,622,647 ordinary shares of InterCure.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On March 23, 2015, InterCure issued 37,804,012 ordinary shares as part of a rights offering dated February 22, 2015.
| | - | --------------------------------------------------------------------------------------------------------------------



| | · | On March 31, 2015, we and Green Forest mutually agreed to terminate the voting agreement signed by the parties on February
12, 2015. Following said termination, the directors appointed by us resigned from the board of directors of InterCure.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On April 2, 2015, Green Forest was issued an additional 2,622,647 ordinary shares of InterCure.
| | - | -----------------------------------------------------------------------------------------------



The foregoing information is
based on public filings made by InterCure to the Israeli Securities Authorities.



Alexander Rabinovitch



In April 2015, Alex
Rabinovitch, a holder of more than 5% of our ordinary shares, entered into a security purchase agreement resulting in the issuance
of an aggregate of 155,556 ADSs representing 3,111,120 ordinary shares in a registered direct offering at $2.25 per ADS for a purchase
price of $350,001. In addition, we issued unregistered warrants to purchase 77,778 ADSs representing 1,555,560 ordinary shares
in a private placement. The warrants may be exercised at any time for a period of five and one-half years from issuance and have
an exercise price of $2.25 per ADS, subject to adjustment as set forth therein.



David Bassa



In April 2015, David
Bassa, a holder of more than 5% of our ordinary shares, entered into a security purchase agreement resulting in the issuance of
an aggregate of 71,112 ADSs representing 1,422,240 ordinary shares in a registered direct offering at $2.25 per ADS for a purchase
price of $160,002. In addition, we issued unregistered warrants to purchase 35,556 ADSs representing 711,120 ordinary shares in
a private placement. The warrants may be exercised at any time for a period of five and one-half years from issuance and have an
exercise price of $2.25 per ADS, subject to adjustment as set forth therein.



ITEM 8. FINANCIAL INFORMATION



A. Consolidated Statements and Other Financial Information



Our audited consolidated
financial statements appear in this annual report on Form 20-F. See “Item 18. Financial Statements.”



Significant Changes



None.



ITEM 9. THE OFFER AND LISTING



Markets and Share Price History



On June 1, 2012,
the Company filed an application for relisting its ADSs on the Nasdaq Capital Market, or Nasdaq. On July 10, 2013, the Company
received a notice from Nasdaq stating that the admission committee had approved the Company’s application to relist its ADSs
for trading on the Nasdaq Capital Market. Accordingly, on July 15, 2013, the Company’s ADSs began trading on Nasdaq under
the ticker symbol “XTLB”.



American Depositary Shares



The following table
presents, for the periods indicated, the high and low market closing prices for our ADSs as reported on the Nasdaq Stock Market
from September 1, 2005 until April 16, 2009, on the Pink Sheets from April 17, 2009 until July 14, 2013, and on Nasdaq from July
15, 2013 to the present. For convenience of the readers of this report, the data below was adjusted so that all the quotes of our
ADSs price would represent the current ADS-NIS 0.1 par value ordinary share ratio, meaning 1:20.



51







|                                             |  | U.S.$         |     
|-------------------------------------------- |  | ------------- | ----
|                                             |  | Price Per ADS |     
|                                             |  | High          |     
|Annual:                                      |  |               |     
|2015                                         |  |               | 2.60
|2014                                         |  |               | 4.95
|2013                                         |  |               | 7.42
|2012                                         |  |               | 8.50
|2011                                         |  |               | 5.40
|                                             |  |               |     
|Quarterly:                                   |  |               |     
|First Quarter of 2016 (until March 30, 2016) |  |               | 1.50
|Fourth Quarter 2015                          |  |               | 1.96
|Third Quarter 2015                           |  |               | 2.00
|Second Quarter 2015                          |  |               | 2.44
|First Quarter 2015                           |  |               | 2.60
|Fourth Quarter 2014                          |  |               | 3.38
|Third Quarter 2014                           |  |               | 3.50
|Second Quarter 2014                          |  |               | 4.95
|First Quarter 2014                           |  |               | 4.30
|                                             |  |               |     
|Most Recent Six Months:                      |  |               |     
|March 2016 (until March 30, 2016)            |  |               | 1.36
|February 2016                                |  |               | 1.36
|January 2016                                 |  |               | 1.50
|December 2015                                |  |               | 1.70
|November 2015                                |  |               | 1.84
|October 2015                                 |  |               | 1.96
|September 2015                               |  |               | 1.85



The following
table sets forth, for the periods indicated, the high and low closing prices of the NIS 0.1 par value ordinary shares (after
the 1:5 share consolidation which was resolved on June 22, 2009) on the Tel-Aviv Stock Exchange. For comparative purposes
only, we have also provided such figures translated into US Dollars at an exchange rate of 3.788 New Israeli Shekel per US
Dollar, as of March 30, 2016 according to the Bank of Israel.



|                                                         |  | New Israeli Shekel |       | US Dollar |    
|-------------------------------------------------------- |  | ------------------ | ----- | --------- | ---
|Last Six Calendar Months                                 |  | High               |       |           | Low
|March 2016 (until March 30, 2016)                        |  |                    | 0.267 |           |    
|February 2016                                            |  |                    | 0.267 |           |    
|January 2016                                             |  |                    | 0.324 |           |    
|December 2015                                            |  |                    | 0.320 |           |    
|November 2015                                            |  |                    | 0.350 |           |    
|October 2015                                             |  |                    | 0.358 |           |    
|September 2015                                           |  |                    | 0.343 |           |    
|Financial Quarters During the Past Two Full Fiscal Years |  |                    |       |           |    
|First Quarter of 2016 (until March 30, 2016)             |  |                    | 0.324 |           |    
|Fourth Quarter of 2015                                   |  |                    | 0.358 |           |    
|Third Quarter of 2015                                    |  |                    | 0.388 |           |    
|Second Quarter of 2015                                   |  |                    | 0.470 |           |    
|First Quarter of 2015                                    |  |                    | 0.484 |           |    
|Fourth Quarter of 2014                                   |  |                    | 0.523 |           |    
|Third Quarter of 2014                                    |  |                    | 0.580 |           |    
|Second Quarter of 2014                                   |  |                    | 0.750 |           |    
|First Quarter of 2014                                    |  |                    | 0.733 |           |    
|Full Five Financial Years                                |  |                    |       |           |    
|2015                                                     |  |                    | 0.484 |           |    
|2014                                                     |  |                    | 0.750 |           |    
|2013                                                     |  |                    | 1.348 |           |    
|2012                                                     |  |                    | 1.675 |           |    
|2011                                                     |  |                    | 0.950 |           |    



2
On June 22, 2009 a 1:5 share consolidation was resolved. All figures prior to the effective date were adjusted accordingly.



52







ITEM 10. ADDITIONAL INFORMATION



Memorandum and Articles of Association



Objects and Purposes of the Company



Pursuant to Part B, Section 3 of our Articles
of Association, we may undertake any lawful activity.



Powers and Obligations of the Directors



Pursuant to the Israeli
Companies Law and our Articles of Association, a director is not permitted to vote on a proposal, arrangement or contract in which
he or she has a personal interest. Also, the directors may not vote on compensation to themselves or any members of their body,
as that term is defined under Israeli law, without the approval of our audit committee and our shareholders at a general meeting.
The power of our directors to enter into borrowing arrangements on our behalf is limited to the same extent as any other transaction
by us.



The Israeli Companies
Law codifies the fiduciary duties that office holders, including directors and executive officers, owe to a company. An office
holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care generally requires an office
holder to act with the same level of care as a reasonable office holder in the same position would employ under the same circumstances.
The duty of loyalty includes avoiding any conflict of interest between the office holder’s position in the company and such
person’s personal affairs, avoiding any competition with the company, avoiding exploiting any corporate opportunity of the
company in order to receive personal advantage for such person or others, and revealing to the company any information or documents
relating to the company’s affairs which the office holder has received due to his or her position as an office holder.



Indemnification of Directors and
Officers; Limitations on Liability



Israeli law permits
a company to insure an office holder in respect of liabilities incurred by him or her as a result of an act or omission in the
capacity of an office holder for:



| | · | a breach of the office holder’s duty of care towards the company or towards another person;
| | - | -------------------------------------------------------------------------------------------



| | · | a breach of the office holder’s fiduciary duty to the company, provided that he or she acted in good faith and had reasonable
cause to believe that the act would not prejudice the company; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a financial liability imposed upon the office holder in favor of another person.
| | - | --------------------------------------------------------------------------------



| | · | A financial liability imposed on the office holder's for all victims of the violation in an Administrative Proceeding.
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | Expenses incurred by the office holder's in connection with an Administrative Proceeding conducted in his or her case, including
litigation expenses and reasonable legal fees.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Moreover, a company
can indemnify an office holder for any of the following obligations or expenses incurred in connection with the acts or omissions
of such person in his or her capacity as an office holder:



| | · | monetary liability imposed upon him or her in favor of a third party by a judgment, including a settlement or an arbitral award
confirmed by the court; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reasonable litigation expenses, including legal fees, actually incurred by the office holder or imposed upon him or her by
a court, in a proceeding brought against him or her by or on behalf of the company or by a third party, or in a criminal action
in which he or she was acquitted, or in a criminal action which does not require criminal intent in which he or she was convicted;
furthermore, a company can, with a limited exception, exculpate an office holder in advance, in whole or in part, from liability
for damages sustained by a breach of duty of care to the company.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | financial liability imposed on the office holder for all victims of the violation in an Administrative Proceeding.
| | - | ------------------------------------------------------------------------------------------------------------------



| | · | expenses incurred by the office holder in connection with an Administrative Proceeding conducted in his or her case, including
litigation expenses and reasonable legal fees.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Articles of Association
allow for insurance, exculpation and indemnification of office holders to the fullest extent permitted by law. We have entered
into indemnification, insurance and exculpation agreements with our directors and executive officers, following shareholder approval
of these agreements. We have directors’ and officers’ liability insurance covering our officers and directors for a
claim imposed upon them as a result of an action carried out while serving as an officer or director, for (a) the breach of duty
of care towards us or towards another person, (b) the breach of fiduciary duty towards us, provided that the officer or director
acted in good faith and had reasonable grounds to assume that the action would not harm our interests, and (c) a monetary liability
imposed upon him in favor of a third party.



53







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 actions.
| | - | ------------------------------------------------------------



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 the company’s 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, obligated to disclose
a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered
an extraordinary transaction.



Under the Israeli
Companies Law, an extraordinary transaction which requires approval is defined 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 the company’s 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 the company’s interest or that is not performed by the office holder in good faith.



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



54







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



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 the company’s authorized share capital;
| | - | ------------------------------------------------------



| | · | a merger;
| | - | ---------



| | · | an increase in the company’s 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.



55







ORDINARY SHARES



Rights Attached to Ordinary Shares



Through March 18,
2009, our authorized share capital was NIS 10,000,000 consisting of 500,000,000 ordinary shares, par value NIS 0.02 per share.
On March 18, 2009, pursuant to a shareholder’s meeting, the share capital of our company was consolidated and re-divided
so that each five (5) shares of NIS 0.02 nominal value was consolidated into one (1) share of NIS 0.1 nominal value so that following
such consolidation and re-division, our authorized share capital consisted of 100,000,000 ordinary shares, par value NIS 0.10 per
share. In addition, the authorized share capital of our company was increased from NIS 10,000 thousand to NIS 70,000 thousand divided
into 700,000,000 ordinary shares, NIS 0.10 nominal value. The share consolidation was effected in June 22, 2009.



Holders of ordinary
shares have one vote per share, and are entitled to participate equally in the payment of dividends and share distributions and,
in the event of our liquidation, in the distribution of assets after satisfaction of liabilities to creditors. No preferred shares
are currently authorized. All outstanding ordinary shares are validly issued and fully paid.



Transfer of Shares



Fully paid ordinary
shares are issued in registered form and may be freely transferred under our Articles of Association unless the transfer is restricted
or prohibited by another instrument or applicable securities laws.



Dividend and Liquidation Rights



We may declare a dividend
to be paid to the holders of ordinary shares according to their rights and interests in our profits. In the event of our liquidation,
after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion
to the nominal value of their holdings.



This right 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. Under the Israeli Companies Law, the declaration of a dividend does not require the approval
of the shareholders of the company, unless the company’s articles of association require otherwise. Our Articles provide
that the Board of Directors may declare and distribute dividends without the approval of the shareholders.



Annual and Extraordinary General
Meetings



We must hold our annual
general meeting of shareholders each year no later than 15 months from the last annual meeting, at a time and place determined
by the Board of Directors, upon at least 21 days’ prior notice to our shareholders, to which we need to add an additional
three days for notices sent outside of Israel. A special meeting may be convened by request of two directors, 25% of the directors
then in office, one or more shareholders holding at least 5% of our issued share capital and at least 1% of our issued voting rights,
or one or more shareholders holding at least 5% of our issued voting rights. Notice of a general meeting must set forth the date,
time and place of the meeting. Such notice must be given at least 21 days but not more than 45 days prior to the general meeting.
The quorum required for a meeting of shareholders consists of at least two shareholders present in person or by proxy who hold
or represent between them at least one-third of the voting rights in the company. A meeting adjourned for lack of a quorum generally
is adjourned to the same day in the following week at the same time and place (with no need for any notice to the shareholders)
or until such other later time if such time is specified in the original notice convening the general meeting, or if we serve notice
to the shareholders no less than seven days before the date fixed for the adjourned meeting. If at an adjourned meeting there is
no quorum present half an hour after the time set for the meeting, any number participating in the meeting shall represent a quorum
and shall be entitled to discuss the matters set down on the agenda for the original meeting. All shareholders who are registered
in our registrar on the record date, or who will provide us with proof of ownership on that date as applicable to the relevant
registered shareholder, are entitled to participate in a general meeting and may vote as described in “Voting Rights”
and “Voting by Proxy and in Other Manners,” below.



Voting Rights



Our ordinary shares
do not have cumulative voting rights in the election of directors. As a result, the holders of ordinary shares that represent more
than 50% of the voting power represented at a shareholders meeting in which a quorum is present have the power to elect all of
our directors, except the external directors whose election requires a special majority.



Holders of ordinary
shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Shareholders may vote in
person or by proxy. These voting rights may be affected by the grant of any special voting rights to the holders of a class of
shares with preferential rights that may be authorized in the future.



Under the Israeli
Companies Law, unless otherwise provided in the Articles of Association or by applicable law, all resolutions of the shareholders
require a simple majority. Our Articles of Association provide that all decisions may be made by a simple majority. See “Duties
of Shareholders” above for certain duties of shareholders towards the company.



Voting by Proxy and in Other Manners



Our Articles of Association
enable a shareholder to appoint a proxy, who need not be a shareholder, to vote at any shareholders meeting. We require that the
appointment of a proxy be in writing signed by the person making the appointment or by an attorney authorized for this purpose,
and if the person making the appointment is a corporation, by a person or persons authorized to bind the corporation. In the document
appointing a proxy, each shareholder may specify how the proxy should vote on any matter presented at a shareholders meeting. The
document appointing the proxy shall be deposited in our offices or at such other address as shall be specified in the notice of
the meeting not less than 48 hours before the time of the meeting at which the person specified in the appointment is due to vote.



56







The Israeli Companies
Law and our Articles of Association do not permit resolutions of the shareholders to be adopted by way of written consent, for
as long as our ordinary shares are publicly traded.



Limitations on the Rights to Own
Securities



The ownership or voting
of 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 that nationals of countries which are, or have been, in a state of war with Israel may not be recognized as owners
of ordinary shares.



Anti-Takeover Provisions under Israeli
Law



The Israeli Companies
Law permits merger transactions with the approval of each party’s board of directors and shareholders. In accordance with
the Israeli Companies Law, a merger may be approved at a shareholders meeting by a majority of the voting power represented at
the meeting, in person or by proxy, and voting on that resolution. In determining whether the required majority has approved the
merger, shares held by the other party to the merger, any person holding at least 25% of the outstanding voting shares or means
of appointing the board of directors of the other party to the merger, or the relatives or companies controlled by these persons,
are excluded from the vote.



Under the Israeli
Companies Law, a merging company must inform its creditors of the proposed merger. Any creditor of a party to the merger may seek
a court order blocking the merger, if there is a reasonable concern that the surviving company will not be able to satisfy all
of the obligations of the parties to the merger. Moreover, a merger may not be completed until at least 30 days have passed from
the time the merger was approved in a general meeting of each of the merging companies, and at least 50 days have passed from the
time that a merger proposal was filed with the Israeli Registrar of Companies.



Israeli corporate
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 such
acquisition, the purchaser would become a 25% or greater shareholder of the company. This rule does not apply if there is already
another shareholder with 25% or greater shares in the company. Similarly, Israeli corporate 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’s shareholdings
would entitle the purchaser to over 45% of the shares in the company, unless there is a shareholder with 45% or more of the shares
in the company. These requirements do not apply if, in general, the acquisition (1) was made in a private placement that received
the approval of the company’s shareholders; (2) was from a 25% or greater shareholder of the company which resulted in the
purchaser becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder of the company which
resulted in the acquirer becoming a 45% or greater shareholder of the company. These rules do not apply if the acquisition is made
by way of a merger. Regulations promulgated under the Israeli Companies Law provide that these tender offer requirements do not
apply to companies whose shares are listed for trading external of Israel if, according to the law in the country in which the
shares are traded, including the rules and regulations of the stock exchange or which the shares are traded, either:



| | · | there is a limitation on acquisition of any level of control of the company; or
| | - | -------------------------------------------------------------------------------



| | · | the acquisition of any level of control requires the purchaser to do so by means of a tender offer to the public.
| | - | -----------------------------------------------------------------------------------------------------------------



The Israeli Companies
Law provides specific rules and procedures for the acquisition of shares held by minority shareholders, if the majority shareholder
holds more than 90% of the outstanding shares. If, as a result of an acquisition of shares, the purchaser will hold more than 90%
of a company’s outstanding shares, the acquisition must be made by means of a tender offer for all of the outstanding shares.
If less than 5% of the outstanding shares are not tendered in the tender offer, all the shares that the purchaser offered to purchase
will be transferred to it. The Israeli Companies Law provides for appraisal rights if any shareholder files a request in court
within three months following the consummation of a full tender offer. If more than 5% of the outstanding shares are not tendered
in the tender offer, then the purchaser may not acquire shares in the tender offer that will cause his shareholding to exceed 90%
of the outstanding shares of the company. Israeli tax law treats specified acquisitions, including a stock-for-stock swap between
an Israeli company and a foreign company, less favorably than does US tax law. These laws may have the effect of delaying or deterring
a change in control of us, thereby limiting the opportunity for shareholders to receive a premium for their shares and possibly
affecting the price that some investors are willing to pay for our securities.



Rights of Shareholders



Under the Israeli
Companies Law, our shareholders have the right to inspect certain documents and registers including the minutes of general meetings,
the register of shareholders and the register of substantial shareholders, any document held by us that relates to an act or transaction
requiring the consent of the general meeting as stated above, our Articles of Association and our financial statements, and any
other document which we are required to file under the Israeli Companies Law or under any law with the Registrar of Companies or
the Israeli Securities Authority, and is available for public inspection at the Registrar of Companies or the Securities Authority,
as the case may be.



57







If the document required
for inspection by one of our shareholders relates to an act or transaction requiring the consent of the general meeting as stated
above, we may refuse the request of the shareholder if in our opinion the request was not made in good faith, the documents requested
contain a commercial secret or a patent, or disclosure of the documents could prejudice our good in some other way.



The Israeli Companies
Law provides that with the approval of the court any of our shareholders or directors may file a derivative action on our behalf
if the court finds the action is a priori, to our benefit, and the person demanding the action is acting in good faith. The demand
to take action can be filed with the court only after it is serviced to us, and we decline or omit to act in accordance to this
demand.



Enforceability of Civil Liabilities



We are incorporated
in Israel and most of our directors and officers and the Israeli experts named in this report reside outside the US. Service of
process upon them may be difficult to effect within the US. Furthermore, because substantially all of our assets, and those of
our non-US directors and officers and the Israeli experts named herein, are located outside the US, any judgment obtained in the
US against us or any of these persons may not be collectible within the US.



We have been informed
by our legal counsel in Israel, Doron Tikotsky Kantor Gutman Cederboum & Co., that there is doubt as to the enforceability
of civil liabilities under the Securities Act or the Exchange Act, pursuant to original actions instituted in Israel. However,
subject to particular time limitations, executory judgments of a US court for monetary damages in civil matters may be enforced
by an Israeli court, provided that:



| | · | the judgment was obtained after due process before a court of competent jurisdiction, that recognizes and enforces similar
judgments of Israeli courts, and the court had authority according to the rules of private international law currently prevailing
in Israel;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | adequate service of process was effected and the defendant had a reasonable opportunity to be heard;
| | - | ----------------------------------------------------------------------------------------------------



| | · | the judgment is not contrary to the law, public policy, security or sovereignty of the State of Israel and its enforcement
is not contrary to the laws governing enforcement of judgments;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same
parties;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | · | the judgment is no longer appealable; and
| | - | -----------------------------------------



| | · | an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted
in the foreign court.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



Foreign judgments
enforced by Israeli courts generally will be payable in Israeli currency. The usual practice in an action before an Israeli court
to recover an amount in a non-Israeli currency is for the Israeli court to render judgment for the equivalent amount in Israeli
currency at the rate of exchange in force on the date of the judgment. Under existing Israeli law, a foreign judgment payable in
foreign currency may be paid in Israeli currency at the rate of exchange for the foreign currency published on the day before date
of payment. Current Israeli exchange control regulations also permit a judgment debtor to make payment in foreign currency. Pending
collection, the amount of the judgment of an Israeli court stated in Israeli currency ordinarily may be linked to Israel’s
consumer price index plus interest at the annual statutory rate set by Israeli regulations prevailing at that time. Judgment creditors
must bear the risk of unfavorable exchange rates.



AMERICAN DEPOSITORY SHARES



We have issued and
deposited ordinary shares with Bank Hapoalim B.M., The Bank of New York’s custodian in Tel Aviv, Israel. The Bank of New
York in turn issued American Depositary Shares, or ADSs, representing American Depositary Shares, or ADSs. One ADS represents an
ownership interest in twenty of our ordinary shares. Each ADS also represents securities, cash or other property deposited with
The Bank of New York but not distributed to ADS holders. The Bank of New York’s Corporate Trust Office is located at 101
Barclay Street, New York, NY 10286, U.S.A. Their principal executive office is located at One Wall Street, New York, NY 10286,
U.S.A.



You may hold ADSs
either directly or indirectly through your broker or other financial institution. If you hold ADSs directly, you are an ADS holder.
This description assumes you hold your ADSs directly. If you hold the ADSs indirectly, you must rely on the procedures of your
broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your
broker or financial institution to find out what those procedures are.



58







Because The Bank of
New York will actually hold the ordinary shares, you must rely on it to exercise the rights of a shareholder. The obligations of
The Bank of New York are set out in a deposit agreement among us, The Bank of New York and you, as an ADS holder. The agreement
and the ADSs are generally governed by New York law.



The following is a
summary of the agreement. Because it is a summary, it does not contain all the information that may be important to you. For more
complete information, you should read the entire agreement and the ADS. Directions on how to obtain copies of these are provided
in the section entitled “Where You Can Find More Information.”



Share Dividends and Other Distributions



The Bank of New York
has agreed to pay to you the cash dividends or other distributions it or the custodian receives on shares or other deposited securities
after deducting its fees and expenses. You will receive these distributions in proportion to the number of shares your ADSs represent.



Cash. The Bank
of New York will convert any cash dividend or other cash distribution we pay on the shares into U.S. dollars, if it can do so on
a reasonable basis and can transfer the U.S. dollars to the U.S. If that is not possible or if any approval from any government
or agency thereof is needed and cannot be obtained, the agreement allows The Bank of New York to distribute the foreign currency
only to those ADS holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account
of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for the interest.



Before making a distribution,
any withholding taxes that must be paid under U.S. law will be deducted. The Bank of New York will distribute only whole U.S. dollars
and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when The Bank
of New York cannot convert the foreign currency, you may lose some or all of the value of the distribution.



Shares. The
Bank of New York may distribute new ADSs representing any shares we may distribute as a dividend or free distribution, if we furnish
it promptly with satisfactory evidence that it is legal to do so. The Bank of New York will only distribute whole ADSs. It will
sell shares which would require it to use a fractional ADS and distribute the net proceeds in the same way as it does with cash.
If The Bank of New York does not distribute additional ADSs, each ADS will also represent the new shares.



Rights to receive
additional shares. If we offer holders of our ordinary shares any rights to subscribe for additional shares or any other rights,
The Bank of New York may make these rights available to you. We must first instruct The Bank of New York to do so and furnish it
with satisfactory evidence that it is legal to do so. If we do not furnish this evidence and/or give these instructions, and The
Bank of New York decides it is practical to sell the rights, The Bank of New York will sell the rights and distribute the proceeds,
in the same way as it does with cash. The Bank of New York may allow rights that are not distributed or sold to lapse. In that
case, you will receive no value for them. If The Bank of New York makes rights available to you, upon instruction from you, it
will exercise the rights and purchase the shares on your behalf. The Bank of New York will then deposit the shares and issue ADSs
to you. It will only exercise rights if you pay it the exercise price and any other charges the rights require you to pay.



U.S. securities laws
may restrict the sale, deposit, cancellation and transfer of the ADSs issued after exercise of rights. For example, you may not
be able to trade the ADSs freely in the U.S. In this case, The Bank of New York may issue the ADSs under a separate restricted
deposit agreement which will contain the same provisions as the agreement, except for the changes needed to put the restrictions
in place.



Other Distributions.
The Bank of New York will send to you anything else we distribute on deposited securities by any means it thinks is legal, fair
and practical. If it cannot make the distribution in that way, The Bank of New York has a choice. It may decide to sell what we
distributed and distribute the net proceeds in the same way as it does with cash or it may decide to hold what we distributed,
in which case the ADSs will also represent the newly distributed property.



The Bank of New York
is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have
no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take
any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may not
receive the distribution we make on our shares or any value for them if it is illegal or impractical for us to make them available
to you.



Deposit, Withdrawal and Cancellation



The Bank of New York
will issue ADSs if you or your broker deposits shares or evidence of rights to receive shares with the custodian upon payment of
its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees. The Bank of New York will
register the appropriate number of ADSs in the names you request and will deliver the ADSs at its office to the persons you request.



You may turn in your
ADSs at The Bank of New York’s office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes
or stock transfer taxes or fees, The Bank of New York will deliver (1) the underlying shares to an account designated by you and
(2) any other deposited securities underlying the ADS at the office of the custodian; or, at your request, risk and expense, The
Bank of New York will deliver the deposited securities at its office.



59







Voting Rights



You may instruct The
Bank of New York to vote the shares underlying your ADSs but only if we ask The Bank of New York to ask for your instructions.
Otherwise, you will not 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.



If we ask for your
instructions, The Bank of New York will notify you of the upcoming vote and arrange to deliver our voting materials to you. The
materials will (1) describe the matters to be voted on and (2) explain how you, on a certain date, may instruct The Bank of New
York to vote the shares or other deposited securities underlying your ADSs as you direct. For instructions to be valid, The Bank
of New York must receive them on or before the date specified. The Bank of New York will try, as far as practical, subject to Israeli
law and the provisions of our Articles of Association, to vote or to have its agents vote the shares or other deposited securities
as you instruct. The Bank of New York will only vote or attempt to vote as you instruct. However, if The Bank of New York does
not receive your voting instructions, it will deem you to have instructed it to give a discretionary proxy to vote the shares underlying
your ADSs to a person designated by us provided that no such instruction shall be deemed given and no such discretionary proxy
shall be given with respect to any matter as to which we inform The Bank of New York that (x) we do not wish such proxy given,
(y) substantial opposition exists, (z) such matter materially affects the rights of the holders of the shares underlying the ADSs.



We cannot assure you
that you will receive the voting materials in time to ensure that you can instruct The Bank of New York to vote your shares. In
addition, The Bank of New York and its agents are not responsible for failing to carry out voting instructions or for the manner
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 you requested.



Rights of Non-Israeli Shareholders
to Vote



Our ADSs may be freely
held and traded pursuant to the General Permit and the Currency Control Law. The ownership or voting of ADSs by non-residents of
Israel is not restricted in any way by our Articles of Association or by the laws of the State of Israel.



Fees and Expenses



|ADS holders must pay:                                                                                                                                                       |  | For:                                                                                                                                                                                   
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|$5.00 (or less) per 100 ADSs (or portion thereof)                                                                                                                           |  | Each issuance of an ADS, including as a result of a distribution of shares or rights or other property.                                                                                
|                                                                                                                                                                            |  |                                                                                                                                                                                        
|                                                                                                                                                                            |  | Each cancellation of an ADS, including if the agreement terminates.                                                                                                                    
|                                                                                                                                                                            |  |                                                                                                                                                                                        
|$0.05 (or less) per ADS                                                                                                                                                     |  | Any cash payment.                                                                                                                                                                      
|                                                                                                                                                                            |  |                                                                                                                                                                                        
|Registration or Transfer Fees                                                                                                                                               |  | Transfer and registration of shares on the share register of the Foreign Registrar from your name to the name of The Bank of New York or its agent when you deposit or withdraw shares.
|                                                                                                                                                                            |  |                                                                                                                                                                                        
|Expenses of The Bank of New York                                                                                                                                            |  | Conversion of foreign currency to U.S. dollars.                                                                                                                                        
|                                                                                                                                                                            |  |                                                                                                                                                                                        
|                                                                                                                                                                            |  | Cable, telex and facsimile transmission expenses.                                                                                                                                      
|                                                                                                                                                                            |  |                                                                                                                                                                                        
|                                                                                                                                                                            |  | Servicing of shares or deposited securities.                                                                                                                                           
|                                                                                                                                                                            |  |                                                                                                                                                                                        
|$0.02 (or less) per ADS per calendar year (if the depositary has not collected any cash distribution fee during that year)                                                  |  | Depositary services.                                                                                                                                                                   
|                                                                                                                                                                            |  |                                                                                                                                                                                        
|Taxes and other governmental charges                                                                                                                                        |  | As necessary The Bank of New York or the Custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes.              
|                                                                                                                                                                            |  |                                                                                                                                                                                        
|A fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary shares had been deposited for issuance of ADSs |  | Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders.                                                      



60







Payment of Taxes



You will be responsible
for any taxes or other governmental charges payable on your ADSs or on the deposited securities underlying your ADSs. The Bank
of New York may refuse to transfer your ADSs or allow you to withdraw the deposited securities underlying your ADSs until such
taxes or other charges are paid. It may apply payments owed to you or sell deposited securities underlying your ADSs to pay any
taxes owed and you will remain liable for any deficiency. If it sells deposited securities, it will, if appropriate, reduce the
number of ADSs to reflect the sale and pay to you any proceeds, or send to you any property, remaining after it has paid the taxes.



Reclassifications, Recapitalizations and Mergers



|If we:                                                                                                                |  | Then:                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Change the nominal or par value of our shares;                                                                        |  | The cash, shares or other securities received by The Bank of New York will become deposited securities. Each ADS will automatically represent its equal share of the new deposited securities. The Bank of New York may, and will if we ask it to, distribute some or all of the cash, shares or other securities it received. It may also issue new ADSs or ask you to surrender your outstanding ADSs in exchange for new ADSs, identifying the new deposited securities.
|                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Reclassify, split up or consolidate any of the deposited securities;                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Distribute securities on the shares that are not distributed to you; or                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or takes any similar action. |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



Amendment and Termination



We may agree with
The Bank of New York to amend the agreement and the ADSs without your consent for any reason. If the amendment adds or increases
fees or charges, except for taxes and other governmental charges or registration fees, cable, telex or facsimile transmission costs,
delivery costs or other such expenses, or prejudices an important right of ADS holders, it will only become effective thirty days
after The Bank of New York notifies you of the amendment. At the time an amendment becomes effective, you are considered, by continuing
to hold your ADS, to agree to the amendment and to be bound by the ADSs and the agreement is amended.



The Bank of New York
will terminate the agreement if we ask it to do so. The Bank of New York may also terminate the agreement if The Bank of New York
has told us that it would like to resign and we have not appointed a new depositary bank within ninety days. In both cases, The
Bank of New York must notify you at least ninety days before termination.



After termination,
The Bank of New York and its agents will be required to do only the following under the agreement: (1) advise you that the agreement
is terminated, and (2) collect distributions on the deposited securities and deliver shares and other deposited securities upon
cancellation of ADSs. After termination, The Bank of New York will, if practical, sell any remaining deposited securities by public
or private sale. After that, The Bank of New York will hold the proceeds of the sale, as well as any other cash it is holding under
the agreement for the pro rata benefit of the ADS holders that have not surrendered their ADSs. It will not invest the money and
will have no liability for interest. The Bank of New York’s only obligations will be to account for the proceeds of the sale
and other cash. After termination our only obligations will be with respect to indemnification and to pay certain amounts to The
Bank of New York.



Limitations on Obligations and Liability
to ADS Holders



The agreement expressly
limits our obligations and the obligations of The Bank of New York, and it limits our liability and the liability of The Bank of
New York. We and The Bank of New York:



| | · | are only obligated to take the actions specifically set forth in the agreement without negligence or bad faith;
| | - | ---------------------------------------------------------------------------------------------------------------



61







| | · | are not liable if either is prevented or delayed by law or circumstances beyond their control from performing their obligations
under the agreement;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | · | are not liable if either exercises discretion permitted under the agreement;
| | - | ----------------------------------------------------------------------------



| | · | have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the agreement on your behalf
or on behalf of any other party; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | may rely upon any documents they believe in good faith to be genuine and to have been signed or presented by the proper party.
| | - | ------------------------------------------------------------------------------------------------------------------------------



In the agreement,
we and The Bank of New York agree to indemnify each other under certain circumstances.



Requirements for Depositary Actions



Before The Bank of
New York will issue or register transfer of an ADS, make a distribution on an ADS, or make a withdrawal of shares, The Bank of
New York may require payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged
by third parties for the:



| | · | transfer of any shares or other deposited securities;
| | - | -----------------------------------------------------



| | · | production of satisfactory proof of the identity and genuineness of any signature or other information it deems necessary,
and
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | · | compliance with regulations it may establish, from time to time, consistent with the agreement, including presentation of transfer
documents.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



The Bank of New York
may refuse to deliver, transfer, or register transfers of ADSs generally when the books of The Bank of New York or our books are
closed, or at any time if The Bank of New York or we think it advisable to do so. You have the right to cancel your ADSs and withdraw
the underlying shares at any time except:



| | · | when temporary delays arise because: (1) The Bank of New York or we have closed its transfer books; (2) the transfer of shares
is blocked to permit voting at a shareholders’ meeting; or (3) we are paying a dividend on the shares; or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs
or to the withdrawal of shares or other deposited securities.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This right of withdrawal
may not be limited by any other provision of the agreement.



Pre-Release of ADSs



In certain circumstances,
subject to the provisions of the agreement, The Bank of New York may issue ADSs before deposit of the underlying shares. This is
called a pre-release of the ADS. The Bank of New York may also deliver shares upon cancellation of pre-released ADSs (even if the
ADSs are cancelled before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying
shares are delivered to The Bank of New York. The Bank of New York may receive ADSs instead of shares to close out a pre-release.
The Bank of New York may pre-release ADSs only under the following conditions: (1) before or at the time of the pre-release, the
person to whom the pre-release is being made must represent to The Bank of New York in writing that it or its customer owns the
shares or ADSs to be deposited; (2) the pre-release must be fully collateralized with cash or other collateral that The Bank of
New York considers appropriate; and (3) The Bank of New York must be able to close out the pre-release on not more than five business
days’ notice. In addition, The Bank of New York will limit the number of ADSs that may be outstanding at any time as a result
of prerelease, although The Bank of New York may disregard the limit from time to time, if it thinks it is appropriate to do so.



Inspection of Books of the Depositary



Under the terms of
the agreement, holders of ADSs may inspect the transfer books of the depositary at any reasonable time, provided that such inspection
shall not be for the purpose of communicating with holders of ADSs in the interest of a business or object other than either our
business or a matter related to the deposit agreement or ADSs.



Book-Entry Only Issuance - The Depository
Trust Company



The Depository Trust
Company, or DTC, New York, New York, will act as securities depository for the ADSs. The ADSs will be represented by one global
security that will be deposited with and registered in the name of Cede & Co. (DTC’s partnership nominee), or such other
name as may be requested by an authorized representative of DTC. This means that we will not issue certificates to you for the
ADSs. One global security will be issued to DTC, which will keep a computerized record of its participants (for example, your broker)
whose clients have purchased the ADSs. Each participant will then keep a record of its clients. Unless it is exchanged in whole
or in part for a certificated security, a global security may not be transferred. However, DTC, its nominees, and their successors
may transfer a global security as a whole to one another. Beneficial interests in the global security will be shown on, and transfers
of the global security will be made only through, records maintained by DTC and its participants.



62







DTC is a limited-purpose
trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York
Banking Law, a member of the United States Federal Reserve System, a “clearing corporation” within the meaning of the
New York Uniform Commercial Code and a “clearing agency” registered under the provisions of Section 17A of the
Exchange Act. DTC holds securities that its participants (direct participants) deposit with DTC. DTC also records the settlement
among direct participants of securities transactions, such as transfers and pledges, in deposited securities through computerized
records for direct participant’s accounts. This eliminates the need to exchange certificates. Direct participants include
securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations.



DTC’s book-entry
system is also used by other organizations such as securities brokers and dealers, banks and trust companies that work through
a direct participant. The rules that apply to DTC and its participants are on file with the SEC.



DTC is a wholly-owned
subsidiary of The Depository Trust & Clearing Corporation, or DTCC. DTCC is, in turn, owned by a number of DTC’s direct
participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc.



When you purchase
ADSs through the DTC system, the purchases must be made by or through a direct participant, who will receive credit for the ADSs
on DTC’s records. Since you actually own the ADSs, you are the beneficial owner and your ownership interest will only be
recorded on the direct (or indirect) participants’ records. DTC has no knowledge of your individual ownership of the ADSs.
DTC’s records only show the identity of the direct participants and the amount of ADSs held by or through them. You will
not receive a written confirmation of your purchase or sale or any periodic account statement directly from DTC. You will receive
these from your direct (or indirect) participant. Thus the direct (or indirect) participants are responsible for keeping accurate
account of the holdings of their customers like you.



We will wire dividend
payments to DTC’s nominee, and we will treat DTC’s nominee as the owner of the global security for all purposes. Accordingly,
we will have no direct responsibility or liability to pay amounts due on the global security to you or any other beneficial owners
in the global security.



Any redemption notices
will be sent by us directly to DTC, who will in turn inform the direct participants, who will then contact you as a beneficial
holder.



It is DTC’s
current practice, upon receipt of any payment of dividends or liquidation amount, to credit direct participants’ accounts
on the payment date based on their holdings of beneficial interests in the global securities as shown on DTC’s records. In
addition, it is DTC’s current practice to assign any consenting or voting rights to direct participants whose accounts are
credited with preferred securities on a record date, by using an omnibus proxy. Payments by participants to owners of beneficial
interests in the global securities, and voting by participants, will be based on the customary practices between the participants
and owners of beneficial interests, as is the case with the ADSs held for the account of customers registered in “street
name.” However, payments will be the responsibility of the participants and not of DTC or us.



ADSs represented by
a global security will be exchangeable for certificated securities with the same terms in authorized denominations only if:



| | · | DTC is unwilling or unable to continue as depositary or if DTC ceases to be a clearing agency registered under applicable law
and a successor depositary is not appointed by us within 90 days; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | we determine not to require all of the ADSs to be represented by a global security.
| | - | -----------------------------------------------------------------------------------



If the book-entry
only system is discontinued, the transfer agent will keep the registration books for the ADSs at its corporate office.



The information in
this section concerning DTC and DTC’s book-entry system has been obtained from sources we believe to be reliable, but we
take no responsibility for the accuracy thereof.



63







Material Contracts



Bio-Gal Ltd.



On March 18, 2009,
we announced that we had entered into an asset purchase agreement with Bio-Gal Ltd. (“Bio-Gal ”), a Gibraltar
private company, for the rights to a use patent on rHuEPO for the prolongation of Multiple Myeloma patients’ survival and
improvement of their quality of life. On December 31, 2009, we amended the asset purchase agreement with Bio-Gal, so that XTL could
acquire XTEPO Ltd., a special purpose company that was established by Bio-Gal’s shareholders who received from Bio-Gal all
of Bio-Gal’s rights on rHuEPO and raised approximately $1.5 million. We intend to develop rHuEPO for the prolongation of
Multiple Myeloma patients’ survival and improvement of their quality of life. Multiple Myeloma is a severe and incurable
malignant hematological cancer of plasma cells. In accordance with the terms of the amended asset purchase agreement, we issued
to XTEPO’s shareholders ordinary shares representing approximately 69.44% of our then issued and outstanding ordinary share
capital. In addition, the parties agreed to cancel a $10 million cash milestone payment to Bio-Gal upon the successful completion
of a Phase 2 clinical trial, which was under the original asset purchase agreement. We are obligated to pay 1% royalties on net
sales of the product, as well as a fixed royalty payment in the total amount of $350 thousand upon the successful completion of
Phase 2. Such payment of $350 thousand mentioned above shall be made to Yeda upon the earlier of (i) six months from the successful
completion of the Phase 2 or (ii) the completion of a successful fundraising by XTL or XTEPO at any time after the completion of
the Phase 2 of at least $2 million. On August 3, 2010, the Bio-Gal transaction was completed according to the outline signed by
the parties to the agreement on December 31, 2009, after all the prerequisites had been met, including, among other things, the
signing of an agreement with the Israeli Tax Authority regarding the tax exemption granted to the share swap transaction pursuant
to article 104 and 103 to the Israeli tax ordinance (Revised), 1961. (See note 12 to the consolidated financial statements: Intangible
Asset).



MinoGuard Ltd.



On March 24, 2011,
we entered into a Memorandum of Understanding with MinoGuard, pursuant to which we agreed to acquire the exclusive rights to SAM-101
by obtaining an exclusive license to use MinoGuard’s entire technology. SAM-101 is based on a combination of anti-psychotic
drugs with minocycline, a recognized medicinal compound. On November 30, 2011, we received a worldwide exclusive license from MinoGuard
under which we agreed to develop and commercialize MinoGuard’s technology for the treatment of psychotic disorders focusing
on Schizophrenia. Under the agreement, we are to conduct clinical trials, develop, register, market, distribute and sell the drugs
that will emerge from MinoGuard’s technology, with no limitations for a specific disorder. In consideration, we shall pay
MinoGuard accumulated clinical development and marketing approvals milestone-based payments of approximately $2.5 million. In addition,
we agreed to pay MinoGuard royalty-based payments on products that are based on the technology, equal to 3.5% of the net sales
and/or percentage from the Company third-party out-license receipts in the range of 7.5%-20% according to the clinical phase of
the drug at the time of an out-license transaction. It should be noted that the Company had the sole discretion to pay any of the
above amounts in cash or by way of issuing ordinary shares of the Company to MinoGuard. In addition to the above payments, and
in accordance with the above agreement, since as of June 30, 2013, XTL had not commenced a phase 2 clinical trial, we have paid
MinoGuard an annual license fee, by way of the issuance of 175,633 ordinary shares of the Company, representing a value of $45
thousand, for the 12 month period between July 1, 2013 and June 30, 2014. On September 3, 2014, the Company issued an additional
889,822 ordinary shares, representing a value of $135 thousand, for the 12 month period between July 1, 2014 and June 30, 2015.



On May 25, 2015, the
Company provided MinoGuard with a notice of termination whereby, as of June 24, 2015, the rights and license granted according
to the license agreement were terminated and all rights in and to the licensed technology reverted to MinoGuard.



hCDR1



On January 7, 2014,
the Company entered into a licensing agreement with Yeda to research, develop, and commercialize hCDR1, a Phase II-ready asset
for the treatment of SLE, among other indications. In consideration, the Company is responsible for a patent expense reimbursement
in six installments totaling approximately $400 thousand. The Company is required to make milestone payments of $2.2 million: $200
thousand upon starting Phase III, $1 million upon U.S. Food and Drug Administration approval and $250 thousand for regulatory approval
in each of China and three of the European Union’s Group of Six. In addition, the Company will pay 2-3% royalties of annual
net sales and sublicense fees of 15-20% of whatever the Company receives from any sub-licensee.



Lupus is a debilitating
disease affecting approximately five million people worldwide according to the Lupus Foundation of America. hCDR1, is a peptide
and acts as a disease-specific treatment to modify the SLE-related autoimmune process. It does so by specific upstream immunomodulation
through the generation of regulatory T cells, reducing inflammation and resuming immune balance. Prior to being licensed to the
Company by Yeda, hCDR1 was licensed to Teva Pharmaceutical Industries (“Teva”), which performed two placebo controlled
Phase I trials and a placebo controlled Phase II trial called the PRELUDE trial. The studies consisted of over 400 patients, demonstrating
that hCDR1 is well tolerated by patients and has a favorable safety profile. The PRELUDE trial did not achieve its primary efficacy
endpoint based on the SLEDAI scale, resulting in Teva returning the asset to Yeda. However, the PRELUDE trial showed encouraging
results in its secondary clinical endpoint, the BILAG index, and, in fact, the 0.5 mg weekly dose showed a substantial effect.
Multiple post-hoc analyses also showed impressive results for this dose using the BILAG index. The Company plans that such dose
be the focus of the clinical development plan moving forward. Subsequent to Teva’s return of the program to Yeda, the FDA
directed that the primary endpoint in future trials for Lupus therapies, including those for hCDR1, should be based on either the
BILAG index or the SRI. Given the FDA’s recommendation and the positive findings from the PRELUDE trial (which showed a substantial
effect in the BILAG index), the Company intends to initiate a new Phase II clinical trial, which will include the 0.5 mg (and a
0.25 mg) weekly dose of hCDR1.



64







Proteologics



On November 21, 2012,
in an off-market transaction, we purchased from Teva 4,620,356 Ordinary shares of NIS 1.0 par value each of Proteologics,
representing Teva’s entire stake in Proteologics and approximately 31.35% of Proteologics’ issued and outstanding share
capital, for approximately NIS 6.5 million (approximately $ 1.7 million). Proteologics is a public company whose shares
are listed on the TASE and was engaged at the time of acquisition in the discovery and development of drugs comprised of various
components of the UBIQUITIN system, which was discovered by Dr. Avram Hershko and Dr. Aaron Ciechanover, both 2004 Nobel Prize
laureates in Chemistry for the discovery of the UBIQUITIN system.



On August 22, 2013,
Proteologics’ board of directors resolved to terminate Proteologics’ operations effective immediately.



On September 11, 2013,
the Company entered into an agreement for the purchase of another 14.13% of the shares of Proteologics from Aurum Ventures MKI
Ltd. (“Aurum”) in consideration for the issuance of 3,031,299 shares of NIS 0.1 par value each of the Company to Aurum.
On September 12, 2013, the Company signed an agreement with Zmiha Investment House Ltd. (“Zmiha”) for the sale of its
entire investment in Proteologics, representing 44.95% of Proteologics’ issued and outstanding share capital as of the date
of the agreement in consideration of approximately $ 3.4 million (approximately NIS 12 million). According to the agreement,
on the consummation date, the Company received an amount of approximately $ 2.7 million (approximately NIS 9.6 million)
and the balance was held in escrow until the completion of an inspection process by an inspector and the execution of a stay of
proceeding pursuant to Section 350 to the Israeli Companies Law in Proteologics. As of the date hereof the entire considerations
has been delivered to the Company and no amount remains in escrow.



Exchange Controls



Under Israeli Law,
Israeli non-residents who purchase ordinary shares with certain non-Israeli currencies (including dollars) may freely repatriate
in such non-Israeli currencies all amounts received in Israeli currency in respect of the ordinary shares, whether as a dividend,
as a liquidating distribution, or as proceeds from any sale in Israel of the ordinary shares, provided in each case that any applicable
Israeli income tax is paid or withheld on such amounts. The conversion into the non-Israeli currency must be made at the rate of
exchange prevailing at the time of conversion.



Taxation



The following discussion
summarizes certain Israeli and U.S. federal income tax consequences that may be material to our shareholders, but is not intended,
and should not be construed, as legal or professional tax advice and does not exhaust all possible tax considerations that may
be relevant to holders of our ordinary shares. This discussion is based on existing law, judicial authorities and administrative
interpretations, all of which are subject to change or differing interpretations, possibly with retroactive effect. This summary
does not purport to be a complete analysis of all potential tax consequences of owning our ordinary shares. In particular, this
discussion does not take into account the specific circumstances of any particular holder or holders who may be subject to special
rules, such as tax-exempt entities, broker-dealers, shareholders subject to Alternative Minimum Tax, shareholders that actually
or constructively own 10% or more of our voting securities, shareholders that hold ordinary shares or ADSs as part of straddle
or hedging or conversion transaction, traders in securities that elect mark to market, banks and other financial institutions or
partnerships or other pass-through entities.



We urge shareholders
to consult their own tax advisors as to the potential U.S., Israeli, or other tax consequences of the purchase, ownership and disposition
of ordinary shares and ADSs, including, in particular, the effect of any foreign, state or local taxes. For purposes of the entire
Taxation discussion, we refer to ordinary shares and ADSs collectively as ordinary shares.



Israeli Tax Considerations



The following discussion
refers to the current tax law applicable to companies in Israel, with special reference to its effect on us. This discussion also
includes specified Israeli tax consequences to holders of our ordinary shares and Israeli Government programs benefiting us.



Corporate Tax Rate



The corporate tax
rate in Israel was 26.5%, 26.5% and 25% for the years ended December 31, 2015, 2014 and 2013, respectively.



On July 14, 2009,
the “Knesset” (Israeli Parliament) passed the Law for Economic Efficiency (Amended Legislation for Implementing the
Economic Plan for 2009 and 2010), 2009, which prescribes, among other things, an additional gradual reduction in the corporate
tax rates starting 2011 to the following tax rates: 2011 - 24%, 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and thereafter
- 18%.



In December 2011,
following the enactment of the Law for the Changing the Tax Burden (Legislative Amendments), 2011 (hereafter - “Tax Burden
Distribution Law”), the phased reduction in the corporate tax was eliminated, and the corporate tax rate in 2012 and thereafter
was set to 25%.



65







On August 5, 2013,
the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013-2014), 2013 (the “Law”)
was published in the Government’s records. Among other things, the Law prescribes from the 2014 tax year and thereafter,
an increase in the Israeli corporate tax rate to 26.5% (instead of 25%).



On January 5, 2016,
the Israeli Parliament officially published the Law for the Amendment of the Israeli Tax Ordinance (Amendment 216), that reduces
the corporate tax rate from 26.5% to 25%, effective for the year beginning January 1, 2016.



Capital gains in the
hands of the Company and its Israeli subsidiaries are taxable according to the corporate tax rate applicable in the tax year.



Tax Benefits for Research and Development



Israeli tax law allows,
under specific conditions, a tax deduction in the year incurred for expenditures, including capital expenditures, relating to scientific
research and development projects, if the expenditures are approved by the relevant Israeli government ministry, determined by
the field of research, and the research and development is for the promotion of the company and is carried out by or on behalf
of the company seeking the deduction. Expenditures not so approved are deductible over a three-year period. In the past, expenditures
that were made out of proceeds made available to us through government grants were automatically deducted during a one year period.



Israeli Estate and Gift Taxes



Israel does not currently
impose taxes on inheritance or bona fide gifts. For transfers of assets by inheritance or gift that would normally be subject to
capital gains tax or land appreciation tax, the recipient’s tax cost basis and date of purchase are generally deemed to be
the same as those for the transferor of the property.



Capital Gains Tax on Sales of our Ordinary Shares by Both
Residents and Non-Residents of Israel



Israeli law generally
imposes a capital gains tax on the sale of capital assets located in Israel, including shares in Israeli resident companies, by
both residents and non-residents of Israel, unless a specific exemption is available or unless a treaty between Israel and the
country of the non-resident provides otherwise. The law distinguishes between the inflationary surplus and the real gain. The inflationary
surplus is the portion of the total capital gain, which is equivalent to the increase of the relevant asset’s purchase price
attributable to the increase in the Israeli consumer price index from the date of purchase to the date of sale. The real gain is
the excess of the total capital gain over the inflationary surplus. A non-resident that invests in taxable assets with foreign
currency may elect to calculate the inflationary amount by using such foreign currency.



Non-Israeli residents
will be exempt from Israeli capital gains tax on any gains derived from the sale of shares publicly traded on a stock exchange
recognized by the Israeli Ministry of Finance (including the Tel-Aviv Stock Exchange and Nasdaq), provided such shareholders did
not acquire their shares prior to an initial public offering and that such capital gains are not derived by a permanent establishment
of the foreign resident in Israel. Notwithstanding the foregoing, dealers in securities in Israel are taxed at the regular tax
rates applicable to business income. However, Non-Israeli corporations will not be entitled to such exemption if an Israeli resident
(1) has a controlling interest of 25% or more in such non-Israeli corporation, or (2) is the beneficiary of, or is entitled to,
25% or more of the revenue or profits of such non-Israeli corporation, whether directly or indirectly. In any event, the provisions
of the tax reform shall not affect the exemption from capital gains tax for gains accrued before January 1, 2003, as described
in the previous paragraph.



The capital gains
tax imposed on Israeli tax resident individuals on the sale of securities was 20%. With respect to an Israeli tax resident individual
who is a “substantial shareholder” on the date of sale of the securities or at any time during the 12 months preceding
such sale, the capital gains tax rate was increased to 25%. In December 2011, following the enactment of the Tax Burden Distribution
Law, the tax rates mentioned above were increased to 25% and 30%, respectively, from 2012 and thereafter. A “substantial
shareholder” is defined as someone who alone, or together with another person, holds, directly or indirectly, at least 10%
in one or all of any of the means of control in the corporation. With respect to Israeli tax resident corporate investors, capital
gains tax at the regular corporate rate will be imposed on such taxpayers on the sale of traded shares.



In addition, pursuant
to the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on
Income, as amended (the “United States- Israel Tax Treaty”), the sale, exchange or disposition of ordinary shares by
a person who qualifies as a resident of the U.S. within the meaning of the United States-Israel Tax Treaty and who is entitled
to claim the benefits afforded to such person by the United States- Israel Tax Treaty (a “Treaty United States Resident”)
generally will not be subject to the Israeli capital gains tax unless such Treaty United States Resident holds, directly or indirectly,
shares representing 10% or more of our voting power during any part of the twelve- month period preceding such sale, exchange or
disposition, subject to certain conditions or if the capital gains from such sale are considered as business income attributable
to a permanent establishment of the U.S. resident in Israel. However, under the United States-Israel Tax Treaty, such “Treaty
United States Resident” would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with
respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits.



66







Taxation of Dividends



Non-residents of Israel
are subject to income tax on income accrued or derived from sources in Israel.



The tax rate imposed
on dividends distributed by an Israeli company to Israeli tax resident individuals or to non-Israeli residents was set at a rate
of 20%. With respect to “substantial shareholders,” as defined above, at the time receiving the dividend or on any
date in the 12 months preceding such date, the applicable tax rate was 25%. In December 2011, following the enactment of the Tax
Burden Distribution Law, the tax rates mentioned above were increased to 25% and 30%, respectively, from 2012 and thereafter. The
taxation of dividends distributed by an Israeli company to another Israeli corporate tax resident is generally exempt from tax.



In any case, dividends
distributed from the taxable income attributable to an Approved Enterprise Privileged Enterprise or Preferred Enterprise, to both
Israeli tax residents and non-Israeli residents will be subject to 15%-20% tax rate.



Notwithstanding, dividends
distributed by an Israeli company to Israeli tax resident individuals or to non-Israeli residents were subject to a 20% or 25%
(for “substantial shareholders”) withholding tax, which was increased to 25% and 30%, respectively from 2012 and thereafter,
following the enactment of the Tax Burden Distribution Law (15%-20% in the case of dividends distributed from the taxable income
attributable to an Approved Enterprise Privileged Enterprise or Preferred Enterprise), unless a lower rate is provided in a treaty
between Israel and the shareholder’s country of residence. Dividends distributed by an Israeli company to another Israeli
tax resident company are generally exempt, unless such dividends are distributed from taxable income attributable to an Approved
Enterprise, in which case such dividends are taxed at a rate of 15%, or unless such dividends are distributed from income that
was not sourced in Israel, in which case such dividends are taxed at a rate of 25%.



Under the U.S.-Israel Tax Treaty, the maximum
Israeli tax and withholding tax on dividends paid to a holder of ordinary shares who is a resident of the U.S. is generally 25%,
but is reduced to 12.5% if the dividends are paid to a corporation that holds in excess of 10% of the voting rights of a company
during the company’s taxable year preceding the distribution of the dividend and the portion of the company’s taxable
year in which the dividend was distributed. Dividends of an Israeli company derived from the income of an Approved Enterprise will
still be subject to a 15% dividend withholding tax; if the dividend is attributable partly to income derived from an Approved Enterprise,
and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the two
types of income. A non-resident of Israel who has dividend income derived from or accrued in Israel, from which tax was withheld
at the source, is generally exempt from the duty to file tax returns in Israel in respect of such income, provided such income
was not derived from a business conducted in Israel by the taxpayer.



U.S. Federal Income Tax Considerations



TO ENSURE COMPLIANCE
WITH U.S. TREASURY DEPARTMENT CIRCULAR 230, PROSPECTIVE HOLDERS OF ORDINARY SHARES ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION
OF US FEDERAL TAX ISSUES IN THIS MEMORANDUM IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY HOLDERS
OF ORDINARY SHARES FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON SUCH HOLDERS UNDER THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE “CODE”); (B) SUCH DISCUSSION IS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING OF THE TRANSACTIONS
OR MATTERS ADDRESSED HEREIN; AND (C) PROSPECTIVE HOLDERS OF ORDINARY SHARES SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES
FROM AN INDEPENDENT TAX ADVISOR.



The following discussion
applies only to a holder of our ordinary shares who qualifies as a “U.S. holder”. For purposes of this discussion a
“U.S. holder” is a beneficial owner of our ordinary shares that is for U.S. federal income tax purposes:



| | · | an individual who is a U.S. citizen or U.S. resident alien;
| | - | -----------------------------------------------------------



| | · | a corporation (or other entity taxable as a corporation for US federal income tax purposes) that was created or organized under
the laws of the U.S., any state thereof or the District of Columbia;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an estate whose income is subject to U.S. federal income taxation regardless of its source; or
| | - | ----------------------------------------------------------------------------------------------



| | · | a trust (i) if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more
“United States persons” (as defined in the Code) have the authority to control all substantial decisions of the trust,
or (ii) if the trust has a valid election in effect under applicable Treasury Regulations to be treated as a “United
States person.”
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This discussion is
based on current provisions of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, current and proposed
Treasury regulations promulgated under the Code, and administrative and judicial decisions as of the date of this report, all of
which are subject to change or differing interpretation, possibly on a retroactive basis. This discussion does not address any
aspect of state, local or non-U.S. tax laws. Except where noted, this discussion addresses only those holders who hold our shares
as capital assets. This discussion does not purport to be a comprehensive description of all of the tax considerations that may
be relevant to U.S. holders entitled to special treatment under U.S. federal income tax laws, for example, financial institutions,
insurance companies, tax-exempt organizations and broker/dealers, and it does not address all aspects of U.S. federal income taxation
that may be relevant to any particular shareholder based on the shareholder’s individual circumstances. In particular, this
discussion does not address the potential application of the alternative minimum tax, or the special U.S. federal income tax rules
applicable in special circumstances, including to U.S. holders who:



67







| | · | have elected mark-to-market accounting;
| | - | ---------------------------------------



| | · | hold our ordinary shares as part of a straddle, hedge or conversion transaction with other investments;
| | - | -------------------------------------------------------------------------------------------------------



| | · | own directly, indirectly or by attribution at least 10% of our voting power;
| | - | ----------------------------------------------------------------------------



| | · | are tax exempt entities;
| | - | ------------------------



| | · | are persons who acquire shares in connection with employment or other performance of services; and
| | - | --------------------------------------------------------------------------------------------------



| | · | have a functional currency that is not the U.S. dollar.
| | - | -------------------------------------------------------



Additionally, this
discussion does not consider the tax treatment of partnerships or persons who hold ordinary shares through a partnership or other
pass-through entity or the possible application of U.S. federal gift or estate taxes.



Each prospective shareholder
is urged to consult its tax advisor regarding the particular tax consequences to such holder of ownership and disposition of our
shares, as well as any tax consequences that may arise under the laws of any other relevant foreign, state, local, or other taxing
jurisdiction.



Taxation of Distributions Paid on
Ordinary Shares



Subject to the description
of the passive foreign investment company rules below, a U.S. holder will be required to include in gross income as ordinary income
from sources outside of the U.S. the amount of any distribution paid on ordinary shares, including any Israeli taxes withheld from
the amount paid, to the extent the distribution is paid out of our current or accumulated earnings and profits as determined for
U.S. federal income tax purposes. Distributions in excess of these earnings and profits will be applied against and will reduce
the U.S. holder’s basis in the ordinary shares and, to the extent in excess of this basis, will be treated as gain from the
sale or exchange of ordinary shares.



Certain dividend income
may be eligible for a reduced rate of taxation. Dividend income will be taxed to a non-corporate holder at the applicable long-term
capital gains rate if the dividend is received from a “qualified foreign corporation,” and the shareholder of such
foreign corporation holds such stock for more than 60 days during the 121 day period that begins on the date that is 60 days before
the ex-dividend date for the stock. The holding period is tolled for any days on which the shareholder has reduced his risk of
loss with respect to the stock. A “qualified foreign corporation” is either a corporation that is eligible for the
benefits of a comprehensive income tax treaty with the U.S. or a corporation whose stock, the shares of which are with respect
to any dividend paid by such corporation, is readily tradable on an established securities market in the United States (including,
for this purpose, ADSs traded on a securities market in the United States with respect to the foreign corporation’s shares).
However, a foreign corporation will not be treated as a “qualified foreign corporation” if it is a passive foreign
investment company (as discussed below) for the year in which the dividend was paid or the preceding year. Distributions of current
or accumulated earnings and profits paid in foreign currency to a US holder will be includible in the income of a U.S. holder in
a U.S. dollar amount calculated by reference to the exchange rate in effect on the day the distribution is received by the US holder
(or, in the case of ADSs, on the day the distribution is received by the depository). A U.S. holder that receives a foreign currency
distribution and converts the foreign currency into US dollars subsequent to receipt will have foreign exchange gain or loss based
on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S.
source ordinary income or loss.



As described above,
we will generally be required to withhold Israeli income tax from any dividends paid to holders who are not resident in Israel.
See “- Israeli Tax Considerations-Taxation of Dividends” above. If a U.S. holder receives a dividend from us that is
subject to Israeli withholding, the following would apply:



| | · | You must include the gross amount of the dividend, not reduced by the amount of Israeli tax withheld, in your U.S. taxable
income.
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | · | You may be able to claim the Israeli tax withheld as a foreign tax credit against your U.S. income tax liability. However,
to the extent that 25% or more of our gross income from all sources was effectively connected with the conduct of a trade or business
in the U.S. (or treated as effectively connected, with limited exceptions) for a three-year period ending with the close of the
taxable year preceding the year in which the dividends are declared, a portion of this dividend will be treated as U.S. source
income, possibly reducing the allowable foreign tax.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



68







| | · | The foreign tax credit is subject to significant and complex limitations. Generally, the credit can offset only the part of
your U.S. tax attributable to your net foreign source passive income. Additionally, if we pay dividends at a time when 50% or more
of our stock is owned by U.S. persons, you may be required to treat the part of the dividend attributable to U.S. source earnings
and profits as U.S. source income, possibly reducing the allowable credit.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

.

| | · | A U.S. holder will be denied a foreign tax credit with respect to Israeli income tax withheld from dividends received on the
ordinary shares to the extent the U.S. holder has not held the ordinary shares for at least 16 days of the 31-day period beginning
on the date which is 15 days before the ex-dividend date or, alternatively, to the extent the U.S. holder is under an obligation
to make related payments with respect to substantially similar or related property. Any days during which a U.S. holder has substantially
diminished its risk of loss on the ordinary shares are not counted toward meeting the 16-day holding period required by the statute.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | If you do not elect to claim foreign taxes as a credit, you will be entitled to deduct the Israeli income tax withheld from
your XTL dividends in determining your taxable income.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Individuals who do not claim itemized deductions, but instead utilize the standard deduction, may not claim a deduction for
the amount of the Israeli income taxes withheld.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | If you are a U.S. corporation holding our stock, the general rule is that you cannot claim the dividends-received deduction
with respect to our dividends. There is an exception to this rule if you own at least 10% of our ordinary shares (by vote) and
certain conditions are met.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Special rules, described
below, apply if we are a passive foreign investment company.



Taxation of the Disposition of Ordinary
Shares



Subject to the description
of the passive foreign investment company rules below, upon the sale, exchange or other disposition of our ordinary shares, a U.S.
holder will recognize capital gain or loss in an amount equal to the difference between the U.S. holder’s basis in the ordinary
shares, which is usually the cost of those shares, and the amount realized on the disposition. Capital gain from the sale, exchange
or other disposition of ordinary shares held more than one year is long-term capital gain and is eligible for a reduced rate of
taxation for non-corporate holders. In general, gain realized by a U.S. holder on a sale, exchange or other disposition of ordinary
shares generally will be treated as U.S. source income for U.S. foreign tax credit purposes. A loss realized by a U.S. holder on
the sale, exchange or other disposition of ordinary shares is generally allocated to U.S. source income. However, regulations require
the loss to be allocated to foreign source income to the extent certain dividends were received by the taxpayer within the 24-month
period preceding the date on which the taxpayer recognized the loss. The deductibility of a loss realized on the sale, exchange
or other disposition of ordinary shares is subject to limitations for both corporate and individual shareholders.



A U.S. holder that
uses the cash method of accounting calculates the U.S. dollar value of the proceeds received from a sale of ordinary shares as
of the date that the sale settles, and will generally have no additional foreign currency gain or loss on the sale, while a U.S.
holder that uses the accrual method of accounting is required to calculate the value of the proceeds of the sale as of the trade
date and may therefore realize foreign currency gain or loss, unless the U.S. holder has elected to use the settlement date to
determine its proceeds of sale for purposes of calculating this foreign currency gain or loss. In addition, a U.S. holder that
receives foreign currency upon disposition of our ordinary shares and converts the foreign currency into U.S. dollars subsequent
to receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency
against the U.S. dollar, which will generally be U.S. source ordinary income or loss.



Tax Consequences if we are a Passive
Foreign Investment Company



Special federal income
tax rules apply to the timing and character of income received by a U.S. holder of a PFIC. We will be a PFIC if either 75% or more
of our gross income in a tax year is passive income or the average percentage of our assets (by value) that produce or are held
for the production of passive income in a tax year is at least 50%. The IRS has indicated that cash balances, even if held as working
capital, are considered to be assets that produce passive income. Therefore, any determination of PFIC status will depend upon
the sources of our income, and the relative values of passive and non- passive assets, including goodwill. Furthermore, because
the goodwill of a publicly-traded corporation is largely a function of the trading price of its shares, the valuation of that goodwill
is subject to significant change throughout each year. A determination as to a corporation’s status as a PFIC must be made
annually. 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. Although we may not be a PFIC in any one
year, the PFIC taint remains with respect to those years in which we were or are a PFIC and the special PFIC taxation regime will
continue to apply.



69







If we are classified
as a PFIC, a special tax regime would apply to both (a) any “excess distribution” by us (generally, the U.S. holder’s
ratable share of distributions in any year that are greater than 125% of the average annual distributions received by such U.S.
holder in the three preceding years or its holding period, if shorter) and (b) any gain recognized on the sale or other disposition
of your ordinary shares. Under this special regime, any excess distribution and recognized gain would be treated as ordinary income
and the federal income tax on such ordinary income would be determined as follows: (i) the amount of the excess distribution or
gain would be allocated ratably over the U.S. holder’s holding period for our ordinary shares; (ii) U.S. federal income tax
would be determined for the amounts allocated to the first year in the holding period in which we were classified as a PFIC and
for all subsequent years (except the year in which the excess distribution was received or the sale occurred) by applying the highest
applicable tax rate in effect in the year to which the income was allocated; (iii) an interest charge would be added to this tax,
calculated by applying the underpayment interest rate to the tax for each year determined under the preceding sentence from the
due date of the income tax return for such year to the due date of the return for the year in which the excess distribution or
sale occurs; and (iv) amounts allocated to a year prior to the first year in the U.S. holder’s holding period in which we
were classified as a PFIC or to the year in which the excess distribution or the disposition occurred would be taxed as ordinary
income but without the imposition of an interest charge.



A U.S. holder may
generally avoid the PFIC “excess distribution” regime by electing to treat his PFIC shares as a “qualified electing
fund.” If a U.S. holder elects to treat PFIC shares as a qualified electing fund, also known as a “QEF Election,”
the U.S. holder must include annually in gross income (for each year in which PFIC status is met) hispro rata share of
the PFIC’s ordinary earnings and net capital gains, whether or not such amounts are actually distributed to the U.S. holder.
A U.S. holder may make a QEF Election with respect to a PFIC for any taxable year in which he was a shareholder. A QEF Election
is effective for the year in which the election is made and all subsequent taxable years of the U.S. holder. Procedures exist for
both retroactive elections and the filing of protective statements. A U.S. holder making the QEF Election must make the election
on or before the due date, as extended, for the filing of the U.S. holder’s income tax return for the first taxable year
to which the election will apply.



A QEF Election is
made on a shareholder-by-shareholder basis. A U.S. holder must make a QEF Election by completing Form 8621, Return by a Shareholder
of a Passive Foreign Investment Company or Qualified Electing Fund, and attaching it to the holder’s timely filed U.S. federal
income tax return.



Alternatively, a U.S.
holder may also generally avoid the PFIC regime by making a so-called “mark-to-market” election. Such an election may
be made by a U.S. holder with respect to ordinary shares owned at the close of such holder’s taxable year, provided that
we are a PFIC and the ordinary shares are considered “marketable stock.” The ordinary shares will be marketable stock
if they are regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission,
or the national market system established pursuant to section 11A of the Securities Exchange Act of 1934, or an equivalent regulated
and supervised foreign securities exchange.



If a U.S. holder were
to make a mark-to-market election with respect to ordinary shares, such holder generally will be required to include in its annual
gross income the excess of the fair market value of the PFIC shares at year-end over such shareholder’s adjusted tax basis
in the ordinary shares. Such amounts will be taxable to the U.S. holder as ordinary income, and will increase the holder’s
tax basis in the ordinary shares. Alternatively, if in any year, a United States holder’s tax basis exceeds the fair market
value of the ordinary shares at year-end, then the U.S. holder generally may take an ordinary loss deduction to the extent of the
aggregate amount of ordinary income inclusions for prior years not previously recovered through loss deductions and any loss deductions
taken will reduce the shareholder’s tax basis in the ordinary shares. Gains from an actual sale or other disposition of the
ordinary shares with a “mark-to-market” election will be treated as ordinary income, and any losses incurred on an
actual sale or other disposition of the ordinary shares will be treated as an ordinary loss to the extent of any prior “unreversed
inclusions” as defined in Section 1296(d) of the Code.



The mark-to-market
election is made on a shareholder-by-shareholder basis. The mark-to-market election is made by completing Form 8621, Return by
a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, and attaching it to the holder’s timely
filed U.S. federal income tax return for the year of election. Such election is effective for the taxable year for which made and
all subsequent years until either (a) the ordinary shares cease to be marketable stock or (b) the election is revoked with the
consent of the IRS.



In view of the
complexity of the issues regarding our treatment as a PFIC, U.S. shareholders are urged to consult their own tax advisors for guidance
as to our status as a PFIC.



Information Reporting and Back-Up
Withholding



U.S. holders generally
are subject to information reporting requirements with respect to dividends paid in the U.S. on ordinary shares. Existing regulations
impose information reporting and back-up withholding on dividends paid in the U.S. on ordinary shares and on proceeds from the
disposition of ordinary shares unless the U.S. holder provides IRS Form W-9 or otherwise establishes an exemption.



Prospective investors
should consult their tax advisors concerning the effect, if any, of these Treasury regulations on an investment in ordinary shares.
Back-up withholding is not an additional tax. The amount of any back-up withholding will be allowed as a credit against a holder’s
U.S. federal income tax liability and may entitle the holder to a refund, provided that specified required information is furnished
to the IRS on a timely basis.



70







Documents on Display



We file reports and
other information with the SEC under the Exchange Act and the regulations thereunder applicable to foreign private issuers. You
may inspect and copy reports and other information filed by us with the SEC at the SEC’s public reference facilities described
below. Although as a foreign private issuer we are not required to file periodic information as frequently or as promptly as US
companies, we generally announce publicly our interim and year-end results promptly on a voluntary basis and will file that periodic
information with the SEC under cover of Form 6-K. As a foreign private issuer, we are also exempt from the rules under the Exchange
Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt
from the reporting and other provisions in Section 16 of the Exchange Act.



You may read and copy
any document we file or furnish with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You can review
our SEC filings and the registration statement by accessing the SEC’s internet site at http://www.sec.gov .



We also maintain a website at http://www.xtlbio.com,
but information contained on our website does not constitute a part of this report and is not incorporated by reference into this
report.



ITEM 11. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK



Interest Rate Risk.
The primary objective of our investment activities is to preserve principal while maximizing our income from investments and minimizing
our market risk. We invest in bank deposits in accordance with our investment policy. As of December 31, 2015, our portfolio of
financial instruments consists of cash and cash equivalents, short-term bank deposits with multiple institutions. The average duration
of all of our investments held as of December 31, 2015, was less than one year. Due to the short-term nature of these investments,
we believe we have no material exposure to interest rate risk arising from our investments.



Foreign Currency
and Inflation Risk. We generate most of our revenues and hold most of our cash, cash equivalents and bank deposits in U.S.
dollars. While a substantial amount of our operating expenses are in U.S. dollars, we incur a portion of our expenses in New Israeli
Shekels. In addition, we also pay for some of our services and supplies in the local currencies of our suppliers, as our head office
is located in Israel. As a result, we are exposed to the risk that the U.S. dollar will be devalued against the New Israeli Shekel
or other currencies, and as a result our financial results could be harmed if we are unable to guard against currency fluctuations
in Israel or other countries in which services and supplies are obtained in the future. Accordingly, we may enter into currency
hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of currencies. The Company’s
treasury risk management policy is to hold NIS-denominated cash and cash equivalents and short-term deposits in the amount of the
anticipated NIS-denominated liabilities for six consecutive months from time to time and this in line with the directives of the
Company’s Board. These measures, however, may not adequately protect us from the adverse effects of inflation in Israel.
In addition, we are exposed to the risk that the rate of inflation in Israel will exceed the rate of devaluation of the New Israeli
Shekel in relation to the dollar or that the timing of any devaluation may lag behind inflation in Israel.



As of December 31,
2015, had the Group’s functional currency weakened by 10% against the NIS with all other variables remaining constant, post-tax
loss for the year would have been $ 20 thousand lower (2014 – post-tax loss approximately $ 85 thousand lower;
2013 - post-tax loss approximately $ 157 thousand lower), mainly as a result of exchange rate changes on translation of other
accounts receivable and exchange rate changes on NIS-denominated cash and cash equivalents.



Credit Risk.
Credit risks are managed at the Group level. The Group has no significant concentrations of credit risk. The Group has a policy
to ensure collection through sales of its products to wholesalers with an appropriate credit history and through retail sales in
cash or by credit card.



Liquidity Risk.
Cash flow forecasting is performed by the Group’s management both in the entities of the Group and aggregated by the Group.
The Group’s management monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient
cash to meet operations. The Group currently does not use credit facilities. Forecasting takes into consideration several factors
such as raising capital to finance operations and certain liquidity ratios that the Group strives to achieve.



Surplus cash held
to finance operating activities is invested in interest bearing current accounts, time deposits and other similar channels. These
channels were chosen by reference to their appropriate maturities or liquidity to provide sufficient cash balances to the Group
as determined by the abovementioned forecasts.



ITEM 12. DESCRIPTION OF SECURITIES OTHER
THAN EQUITY SECURITIES



Not applicable.



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



Not applicable.



71







ITEM 15. CONTROLS AND PROCEDURES



(a)     Disclosure
controls and procedures. Our management is responsible for establishing and maintaining effective disclosure controls
and procedures, as defined under Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934. As of December 31, 2015, an evaluation
was performed under the supervision and with the participation of our management of the effectiveness of the design and operation
of our disclosure controls and procedures. Based on that evaluation, management, including the Chief Executive Officer and Chief
Financial Officer, concluded that our disclosure controls and procedures as of December 31, 2015 were effective.



(b)     Internal
controls over financial reporting. Our management is responsible for establishing and maintaining adequate control over financial
reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness
of our internal control over financial reporting as of December 31, 2015. In making this assessment, our management used the criteria
established inInternal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) (2013). Based on that evaluation, our management believes our internal control over financial reporting was effective
as of December 31, 2015.



All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not
prevent or detect misstatements and can provide only reasonable assurances with respect to the preparation and presentation of
financial statements.



(c)     Internal
controls. There have been no significant changes in our internal control over financial reporting 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
Osnat Hillel Fain, chairperson of our audit committee, is an audit committee financial expert, as defined by applicable SEC regulations,
and is independent in accordance with applicable SEC regulations.



ITEM 16B. CODE OF ETHICS



We have adopted a Code of Conduct applicable
to all employees, directors and officers of our company, including our principal executive officer, principal financial officer,
principal accounting officer or controller and other individuals performing similar functions. A copy of our Code of Conduct can
be found on our website (http://www.xtlbio.com) and may also be obtained, without charge, upon a written request addressed to our
investor relations department, XTL Biopharmaceuticals Ltd., 5 HaCharoshet Street, Raanana 4365603, Israel.



ITEM 16C. PRINCIPAL ACCOUNTANT FEES
AND SERVICES



Policy on Pre-Approval of Audit and Non-Audit Services of
Independent Registered Public Accounting Firm



Our audit committee is responsible for
the oversight of the independent registered public accounting firm’s work. The audit committee’s policy is to pre-approve
all audit and non-audit services provided by our independent registered public accounting firm, Kesselman & Kesselman, a member
firm of PricewaterhouseCoopers International Ltd. (“PwC”). These services may include audit services, audit-related
services and tax services, as further described below.



Principal Accountant Fees and Services



We were billed the following fees for professional
services rendered by PwC, for the years ended December 31, 2015 and 2014.



|                       |  | 2015                      |     |  | 2014 | 
|---------------------- |  | ------------------------- | --- |  | ---- | 
|                       |  | U.S. dollars in thousands |    
|Audit fees             |  |                           | 52  |  |      | 
|Audit-related fees (1) |  |                           | 60  |  |      | 
|Tax fees               |  |                           | -   |  |      | 
|All Other fees         |  |                           | -   |  |      | 
|Total                  |  |                           | 112 |  |      | 



| | (1) | Related to the Company’s filing of registration statements
| | --- | ----------------------------------------------------------



72







The audit fees for
the years ended December 31, 2015 and 2014, respectively, were for professional services rendered for the audit of our annual consolidated
financial statements, review of interim consolidated financial statements and statutory audits, including Israeli tax reports.



The audit-related
fees above do not include InterCure’s audit-related fees for the year ended December 31, 2014 in the amount of $28 thousand.



For the fiscal years
ended December 31, 2015 and 2014, all of our audit-related fees, tax fees and other fees were pre-approved by our 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



None.



ITEM 16F. CHANGE IN REGISTRANT’S
REGISTERED ACCOUNTANT



None.



ITEM 16G. CORPORATE GOVERNANCE



Under the Nasdaq corporate
governance rules, foreign private issuers are exempt from many of the requirements if they instead elect to comply with home country
practices and disclose where they have elected to do so. As noted above, we are currently in compliance with Nasdaq rules relating
to the independence of our board of directors and our audit committee. Our board of directors and our audit committee has adopted
a written charter for the audit committee setting forth the responsibilities of the audit committee as required by the SEC and
Nasdaq. Also as noted above, we currently have a nomination committee to identify, review and recommend to the Board of Directors
individuals believed to be qualified to become directors. We have adopted a written charter for the nomination committee, as required
by Nasdaq. We currently have in place a compensation committee, as discussed in more detail above. We have adopted a written charter
for the compensation committee.



In August 2005, our
board of directors adopted a Code of Conduct that applies to all employees, directors and officers of our company, including our
principal executive officer, principal financial officer, principal accounting officer or controller and other individuals performing
similar functions. A copy of our Code of Conduct may be obtained, without charge, upon a written request addressed to our investor
relations department, XTL Biopharmaceuticals Ltd., 5 HaCharoshet Street, Raanana 4365603, Israel.



PART III



ITEM 17. FINANCIAL STATEMENTS



We have elected to
furnish financial statements and related information specified in Item 18.





73











ITEM 18. FINANCIAL STATEMENTS



XTL BIOPHARMACEUTICALS LTD.



CONSOLIDATED FINANCIAL STATEMENTS



AS OF DECEMBER 31, 2015



INDEX



|                                                        | Page      
|------------------------------------------------------- | ----------
|                                                        |           
|Report of Independent Registered Public Accounting Firm | F-2       
|                                                        |           
|Consolidated Financial Statements - in U.S. dollars:    |           
|                                                        |           
|Statements of Financial Position                        | F-3– F-4  
|                                                        |           
|Statements of Comprehensive loss                        | F-5       
|                                                        |           
|Statements of Changes in Equity                         | F-6 – F-8 
|                                                        |           
|Statements of Cash Flows                                | F-9 – F-11
|                                                        |           
|Notes to Financial Statements                           | F-12 –F-58



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



F-1











Report of Independent Registered
Public Accounting Firm

To the shareholders of

XTL BIOPHARMACEUTICALS LTD.



We have audited
the accompanying balance sheets of XTL Biopharmaceuticals Ltd and its subsidiaries 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 of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. 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 the Company’s Board of Directors and 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, the consolidated financial statements referred to above, present fairly, in all material
respects, the financial position of XTL Biopharmaceuticals Ltd. and its subsidiaries at December 31, 2015 and 2014, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).



|Tel-Aviv, Israel | Kesselman & Kesselman                                        
|---------------- | -------------------------------------------------------------
|March 31, 2016   | Certified Public Accountants (lsr.)                          
|                 | A member firm of PricewaterhouseCoopers International Limited



F-2









XTL BIOPHARMACEUTICALS LTD.



CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION



|                                                     |  |      |    |  | December 31,              | 
|---------------------------------------------------- |  | ---- | -- |  | ------------------------- | 
|                                                     |  |      |    |  | 2015                      | 
|                                                     |  | Note |    |  | U.S. dollars in thousands | 
|ASSETS                                               |  |      |    |  |                           | 
|                                                     |  |      |    |  |                           | 
|CURRENT ASSETS:                                      |  |      |    |  |                           | 
|Cash and cash equivalents                            |  |      | 6  |  |                           | 
|Marketable securities                                |  |      | 7  |  |                           | 
|Other accounts receivable                            |  |      | 8  |  |                           | 
|                                                     |  |      |    |  |                           | 
|                                                     |  |      |    |  |                           | 
|                                                     |  |      |    |  |                           | 
|Assets of disposal group classified as held for sale |  |      | 5  |  |                           | 
|                                                     |  |      |    |  |                           | 
|                                                     |  |      |    |  |                           | 
|                                                     |  |      |    |  |                           | 
|NON-CURRENT ASSETS:                                  |  |      |    |  |                           | 
|Restricted deposits                                  |  |      |    |  |                           | 
|Property, plant and equipment, net                   |  |      |    |  |                           | 
|Intangible assets, net                               |  |      | 11 |  |                           | 
|                                                     |  |      |    |  |                           | 
|                                                     |  |      |    |  |                           | 
|                                                     |  |      |    |  |                           | 
|Total assets                                         |  |      |    |  |                           | 



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



F-3









XTL BIOPHARMACEUTICALS LTD.



CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION



|                                                                                                                                            |  |      |    |  | December 31,              | 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- |  | ------------------------- | 
|                                                                                                                                            |  |      |    |  | 2015                      | 
|                                                                                                                                            |  | Note |    |  | U.S. dollars in thousands | 
|LIABILITIES AND EQUITY                                                                                                                      |  |      |    |  |                           | 
|                                                                                                                                            |  |      |    |  |                           | 
|CURRENT LIABILITIES:                                                                                                                        |  |      |    |  |                           | 
|Trade payables                                                                                                                              |  |      | 12 |  |                           | 
|Other accounts payable                                                                                                                      |  |      | 13 |  |                           | 
|                                                                                                                                            |  |      |    |  |                           | 
|                                                                                                                                            |  |      |    |  |                           | 
|                                                                                                                                            |  |      |    |  |                           | 
|Liabilities of disposal group classified as held for sale                                                                                   |  |      | 5  |  |                           | 
|                                                                                                                                            |  |      |    |  |                           | 
|                                                                                                                                            |  |      |    |  |                           | 
|                                                                                                                                            |  |      |    |  |                           | 
|                                                                                                                                            |  |      |    |  |                           | 
|NON-CURRENT LIABILITIES                                                                                                                     |  |      |    |  |                           | 
|                                                                                                                                            |  |      |    |  |                           | 
|EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY:                                                                                       |  |      | 16 |  |                           | 
|Share capital – ordinary shares of NIS 0.1 par value: authorized – December 31, 2015 and 2014 – 700,000,000 shares; issued and outstanding: |  |      |    |  |                           | 
|December 31, 2015 –      273,525,799                                                                                                        |  |      |    |  |                           | 
|December 31, 2014 – ** 232,812,446                                                                                                          |  |      |    |  |                           | 
|Premium on shares, options and warrants                                                                                                     |  |      |    |  |                           | 
|Reserve from transactions with non-controlling interests                                                                                    |  |      |    |  |                           | 
|Accumulated deficit                                                                                                                         |  |      |    |  |                           | 
|Treasury shares, at cost:                                                                                                                   |  |      |    |  |                           | 
|December 31, 2014 – 4,354,881                                                                                                               |  |      |    |  |                           | 
|                                                                                                                                            |  |      |    |  |                           | 
|                                                                                                                                            |  |      |    |  |                           | 
|NON-CONTROLLING INTERESTS                                                                                                                   |  |      |    |  |                           | 
|                                                                                                                                            |  |      |    |  |                           | 
|Total equity                                                                                                                                |  |      |    |  |                           | 
|                                                                                                                                            |  |      |    |  |                           | 
|Total liabilities and equity                                                                                                                |  |      |    |  |                           | 



** Net of treasury shares



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



|                      |  |                         |  |                        
|--------------------- |  | ----------------------- |  | -----------------------
|Shlomo Shalev         |  | Josh Levine             |  | David Kestenbaum       
|Chairman of the Board |  | Chief Executive Officer |  | Chief Financial Officer



Date of approval of the financial statements
by the Company’s Board: March 31, 2016.



F-4









XTL BIOPHARMACEUTICALS LTD.



CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS



|                                                                                 |  |      |    |  | Year ended December 31,                           | 
|-------------------------------------------------------------------------------- |  | ---- | -- |  | ------------------------------------------------- | 
|                                                                                 |  |      |    |  | 2015                                              | 
|                                                                                 |  | Note |    |  | U.S. dollars in thousands (except per share data) | 
|Continuing operations:                                                           |  |      |    |  |                                                   | 
|Research and development expenses                                                |  |      | 18 |  |                                                   | 
|General and administrative expenses                                              |  |      | 19 |  |                                                   | 
|Impairment of intangible assets                                                  |  |      | 11 |  |                                                   | 
|Other gains (losses), net                                                        |  |      | 20 |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Operating loss                                                                   |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Finance income                                                                   |  |      |    |  |                                                   | 
|Finance expenses                                                                 |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Finance income (expenses), net                                                   |  |      | 21 |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Loss from investment in associate                                                |  |      | 10 |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Loss from continuing operations                                                  |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Loss from discontinued operations                                                |  |      | 5  |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Total loss for the year                                                          |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Other comprehensive income (loss) from discontinued operations:                  |  |      |    |  |                                                   | 
|Items that might be classified to profit or loss:                                |  |      |    |  |                                                   | 
|Foreign currency translation adjustments                                         |  |      |    |  |                                                   | 
|Reclassification of foreign currency translation adjustments to Other gains, net |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Total other comprehensive loss from discontinued operations                      |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Total comprehensive loss                                                         |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Total loss attributable to:                                                      |  |      |    |  |                                                   | 
|Equity holders of the Company                                                    |  |      |    |  |                                                   | 
|Non-controlling interests from discontinued operations                           |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Total comprehensive loss attributable to:                                        |  |      |    |  |                                                   | 
|Equity holders of the Company                                                    |  |      |    |  |                                                   | 
|Non-controlling interests from discontinued operations                           |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Basic and diluted loss per share:                                                |  |      |    |  |                                                   | 
|From continuing operations                                                       |  |      |    |  |                                                   | 
|From discontinued operations                                                     |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Loss per share for the period                                                    |  |      |    |  |                                                   | 
|                                                                                 |  |      |    |  |                                                   | 
|Weighted average number of issued ordinary shares                                |  |      |    |  |                                                   | 



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



F-5









XTL BIOPHARMACEUTICALS LTD.



CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY







|                                                         |  | Attributable to equity holders of the Company |       |  |                                      | 
|-------------------------------------------------------- |  | --------------------------------------------- | ----- |  | ------------------------------------ | 
|                                                         |  | Share
        capital                         |       |  | Premium onshares,options andwarrants | 
|                                                         |  | U.S. dollars in thousands                     |      
|                                                         |  |                                               |       |  |                                      | 
|Balance as of January 1, 2015                            |  |                                               | 6,198 |  |                                      | 
|                                                         |  |                                               |       |  |                                      | 
|Total comprehensive loss                                 |  |                                               | -     |  |                                      | 
|                                                         |  |                                               |       |  |                                      | 
|Share-based payment to employees and others              |  |                                               | -     |  |                                      | 
|Purchase of intangible assets through issuance of equity |  |                                               | 8     |  |                                      | 
|Issuance of shares and warrants                          |  |                                               | 400   |  |                                      | 
|Transaction with non-controlling interests in InterCure  |  |                                               | -     |  |                                      | 
|Loss of control in InterCure                             |  |                                               | -     |  |                                      | 
|                                                         |  |                                               |       |  |                                      | 
|Balance as of December 31, 2015                          |  |                                               | 6,606 |  |                                      | 









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



F-6







XTL BIOPHARMACEUTICALS LTD.



CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY



|                                                |  | Attributable
    to equity holders of the Company |       |  |                                             | 
|----------------------------------------------- |  | ------------------------------------------------- | ----- |  | ------------------------------------------- | 
|                                                |  | Share capital                                     |       |  | Premium
    on shares, options and warrants | 
|                                                |  | U.S.
    dollars in thousands                     |      
|                                                |  |                                                   |       |  |                                             | 
|Balance as
    of January 1, 2014               |  |                                                   | 6,093 |  |                                             | 
|                                                |  |                                                   |       |  |                                             | 
|Total comprehensive loss                        |  |                                                   | -     |  |                                             | 
|                                                |  |                                                   |       |  |                                             | 
|Share-based payment to
    employees and others |  |                                                   | -     |  |                                             | 
|Issuance of shares                              |  |                                                   | 14    |  |                                             | 
|Sale of treasury shares                         |  |                                                   | -     |  |                                             | 
|Exercise
    of options into shares             |  |                                                   | 91    |  |                                             | 
|                                                |  |                                                   |       |  |                                             | 
|Balance
    as of December 31, 2014             |  |                                                   | 6,198 |  |                                             | 



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



F-7







XTL BIOPHARMACEUTICALS LTD.



CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY



|                                                               |  | Attributable
    to equity holders of the Company |       |  |                               |  |         |                         | 
|-------------------------------------------------------------- |  | ------------------------------------------------- | ----- |  | ----------------------------- |  | ------- | ----------------------- | 
|                                                               |  | Share capital                                     |       |  | Share
    premium and options |  |         | Accumulated
    deficit | 
|                                                               |  | U.S.
    dollars in thousands                     |      
|                                                               |  |                                                   |       |  |                               |  |         |                         | 
|Balance
    as of January 1, 2013                              |  |                                                   | 5,997 |  |                               |  | 147,475 |                         | 
|                                                               |  |                                                   |       |  |                               |  |         |                         | 
|Loss for the year                                              |  |                                                   | -     |  |                               |  | -       |                         | 
|Other
    comprehensive income                                 |  |                                                   | -     |  |                               |  | -       |                         | 
|                                                               |  |                                                   |       |  |                               |  |         |                         | 
|Total comprehensive
    loss                                   |  |                                                   | -     |  |                               |  | -       |                         | 
|                                                               |  |                                                   |       |  |                               |  |         |                         | 
|Share-based payment
    to employees and others                |  |                                                   | -     |  |                               |  | -       |                         | 
|Issuance of shares
    and warrants                            |  |                                                   | 90    |  |                               |  | 876     |                         | 
|Exercise of options
    in associate                           |  |                                                   | -     |  |                               |  | -       |                         | 
|Sale of treasury shares                                        |  |                                                   | -     |  |                               |  | (52     | )                       | 
|Conversion of convertible
    loan into capital, in subsidiary |  |                                                   | -     |  |                               |  | -       |                         | 
|Other                                                          |  |                                                   | -     |  |                               |  | -       |                         | 
|Exercise
    of warrants into shares                           |  |                                                   | 6     |  |                               |  | 28      |                         | 
|                                                               |  |                                                   |       |  |                               |  |         |                         | 
|Balance
    as of December 31, 2013                            |  |                                                   | 6,093 |  |                               |  | 148,327 |                         | 



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



F-8







XTL BIOPHARMACEUTICALS LTD.



CONSOLIDATED STATEMENTS OF
CASH FLOWS



|                                                                                 |  |      |    |  | Year ended December 31,   | 
|-------------------------------------------------------------------------------- |  | ---- | -- |  | ------------------------- | 
|                                                                                 |  |      |    |  | 2015                      | 
|                                                                                 |  | Note |    |  | U.S. dollars in thousands | 
|                                                                                 |  |      |    |  |                           | 
|Cash flows from operating activities:                                            |  |      |    |  |                           | 
|                                                                                 |  |      |    |  |                           | 
|Loss for the year                                                                |  |      |    |  |                           | 
|Adjustments to reconcile loss to net cash used in operating activities (a)       |  |      |    |  |                           | 
|                                                                                 |  |      |    |  |                           | 
|Net cash used in operating activities                                            |  |      |    |  |                           | 
|                                                                                 |  |      |    |  |                           | 
|Cash flows from investing activities:                                            |  |      |    |  |                           | 
|                                                                                 |  |      |    |  |                           | 
|Deconsolidation of subsidiary                                                    |  |      |    |  |                           | 
|Proceeds from sale of investment in associate                                    |  |      |    |  |                           | 
|Decrease in restricted deposit                                                   |  |      |    |  |                           | 
|Increase in restricted deposit                                                   |  |      |    |  |                           | 
|Decrease (increase) in short-term bank deposits                                  |  |      |    |  |                           | 
|Purchase of property, plant and equipment                                        |  |      |    |  |                           | 
|Purchase of intangible assets                                                    |  |      | 11 |  |                           | 
|                                                                                 |  |      |    |  |                           | 
|Net cash provided by (used) in investing activities                              |  |      |    |  |                           | 
|                                                                                 |  |      |    |  |                           | 
|Cash flows from financing activities:                                            |  |      |    |  |                           | 
|                                                                                 |  |      |    |  |                           | 
|Proceeds from issuance of shares and options                                     |  |      | 16 |  |                           | 
|Exercise of warrants and options into shares                                     |  |      | 16 |  |                           | 
|Sale of subsidiary shares                                                        |  |      |    |  |                           | 
|Sale of treasury shares                                                          |  |      |    |  |                           | 
|                                                                                 |  |      |    |  |                           | 
|Net cash provided by financing activities                                        |  |      |    |  |                           | 
|                                                                                 |  |      |    |  |                           | 
|Increase (decrease) in cash and cash equivalents                                 |  |      |    |  |                           | 
|Gains (losses) from exchange rate differences on cash and cash equivalents       |  |      |    |  |                           | 
|Reclassification of cash in subsidiary to assets of disposal group held for sale |  |      |    |  |                           | 
|Cash and cash equivalents at beginning of year                                   |  |      |    |  |                           | 
|                                                                                 |  |      |    |  |                           | 
|Cash and cash equivalents at end of year                                         |  |      |    |  |                           | 



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



F-9









XTL BIOPHARMACEUTICALS LTD.



CONSOLIDATED STATEMENT OF
CASH FLOWS







|    |  |                                                                                       |  |      |  | Year ended December 31,   |      
|--- |  | ------------------------------------------------------------------------------------- |  | ---- |  | ------------------------- | -----
|    |  |                                                                                       |  |      |  | 2015                      |      
|    |  |                                                                                       |  | Note |  | U.S. dollars in thousands |      
|    |  |                                                                                       |  |      |  |                           |      
|(a) |  | Adjustments to reconcile loss to net cash provided by (used in) operating activities: |  |      |  |                           |      
|    |  |                                                                                       |  |      |  |                           |      
|    |  | Income and expenses not involving cash flows:                                         |  |      |  |                           |      
|    |  |                                                                                       |  |      |  |                           |      
|    |  | Depreciation and amortization                                                         |  |      |  |                           | 7    
|    |  | Loss from disposal of property, plant and equipment                                   |  |      |  |                           | 5    
|    |  | Loss from disposal of intangible assets                                               |  | 11   |  |                           | 5    
|    |  | Share-based payment transactions to employees and others                              |  | 17   |  |                           | 148  
|    |  | Revaluation of short-term deposits                                                    |  |      |  |                           | -    
|    |  | Gains (losses) from exchange rate differences on cash and cash equivalents            |  |      |  |                           | 2    
|    |  | Disposal of investment in subsidiary                                                  |  | 5    |  |                           | 689  
|    |  | Change in employee benefit liabilities, net                                           |  |      |  |                           | -    
|    |  | Loss (gain) from change in holding rate in associate                                  |  | 10   |  |                           | -    
|    |  | Earnings from investment in associate                                                 |  | 10   |  |                           | -    
|    |  | Impairment of intangible assets                                                       |  | 11   |  |                           | 1,604
|    |  | Gain from sale of investment in associate                                             |  |      |  |                           | -    
|    |  | Other financial expenses                                                              |  |      |  |                           | 6    
|    |  |                                                                                       |  |      |  |                           |      
|    |  |                                                                                       |  |      |  |                           | 2,466
|    |  | Changes in operating asset and liability items:                                       |  |      |  |                           |      
|    |  |                                                                                       |  |      |  |                           |      
|    |  | Decrease (increase) in trade receivables                                              |  |      |  |                           | -    
|    |  | Decrease (increase) in other accounts receivable and income taxes receivable          |  |      |  |                           | 36   
|    |  | Decrease (increase) in inventories                                                    |  | 5    |  |                           | -    
|    |  | Decrease in trade payables                                                            |  |      |  |                           | (117 
|    |  | Increase (decrease) in other accounts payable                                         |  |      |  |                           | 65   
|    |  |                                                                                       |  |      |  |                           |      
|    |  |                                                                                       |  |      |  |                           | (16  
|    |  |                                                                                       |  |      |  |                           |      
|    |  |                                                                                       |  |      |  |                           | 2,450



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



F-10









XTL BIOPHARMACEUTICALS LTD.



CONSOLIDATED STATEMENT OF
CASH FLOWS



|    |  |                                                                 |  |      |  | Year ended December 31,   |      
|--- |  | --------------------------------------------------------------- |  | ---- |  | ------------------------- | -----
|    |  |                                                                 |  |      |  | 2015                      |      
|    |  |                                                                 |  | Note |  | U.S. dollars in thousands |      
|    |  |                                                                 |  |      |  |                           |      
|(b) |  | Additional information on cash flows from operating activities: |  |      |  |                           |      
|    |  |                                                                 |  |      |  |                           |      
|    |  | Interest received                                               |  |      |  |                           | -    
|    |  |                                                                 |  |      |  |                           |      
|(c) |  | Non-cash transactions:                                          |  |      |  |                           |      
|    |  |                                                                 |  |      |  |                           |      
|    |  | Conversion of convertible loan into capital in subsidiary       |  |      |  |                           | -    
|    |  |                                                                 |  |      |  |                           |      
|    |  | Share-based payment to third party                              |  |      |  |                           | 84   
|    |  |                                                                 |  |      |  |                           |      
|    |  | Allotment of shares to Aurum                                    |  |      |  |                           | -    
|    |  |                                                                 |  |      |  |                           |      
|    |  | Receivables from sale of investment in associate                |  |      |  |                           | -    
|    |  |                                                                 |  |      |  |                           |      
|(d) |  | De-consolidation of subsidiary:                                 |  | 5    |  |                           |      
|    |  |                                                                 |  |      |  |                           |      
|    |  | Non-current assets held for sale                                |  |      |  |                           | 507  
|    |  | Non-current liabilities held for sale                           |  |      |  |                           | (449 
|    |  | Disposal of treasury shares                                     |  |      |  |                           | 1,501
|    |  | Negative premium from disposal of treasury shares               |  |      |  |                           | (587 
|    |  | Investment in associate at fair value                           |  |      |  |                           | (482 
|    |  | Loss from disposal of subsidiary                                |  |      |  |                           | (464 
|    |  | Non-controlling interests                                       |  |      |  |                           | (26  
|    |  |                                                                 |  |      |  |                           |      
|    |  |                                                                 |  |      |  |                           | -    



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



F-11









XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015





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



| | a. | A general description of the Company and its activity:
| | -- | ------------------------------------------------------



XTL Biopharmaceuticals Ltd. (the
“Company”) is engaged in the development of therapeutics for the treatment of unmet medical needs. The Company
was incorporated under the Israeli Companies Law on March 9, 1993. The registered office of the Company is located at 5 HaCharoshet
Street, Raanana 4365603, Israel.



The Company’s American Depository
Shares (“ADSs”) are listed for trading on the Nasdaq Capital Market and its ordinary shares are traded on the
Tel-Aviv Stock Exchange (“TASE”).



As of December 31, 2015, the Company
has the following subsidiary:



Xtepo Ltd. – a wholly owned
(100%) private company incorporated in Israel which holds a license for the exclusive use of the patent for rHuEPO drug for treating
Multiple Myeloma patients.



The Company and Xtepo Ltd. are
heretofore referred to as the Group.



F-12







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



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



| | b. | The Company has incurred continuing losses and depends
on outside financing resources to continue its activities. Based on existing business plans, the Company’s management estimates
that its outstanding cash and cash equivalent balances will allow the Company to finance its activities for an additional period
of at least 12 months from the date of this report. However, the amount of cash which the Company will need in practice to finance
its activities depends on numerous factors which include, but are not limited to, the timing, planning and execution of clinical
trials of existing drugs and future projects which the Company might acquire or other business development activities such as
acquiring new technologies and/or changes in circumstances which are liable to cause significant expenses to the Company in excess
of management’s current and known expectations as of the date of these financial statements and which will require the Company
to reallocate funds against plans, also due to circumstances beyond its control.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company expects to incur additional
losses in 2016 arising from research and development activities, testing additional technologies and operating activities, which
will be reflected in negative cash flows from operating activities. In order to perform the clinical trials aimed at developing
a product until obtaining its marketing approval, the Company may be required to raise additional funds in the future by issuing
securities. Should the Company fail to raise additional capital in the future under standard terms, it will be required to minimize
its activities or sell or grant a sublicense to third parties to use all or part of its technologies.



F-13







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015





| | NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES
| | ------- | -------------------------------



The following is a discussion of
significant accounting policies relating to continuing operations of the Group. For a discussion of significant accounting policies
with regard to discontinued operations, see note 5 below.



| | a. | Basis of presentation of the financial statements:
| | -- | --------------------------------------------------



The consolidated
financial statements of the Company (the “Financial Statements”) have been prepared in accordance with International
Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB).



The consolidated financial statements
have been consistently applied to all the years presented, unless otherwise stated and have been prepared under the historical
cost convention, as adjusted for financial assets presented at fair value.



The preparation
of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the
Group’s management to exercise its judgment in the process of applying the Group’s accounting policies. The areas that
involve judgment which have significant effect or complexity or where assumptions and estimates are significant to the consolidated
financial statements are disclosed in note 3. Actual results could significantly differ from the estimates and assumptions used
by the Group’s management.



| | b. | Consolidated financial statements:
| | -- | ----------------------------------



| | 1. | Subsidiaries consolidation and business combinations:
| | -- | -----------------------------------------------------



The consolidated
financial statements include the accounts of the Company and entities controlled by the Company. Control exists when the Company
has the power over the investee; has exposure, or rights, to variable returns from involvement in the investee; and has the ability
to use its power over the investee to affect its returns.



The Company examines
whether it controls another entity even when it does not hold more than 50% of the voting rights, but can control the entity’s
financial and operating policies by de-facto control. De-facto control can be created under circumstances in which the ratio of
the Company’s voting rights in the entity to the percentage and dispersion of the holdings of the other shareholders grants
the Company the power to control the entity’s financial and operating policies.



Subsidiaries
are fully consolidated starting from the date on which control therein is attained by the Company. Their consolidation ceases when
such control is discontinued.



F-14







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



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



Intra-group balances
and transactions, including revenues, expenses and dividends in respect of transactions between the Group companies, are eliminated.



| | 2. | Transactions with non-controlling interests which do not result in loss
of control:
| | -- | -----------------------------------------------------------------------------------



Transactions
with non-controlling interests in subsidiaries which do not result in loss of control in the subsidiaries are accounted for as
transactions with owners. In these transactions, the difference between the fair value of any consideration paid or received and
the amount of adjustment of the non-controlling interests to reflect the changes in their relative rights in the subsidiaries is
directly recognized in equity and attributed to the equity holders of the parent.



| | 3. | Associate:
| | -- | ----------



An associate
is an entity over which the Group exercises significant influence, but not control, which is usually expressed in holding 20%-50%
of the voting rights. The investment in an associate is presented using the equity method of accounting. According to the equity
method of accounting, the investment is initially recognized at cost and its carrying amount varies to the extent that the Group
recognizes its share of the associate’s earnings or losses from the acquisition date.



The Group’s
share in the earnings or losses of associates after the acquisition date is carried to profit or loss and its share in the other
comprehensive income movements after the acquisition date is carried to other comprehensive income against the carrying amount
of the investment.



F-15







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



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



Each reporting date, the Group
determines if there are indicators of impairment in the investment in the associate. In such case, the Group calculates the amount
of the impairment as the difference between the recoverable amount of the investment in the associate (the higher of the value
in use and the fair value less selling costs) and its carrying amount and recognizes the amount of impairment in profit or loss
in the line item of “losses from investment in associate”.



| | c. | Translation of balances and transactions in foreign currency:
| | -- | -------------------------------------------------------------



| | 1. | Functional currency and presentation currency:
| | -- | ----------------------------------------------



Items included
in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment
in which the entity operates (the “Functional Currency”). The consolidated financial statements are presented
in U.S. dollars, which is the Functional Currency of each of the Group’s entities and the Company’s presentation currency.



Below are the
changes in the reporting periods in the exchange rate of the U.S. dollar in relation to the NIS:



|                  |  | Change in the |      
|----------------- |  | ------------- | -----
|                  |  | exchange rate |      
|Year ended        |  | of U.S. $ 1   |      
|                  |  | %             |      
|                  |  |               |      
|December 31, 2015 |  |               | 0.33 
|December 31, 2014 |  |               | 12.04
|December 31, 2013 |  |               | (7.02



|                  |  | Exchange rate |      
|----------------- |  | ------------- | -----
|As of             |  | of U.S. $ 1   |      
|                  |  | NIS           |      
|                  |  |               |      
|December 31, 2015 |  |               | 3.902
|December 31, 2014 |  |               | 3.889



F-16









XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



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



| | 2. | Transactions and balances:
| | -- | --------------------------



Transactions
in a currency other than the Functional Currency (“foreign currency”) are translated into the Functional Currency
using the exchange rates at the dates of the transactions. 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 differences are recognized in the statement of comprehensive income in the line item finance income (expenses).
Non-monetary assets and liabilities denominated in foreign currency and measured at cost are translated at the exchange rate at
the date of the transaction.



Exchange rate
differences for the years ended December 31, 2014 and 2013 have been reclassified in these financial statements into line item
“gain (loss) from exchange rate differences.”



| | d. | Property, plant and equipment:
| | -- | ------------------------------



Items of property,
plant and equipment are measured at cost with the addition of direct acquisition costs, less accumulated depreciation and accumulated
impairment losses.



Depreciation of property, plant
and equipment is calculated on a straight-line basis to reduce their cost to their residual value over their useful life as follows:



|                               |  | % per-year |                  
|------------------------------ |  | ---------- | -----------------
|                               |  |            |                  
|Computers                      |  |            | 33               
|Office furniture and equipment |  |            | 6 – 15 (mainly 6)



An asset’s
carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount (see f below).



F-17







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



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



| | e. | Intangible assets:
| | -- | ------------------



| | 1. | Unamortized intangible assets (licenses and patent rights):
| | -- | -----------------------------------------------------------



The amortization
of an asset on a straight-line basis over its useful life begins when the development procedure is completed and the asset is available
for use. An intangible asset with an indefinite useful life shall not be amortized. These assets are reviewed for impairment once
a year and whenever there are indicators of a possible impairment, in accordance with the provisions of IAS 36, Impairment of
Assets. See note 11 for further details.



| | 2. | Research and development:
| | -- | -------------------------



Research expenditures
are recognized as expenses when incurred. Costs arising from development projects are recognized as intangible assets when the
following criteria are met:



| | - | it is technically feasible to complete the intangible asset so that it will be available for use;
| | - | -------------------------------------------------------------------------------------------------

| | - | management intends to complete the intangible asset and use or sell it;
| | - | -----------------------------------------------------------------------

| | - | there is an ability to use or sell the intangible asset;
| | - | --------------------------------------------------------

| | - | it can be demonstrated how the intangible asset will generate probable future economic benefits;
| | - | ------------------------------------------------------------------------------------------------

| | - | adequate technical, financial and other resources to complete the development and to use or sell
the intangible asset are available; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | - | the expenditure attributable to the intangible asset during its development can be reliably measured.
| | - | -----------------------------------------------------------------------------------------------------



Other development
expenditures that do not meet these criteria are recognized as an expense when incurred. Development costs that were previously
recognized as an expense are not recognized as an asset in a later period. As of December 31, 2015, the Group did not capitalize
development costs to intangible assets.



F-18







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



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



| | f. | Impairment of non-financial assets:
| | -- | -----------------------------------



Intangible assets
which are not yet available for use are not depreciated and impairment in their respect is tested at least every year. Depreciable
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
Non-financial assets that sustained impairment are reviewed for possible reversal of the impairment at each date of the statement
of financial position.



| | g. | Financial assets:
| | -- | -----------------



| | 1. | Classification:
| | -- | ---------------



The Group classifies
its financial assets into the loans and receivables category. The classification depends on the purpose for which the financial
assets were acquired. The Group’s management determines the classification of its financial assets at initial recognition.



Loans and
receivables:



Loans and receivables
are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included
in current assets, except for maturities greater than 12 months after the date of the statement of financial position. The Group’s
loans and receivables are included in the line items: “other accounts receivable”, “cash and cash equivalents”,
and “restricted deposits” in the statement of financial position.



Financial assets available
for sale:



Available-for-sale financial assets
are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included
in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting
period.



F-19







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



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



| | 2. | Recognition and measurement:
| | -- | ----------------------------



Regular purchases
and sales of financial assets are recognized in the books of the Group companies on the transaction settlement date which is the
date on which the asset is transferred to the Group or transferred by the Group. Investments are initially recognized at fair value
plus transaction costs for all financial assets not carried at fair value through profit or loss. Loans and receivables are subsequently
carried at amortized cost using the effective interest method.



| | 3. | Impairment of financial assets:
| | -- | -------------------------------



Financial
assets carried at amortized cost:



The Group assesses
at the date of each statement of financial position whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there
is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset
(a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial
asset or group of financial assets that can be reliably estimated.



| | h. | Cash and cash equivalents:
| | -- | --------------------------



Cash and cash
equivalents include cash at hand and short-term bank deposits with original maturities of three months or less, that are not restricted
as to withdrawal or use, and are therefore considered to be cash equivalents.



| | i. | Share capital:
| | -- | --------------



The Company’s
ordinary shares are classified as share capital. Incremental costs directly attributable to the issuance of new shares, options
and warrants are shown in equity as a deduction, from the issuance proceeds.



When Group companies
purchase Company shares (treasury shares), the consideration paid, including incremental costs directly attributable to the purchase
(less the effect of taxes on income), is deducted from the equity attributable to equity holders of the parent until the shares
are eliminated or reissued. When these shares are reissued in subsequent periods, the consideration received, less incremental
costs directly attributable to the transaction and less the effect of taxes on income, is included in equity attributable to equity
holders of the parent.



| | j. | Trade payables:
| | -- | ---------------



Trade payables
are the Group’s obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Trade payables are initially recognized at fair value and subsequently measured at amortized cost using the effective
interest method.



F-20







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



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



| | k. | Taxes on income:
| | -- | ----------------



| | 1. | Current taxes:
| | -- | --------------



The current tax
liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date.



| | 2. | Deferred taxes:
| | -- | ---------------



Deferred taxes
are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed
for tax purposes.



It is not probable
that taxable profit will be available against which the unused tax losses can be utilized, therefore a deferred tax asset is not
recognized.



| | l. | Employee benefits:
| | -- | ------------------



| | 1. | Employment benefits for retirement compensation/pension:
| | -- | --------------------------------------------------------



The Group operates
various pension plans. The plans are generally funded through payments to insurance companies or trustee-administered funds. Said
pension plans qualify for the criteria of defined contribution plan, as above, based on their terms.



| | 2. | Vacation and recreation benefits:
| | -- | ---------------------------------



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



F-21







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



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



| | m. | Share-based payment:
| | -- | --------------------



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



Non-market vesting conditions are
included in the assumptions used in estimating the number of options that are expected to vest. The total expense is recognized
over the vesting period, which is the period over which all of the specified vesting conditions of the share-based payment arrangement
are to be satisfied.



At each reporting date, the Company
revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions and recognizes
the impact of the revision to original estimates, if any, in the statement of comprehensive income (loss) with a corresponding
adjustment in equity.



When options are exercised, the
Company issues new shares. The proceeds net of any directly attributable transaction costs are credited to share capital (nominal
value) and share premium.



Share-based payment transactions
in which the Company acquired assets as consideration for the Company’s equity instruments are measured at the value of the
assets acquired.



F-22







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



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



| | n. | Leases:
| | -- | -------



Leases in which a significant portion
of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating
leases are charged to the statement of comprehensive income (loss) on a straight-line basis over the period of the lease.



| | o. | Loss per share:
| | -- | ---------------



Basic loss per share is calculated
by dividing the income or loss attributable to equity holders of the Company by the weighted average number of ordinary shares
outstanding during the period, less Company shares held by a subsidiary.



In calculating diluted loss per
share, in addition to the average of ordinary shares (net of treasury shares) used for calculating basic loss per share, the weighted
average number of shares that will be issued assuming that all the potentially dilutive shares are converted into shares is also
taken into consideration. Potential shares are taken into account as above only when their effect is dilutive (reduces the earnings
or increases the loss per share). For each of the three years ended December 31, 2015, 2014 and 2013, respectively, the effect
of potential shares was anti-dilutive, and therefore were not taken into consideration when calculating loss per share.



| | p. | Non-current assets (or disposal groups) held for sale:
| | -- | ------------------------------------------------------



Non-current assets (or disposal
groups) are classified as held for sale when their carrying amount will be recovered principally through a sale transaction rather
than through continuing use.





| | q. | New and amended IFRS standards:
| | -- | -------------------------------



Certain new accounting standards
and interpretations have been published that are not mandatory for December 31, 2015 reporting periods and have not been early
adopted by the Company:



IFRS 9, “Financial
Instruments” (“IFRS 9”):



IFRS 9 replaces the multiple classification
and measurement models in IAS 39 “Financial instruments: Recognition and measurement” with a single model that
has initially only two classification categories: amortized cost and fair value. Classification of debt assets will be driven by
the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial
assets. All fair value movements on financial assets are taken through the statement of profit or loss, except for equity investments
that are not held for trading, which may be recorded in the statement of profit or loss or in reserves (without subsequent recycling
to profit or loss).



F-23







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



| | NOTE 3: | CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
| | ------- | -------------------------------------------



Estimates and judgments are continually
evaluated and are based on historical experience and other factors, including expectations of future events that are believed to
be reasonable under the circumstances.



| | a. | Critical accounting estimates and assumptions:
| | -- | ----------------------------------------------



Accounting estimates will, by definition,
seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next financial year are addressed below.



| | 1. | Intangible assets
| | -- | -----------------



| | (i) | In testing impairment of unamortized intangible assets (licenses and patent rights), the Company’s
management is required to estimate, among other things, the probable endpoints of trials conducted by the Company, the commercial
technical feasibility of the development and the resulting economic benefits. Actual results and estimates to be made in the future
may significantly differ from current estimates.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The Group is required to determine at the end of each reporting period whether there is any indication
that an asset may be impaired. If indicators for impairment are identified, the Group estimates the assets’ recoverable amount,
which is the higher of an asset’s fair value less costs to sell and its value-in-use. The value-in-use calculations require
management to make estimates of the projected future cash flows.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See note 11 below for further information
regarding impairment of intangible assets.



| | 2. | Share-based payments – in evaluating the fair value and the recognition method of share-based
payment, the Company’s management is required to estimate, among others, different parameters included in the computation
of the fair value of the options and the Company’s results and the number of options that will vest.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-24







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



| | NOTE 4: | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
| | ------- | ---------------------------------------------------



| | a. | Financial risk management:
| | -- | --------------------------



| | 1. | Financial risk factors:
| | -- | -----------------------



The Group’s activities expose
it to a variety of financial risks: market risks (including currency risks and price risk), credit risk and liquidity risk. The
Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential
adverse effects on the Group’s financial performance.



Risk management is carried out
by the Group’s management under policies approved by the Board. The Group’s treasury identifies, evaluates and defines
financial risks. The Board provides written principles for overall risk management, as well as written policies covering specific
areas, such as foreign exchange risk, interest rate risk and investment of excess liquidity.



| | a. | Market risks:
| | -- | -------------



Foreign currency exchange rate
risk:



The Group operates internationally
and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the NIS. Foreign exchange
risk arises from assets and liabilities denominated in currency that is other than the functional currency.



The Company treasury’s risk
management policy is to hold NIS-denominated cash and cash equivalents in the amount of the anticipated NIS-denominated liabilities
for six to twelve consecutive months from time to time and this in line with the directives of the Company’s Board.



As of December 31, 2015, had the
Group’s functional currency weakened by 10% against the NIS with all other variables remaining constant, post-tax loss for
the year would have been $ 20 thousand lower (2014 – loss approximately $ 85 thousand lower; 2013 – loss
approximately $ 157 thousand lower), mainly as a result of exchange rate changes on translation of other accounts receivable
and exchange rate changes on NIS-denominated cash and cash equivalents.



F-25







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



| | NOTE 4: | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
(Cont.)
| | ------- | -----------------------------------------------------------



| | b. | Liquidity risk:
| | -- | ---------------



Cash flow forecasting is performed
by the Group’s management both in the entities of the Group and aggregated by the Group. The Group’s management monitors
rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operations. The Group does
not use borrowing credit facilities.



Surplus cash held to finance operating
activities is invested in interest bearing current accounts, time deposits and other solid channels. These channels were chosen
by reference to their appropriate maturities or liquidity to provide sufficient cash balances to the Group as determined by the
abovementioned forecasts.



As of December 31, 2015 and
2014, the maturity of the Group’s financial liabilities is less than one year from each of the reporting dates.



| | 2. | Capital management:
| | -- | -------------------



The Group’s objectives when
managing capital are to ensure the Group’s ability to continue as a going concern in order to provide returns on investments
for shareholders and benefits for other interested parties and to maintain an optimal capital structure to reduce the cost of capital.



In order to maintain or adjust
the capital structure, the Group may take a variety of measures such as issue new shares or sell assets to reduce liabilities.



| | b. | Financial instruments by category:
| | -- | ----------------------------------



As of December 31, 2015
and 2014, all financial assets were classified in one of two categories: (a) loans and receivables, measured at amortized
cost, and (b) financial assets available for sale, measured at fair value. All financial liabilities as of such dates were
classified in the category of other financial liabilities at amortized cost.



F-26







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



| | NOTE 5: | INTERCURE – DISCONTINUED OPERATION
| | ------- | ----------------------------------



On June 13,
2012, the Company entered into an agreement to acquire the control over InterCure Ltd. (“InterCure”) for a consideration
of approximately $ 2.7 million, paid partly in cash and partly by the issuance of Company shares.



On July 25,
2012, the transaction was completed after all the prerequisites had been met and the Company acquired 16,839,532 ordinary shares
of InterCure with no par value, in consideration of a private placement of 7,165,662 ordinary shares of the Company of NIS 0.1
par value each, whose value on the date of signing the agreement, measured according to the quoted market price of the Company’s
shares on the TASE, was approximately $ 2.2 million, and which represents a value of InterCure of $ 1.75 million before
the money, but after all of InterCure’s debts were converted as described above (“InterCure’s Adjusted Value”).
The fair value of the Company’s shares on the date of consummation of the transaction was approximately $ 2.5 million.
In the year ended December 31, 2013, InterCure sold 1,097,719 shares of the Company for an aggregate amount of approximately $
283 thousand. In addition, the Company provided InterCure an amount of approximately $ 150 thousand in cash on the basis of
InterCure’s Adjusted Value. After affecting the above allocation, the Company held approximately 50.79% of the issued and
outstanding share capital of InterCure. The investment of Medica Fund on the date of closing on the basis of InterCure’s
Adjusted Value amounted to approximately $ 460 thousand.



On May 16, 2013,
the Company informed InterCure of its decision to convert its entire convertible loan which had been extended by the Company in
the context of the acquisition into 7,620,695 ordinary shares of InterCure, as predetermined in the original acquisition agreement.
Upon conversion, the Company held approximately 54.72% of InterCure’s issued and outstanding share capital.



In November 2014,
InterCure announced that its Audit Committee and Board of Directors approved the signing of an agreement with Green Forest Global
Ltd. (the “Agreement” and “Green Forest”, respectively) a company wholly owned by Mr. Alexander
Rabinovitch, an interested party in the Company.



Pursuant to the
Agreement, following a reverse split in InterCure shares at a 10:1 ratio, Green Forest will be allotted 2,622,647 ordinary shares
of InterCure (the “First Round Allotted Shares”) representing 34.23% of the issued and outstanding shares
of InterCure at the time of the allotment for an investment of $ 230 thousand. Further, upon InterCure’s shares return to
the main list of the TASE, an additional 2,622,648 ordinary shares of InterCure will be allotted to Green Forest for an additional
investment of $ 230 thousand (the “Second Round Allotted Shares”).



F-27







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



| | NOTE 5: | INTERCURE – DISCONTINUED OPERATION (Cont.)
| | ------- | ------------------------------------------



In addition, the
Agreement grants Green Forest the following three options:



| | 1. | Option to purchase up to an additional 3,416,818 ordinary shares of InterCure
for $ 300 thousand (representing an exercise price of $ 0.0878 per share), exercisable within 12 months of the Transaction Completion
Date, as defined in the Agreement.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Option to acquire the Company shares held by InterCure at a price of NIS
0.35 per share, exercisable within 6 months of the Transaction Completion Date.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Option to acquire InterCure’s assets, rights and obligations relating
to the “Resperate” business at the cost of inventory held at the time of the exercise of the option, exercisable within
6 months of the Transaction Completion Date.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under the Agreement,
Green Forest provided InterCure with a qualifying, non-secured, non-guaranteed, non-interest bearing and non-indexed loan of $
40 thousand for a period of 60 days. At the time of the completion of the transaction, the loan will be repaid by the sale of shares
of the Company held by InterCure to Green Forest for the value of the loan ($ 40 thousand) at a price of NIS 0.30 per share.



InterCure is granted
the right to a Put option to sell all or part of the Company’s shares held by InterCure at the Put option exercise date,
for an exercise price of NIS 0.30 per share, exercisable within 6 months of the Transaction Completion Date.



In addition, at
the time of and as a condition for the completion of the transaction, the outstanding loan of $ 50 thousand owed by InterCure to
the Company will be converted to 569,470 ordinary shares of InterCure.



On December 23,
2014, the extraordinary general meeting of InterCure approved the Agreement. Upon receiving the required approval to the Agreement
from TASE, the Agreement turned effective as of February 12, 2015.



On February 1, 2015, in accordance
with a request made by the Israeli Securities Authority to increase public holdings in InterCure prior to the execution of the
Agreement, the Company sold 2,166,667 shares of InterCure to a non-related third party, for an amount of approximately $ 17 thousand.
As a result, the Company’s holding in InterCure’s issued and outstanding share capital decreased to approximately 49.87%.
The sale of InterCure shares was considered as a transaction with non-controlling interests without loss of control.



After the issuance
of the 2,622,647 First Round Allotted Shares, as well as the conversion of the loan granted to InterCure into 569,470 ordinary
shares of InterCure, the Company’s holdings in InterCure were diluted to 36.53% of the issued and outstanding share capital
of InterCure. The Company’s management then determined that implementation of the Agreement constitutes a loss of control
in InterCure as of the same date.



F-28







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



| | NOTE 5: | INTERCURE – DISCONTINUED OPERATION (Cont.)
| | ------- | ------------------------------------------



InterCure’s net assets were reclassified
in the Group’s financial statements for the year ended December 31, 2014, and grouped into two separate items: Assets
of Disposal Group Classified as Held for Sale and Liabilities of Disposal Group Classified as Held for Sale.



On March 23, 2015, InterCure issued
37,804,012 ordinary shares as part of a rights offering, thus diluting the Company’s holding in InterCure’s issued
and outstanding share capital to approximately 6.16%.



On March 31, 2015, the Company and
Green Forest mutually agreed to terminate the voting agreement signed by the parties on February 12, 2015. Following said termination,
the directors appointed by the Company resigned from the board of directors of InterCure.



On April 2, 2015, InterCure issued
the Second Round Allotted Shares, thus diluting the Company’s holding in InterCure’s issued and outstanding share capital
to approximately 5.82%.



As a result of the accounting treatment
of the deconsolidation of InterCure, the Company recorded a loss from discontinued operations of $ 689 thousand. In addition, the
Company recorded its remaining investment in InterCure shares at a fair value of $ 482 thousand, as quoted on the TASE as of the
loss of control date. Following the aforementioned rights offering, the Company recorded a loss from the change in fair value of
InterCure shares in the amount of $225 thousand. For additional information see note 7 below.



As for intangible
assets recognized for the first time after the completion of the InterCure transaction, as presented above, and due to a significant
decline in InterCure’s share price as quoted on the TASE as of December 31, 2013, the Company hired the services of an external
independent expert in order to establish whether or not an impairment exists in connection with the technology and brand name assets
recognized in the purchase price allocation study of InterCure.



The recoverable
amount was assessed by management with the assistance of a consultant. In light of recent developments in InterCure, namely conclusions
reached by its management and board of directors regarding its ability to continue operating as a going concern, several scenarios
were taken into account by the expert. Each scenario was assigned a different weight in order to accommodate all scenarios into
a weighted-average discounted cash flow. Such scenarios were as follows:



| | (i) | The liquidation scenario, under which the realizable value of InterCure’s net operational
assets was estimated, was assigned a weighting of 60%.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The going concern scenario, establishing the value-in-use of InterCure’s operations using
the discounted cash flow method, was assigned a weighting of 40%. The value-in-use calculations use pre-tax cash flow projections
covering an eight-year period and using extrapolation with specific adjustments expected until 2021, and a pre-tax discount rate
of 33.3%. The value-in-use calculations included all factors in nominal terms.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-29







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



| | NOTE 5: | INTERCURE – DISCONTINUED OPERATION (Cont.)
| | ------- | ------------------------------------------



The impairment
test was based on assessments of financial performance and future strategies in light of current and expected market and economic
conditions. Trends in the economic and financial environment, competition and regulatory authorities’ decisions, or changes
in competitors’ behavior in response to the economic environment may affect the estimate of recoverable amounts in future
periods.



For the purpose
of the impairment test, InterCure was considered the lowest level for which there are separately identifiable cash flows –
a Cash Generating Unit (“CGU”). Upon examination, the expert concluded that an impairment exists, and that InterCure’s
recoverable amount stands at $ 300 thousand. The impairment loss in the amount of $ 1.8 million was recognized in loss from operations,
and allocated between said intangible assets of the CGU pro rata, based on their respective carrying amounts (net of amortization),
in the following amounts:



| | (a) | Technology – $ 1.4 million;
| | --- | ---------------------------

| | (b) | Brand Name – $ 357 thousand.
| | --- | ----------------------------



As of December 31, 2014, the Technology
and Brand Name carried net amortized book values of $ 202 thousand and $ 53 thousand, respectively. As of December 31, 2015, and
as a result of the de-consolidation of InterCure, no balance remains in the Company’s financial statements with regard to
the Technology and Brand Name.



F-30







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



| | NOTE 5: | INTERCURE – DISCONTINUED OPERATION (Cont.)
| | ------- | ------------------------------------------



The assets and liabilities related
to InterCure are presented as held for sale following the approval of the Agreement with Green Forest, as detailed above, at the
extraordinary shareholders meeting of InterCure held on December 23, 2014.





Since termination of the voting
agreement between the Company and Green Forest on March 31, 2015, the Company’s investment in InterCure is classified as
marketable securities.





| | a. | Assets of disposal group classified as held for sale:
| | -- | -----------------------------------------------------



|                                   |  | December 31,               |    
|---------------------------------- |  | -------------------------- | ---
|                                   |  | 2014                       |    
|                                   |  | U.S. dollars in
 thousands |    
|                                   |  |                            |    
|Cash and cash equivalents          |  |                            | 52 
|Trade receivables                  |  |                            | 69 
|Other accounts receivable          |  |                            | 11 
|Inventories                        |  |                            | 118
|Property, plant and equipment, net |  |                            | -  
|Intangible assets, net             |  |                            | 255
|                                   |  |                            |    
|                                   |  |                            | 505



| | b. | Liabilities of disposal group classified as held for sale:
| | -- | ----------------------------------------------------------



|                             |  | December 31,               |    
|---------------------------- |  | -------------------------- | ---
|                             |  | 2014                       |    
|                             |  | U.S. dollars in
 thousands |    
|                             |  |                            |    
|Trade payables               |  |                            | 188
|Other accounts payable       |  |                            | 239
|Employee benefit liabilities |  |                            | 23 
|                             |  |                            |    
|                             |  |                            | 450



F-31









XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



| | NOTE 5: | INTERCURE – DISCONTINUED OPERATION (Cont.)
| | ------- | ------------------------------------------



| | c. | Analysis of the results of discontinued operations is as follows:
| | -- | -----------------------------------------------------------------



|                  |  | Period from January 1 to February 12, |     |   | Year ended December 31, | 
|----------------- |  | ------------------------------------- | --- | - | ----------------------- | 
|                  |  | 2015                                  |     |   | 2014                    | 
|                  |  | U.S. dollars in thousands             |    
|                  |  |                                       |     |   |                         | 
|Revenues          |  |                                       | 75  |   |                         | 
|Expenses          |  |                                       | (72 | ) |                         | 
|                  |  |                                       |     |   |                         | 
|Total gain (loss) |  |                                       | 3   |   |                         | 



| | d. | Analysis of cash flow of discontinued operations for the years ended December 31, 2014 and 2013,
is as follows:
| | -- | ---------------------------------------------------------------------------------------------------------------



|                     |  | Period from January 1 to February 12, |   |  | Year ended December 31, | 
|-------------------- |  | ------------------------------------- | - |  | ----------------------- | 
|                     |  | 2015                                  |   |  | 2014                    | 
|                     |  | U.S. dollars in thousands             |  
|                     |  |                                       |   |  |                         | 
|Operating cash flows |  |                                       | 3 |  |                         | 
|Investing cash flows |  |                                       | - |  |                         | 
|Financing cash flows |  |                                       | - |  |                         | 
|                     |  |                                       |   |  |                         | 
|Total cash flows     |  |                                       | 3 |  |                         | 



| | e. | Significant accounting policies with regard to Discontinued operations:
| | -- | -----------------------------------------------------------------------



A discontinued operation is a component
of an entity that either has been disposed of, or is classified as held for sale, and represents a separate major line of business
or geographical area of operations, or is part of a single coordinated plan to dispose of a separate major line of business or
geographical area of operations or is a subsidiary acquired exclusively with a view to resale.



Revenues and expenses attributable
to discontinued operations are presented in the statement of comprehensive loss under the item “Total loss from discontinued
operations”, for all years presented.



F-32







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



| | NOTE 5: | INTERCURE – DISCONTINUED OPERATION (Cont.)
| | ------- | ------------------------------------------



Accounting policies pertaining
solely to discontinued operations include:



| | (i) | Intangible assets:
| | --- | ------------------



| | a. | Brand name and technology:
| | -- | --------------------------



Brand name and
technology acquired in a business combination are recognized at fair value on the acquisition date. Brand name and technology have
a finite useful life and are presented at cost net of accumulated amortization and impairment losses. The amortization is calculated
using the straight-line method over the expected useful life (9-10 years).



| | b. | Computer software:
| | -- | ------------------



Acquired licenses
to use computer software are capitalized based on costs incurred in acquiring the specific software and preparing it for use. These
costs are amortized using the straight-line method over the estimated useful life (five years). Costs relating to computer software
upkeep are recognized as expenses as incurred.



| | (ii) | Inventories:
| | ---- | ------------



Inventories are measured at the lower
of cost and net realizable value. The cost of inventories comprises costs of purchase and costs incurred in bringing the inventories
to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business
less the estimated costs of completion and the estimated selling costs. The Group periodically evaluates the condition and age
of inventories and makes provisions for slow moving inventories accordingly.



Cost of inventories is determined
as follows:



Raw materials – at cost of
purchase using the “first-in, first-out” method.



Purchased merchandise and products
– using the “first-in, first-out” method.



| | (iii) | Trade receivables:
| | ----- | ------------------



The balance of trade receivables
relates to amounts receivable from the Group’s customers for goods sold or services rendered in the ordinary course of business.
Trade receivables are initially recognized at fair value and subsequently measured at amortized cost based on the effective interest
method, less an allowance for doubtful accounts.



F-33







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



| | NOTE 5: | INTERCURE – DISCONTINUED OPERATION (Cont.)
| | ------- | ------------------------------------------



Allowance for doubtful accounts:



The allowance for doubtful accounts
is determined in respect of specific debts whose collection, in the opinion of the Group’s management, is doubtful. The Group
also recognizes a provision for groups of customers that are collectively assessed for impairment based on their credit risk characteristics.
Impaired debts are derecognized when they are assessed as uncollectible.



| | (iv) | Revenue recognition:
| | ---- | --------------------



Revenues are
recognized in profit or loss when the revenues can be measured reliably, it is probable that the economic benefits associated with
the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured
reliably. Revenues are measured at the fair value of the consideration received less any trade discounts, volume rebates and returns.



Following are
the specific revenue recognition criteria which must be met before revenue is recognized:



Revenues from sale of goods
to retail customers:



Revenues from
the sale of goods are recognized when all the significant risks and rewards of ownership of the goods have passed to the buyer
and the seller no longer retains continuing managerial involvement. The delivery date to the customer is usually the date on which
ownership passes.



Revenues from
sale of goods to distributors:



InterCure sells
its products to distributors as well. Revenues from such sales are recognized when InterCure or its subsidiaries deliver the goods
to the distributor, when sales channel and selling price are at the distributor’s sole discretion, and when there are no
ongoing obligations to prevent the distributor from receiving the goods. Revenue is only recognized when goods were delivered to
the designated site, risks of loss and damage are transferred to the distributor and distributor had received the goods in accordance
with the sales agreement, conditions for receipt of goods had expired or InterCure holds objective evidence that goods receipt
criteria had been met.



| | (v) | Employee benefit liabilities:
| | --- | -----------------------------



InterCure has
an obligation to pay severance to an employee, which represents a defined benefit plan. InterCure has severance pay funds and executive
insurance policies in which it deposits funds in respect of this obligation. The amount of accrued severance pay, net included
in the statements of financial position reflects the difference between the accrued severance pay and the severance pay funds.



F-34







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



| | NOTE 6: | CASH AND CASH EQUIVALENTS
| | ------- | -------------------------



|                                                  |  | December 31,              |      
|------------------------------------------------- |  | ------------------------- | -----
|                                                  |  | 2015                      |      
|                                                  |  | U.S. dollars in thousands |      
|                                                  |  |                           |      
|Cash in banks and on hand                         |  |                           | 3,347
|Bank deposits for periods of three months or less |  |                           | 470  
|                                                  |  |                           |      
|                                                  |  |                           | 3,817



The currencies in which the cash
and cash equivalents are denominated or linked to are:



|                                    |  | December 31,              |      
|----------------------------------- |  | ------------------------- | -----
|                                    |  | 2015                      |      
|                                    |  | U.S. dollars in thousands |      
|                                    |  |                           |      
|U.S. dollars                        |  |                           | 3,683
|NIS (not linked to the Israeli CPI) |  |                           | 133  
|Other currencies                    |  |                           | 1    
|                                    |  |                           |      
|                                    |  |                           | 3,817



| | NOTE 7: | MARKETABLE SECURITIES
| | ------- | ---------------------



| | a. | All marketable securities held by the Company constitute Level 1 financial instruments, as defined
in IFRS 13 – “Fair Value Measurement”. Level 1 inputs are quoted prices (unadjusted) in active markets
for identical assets or liabilities that the entity can access at the measurement date.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | The Company holds the following financial instruments:
| | -- | ------------------------------------------------------



|                                    |  | December 31,              |    
|----------------------------------- |  | ------------------------- | ---
|                                    |  | 2015                      |    
|                                    |  | U.S. dollars in thousands |    
|                                    |  |                           |    
|Financial assets available for sale |  |                           | 251
|                                    |  |                           |    
|                                    |  |                           | 251



F-35













XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 7:	     MARKETABLE SECURITIES (Cont.)



| | c. | Changes in marketable securities for the year ended December 31, 2015, were as follows:
| | -- | ---------------------------------------------------------------------------------------



|                                        |  | U.S. dollars in thousands |    
|--------------------------------------- |  | ------------------------- | ---
|                                        |  |                           |    
|Fair value opening balance              |  |                           | 257
|Changes in fair value during the period |  |                           | (6 
|                                        |  |                           |    
|                                        |  |                           | 251



NOTE 8:	     OTHER ACCOUNTS RECEIVABLE



| | a. | Composition:
| | -- | ------------



|                       |  | December 31,              |    
|---------------------- |  | ------------------------- | ---
|                       |  | 2015                      |    
|                       |  | U.S. dollars in thousands |    
|                       |  |                           |    
|Government authorities |  |                           | 137
|Prepaid expenses       |  |                           | 60 
|Other receivables      |  |                           | -  
|                       |  |                           |    
|                       |  |                           | 197



| | b. | The currencies in which other accounts receivable which are monetary items are denominated or to
which they are linked are as follows:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------



|    |  | December 31,              |    
|--- |  | ------------------------- | ---
|    |  | 2015                      |    
|    |  | U.S. dollars in thousands |    
|    |  |                           |    
|NIS |  |                           | 137
|    |  |                           |    
|    |  |                           | 137



| |  | The carrying amount of other accounts receivable is a reasonable approximation of the fair value
because the effect of discounting is immaterial.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------



F-36







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 9:       ADDITIONAL INFORMATION ABOUT
INVESTMENT IN INVESTEES



|Name and country ofincorporation of subsidiary |                                        | Date |            | Equityinterests andvoting rights |       | Scope of
        investments
        in investee
        (in $ 000) |       | Stock Exchangedata |                                                       | Dividendsreceived orreceivable
|---------------------------------------------- | -------------------------------------- | ---- | ---------- | -------------------------------- | ----- | ------------------------------------------------------------------- | ----- | ------------------ | ----------------------------------------------------- | ------------------------------
|                                               |                                        |      |            |                                  |       |                                                                     |       |                    |                                                       |                               
|1                                              | Xtepo Ltd., incorporated in Israel     |      | 31.12.2015 |                                  | 100   | %                                                                   | 2,668 |                    | -                                                     |                               
|                                               |                                        |      | 31.12.2014 |                                  | 100   | %                                                                   | 3,685 |                    | -                                                     |                               
|                                               |                                        |      |            |                                  |       |                                                                     |       |                    |                                                       |                               
|2                                              | InterCure Ltd., incorporated in Israel |      | 31.12.2015 |                                  | 5.82  | %                                                                   | 251   |                    | TASE, value of shares as of 31.12.15 - $ 251 thousand |                               
|                                               |                                        |      | 31.12.2014 |                                  | 54.72 | %                                                                   | 1,736 | *)                 | TASE, value of shares as of 31.12.14 - $ 308 thousand |                               



| | *) | Includes Treasury Shares in the amount of $ 1,501 thousand.
| | -- | -----------------------------------------------------------



NOTE
10:     INVESTMENT IN ASSOCIATE



| | a. | In November 2012, in an off-market transaction, the Company acquired from Teva Pharmaceutical Industries
Ltd. (“Teva”) 4,620,356 ordinary shares of Proteologics Ltd. (“Proteologics”), representing Teva’s
entire stake in Proteologics - approximately 31.35% of Proteologics’ issued and outstanding share capital – in consideration
of approximately $ 1.7 million.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In September 2013, the Company
signed an agreement with Zmiha Investment House Ltd. (“Zmiha”) for the sale of its entire investment in Proteologics,
representing 44.95% of Proteologics’ issued and outstanding share capital as of the date of the agreement, after having purchased
an additional 14.13% of the shares of Proteologics from Aurum Ventures MKI Ltd. (“Aurum”) in September 2013,
in consideration for the issuance of 3,031,299 shares of NIS 0.1 par value each of the Company to Aurum. Consideration for
the sale to Zmiha totaled approximately $ 3.4 million. The Company received an amount of approximately $ 2.7 million in 2013,
with the remaining balance received in 2014.



| | b. | The amounts recognized in the income statement are as follows:
| | -- | --------------------------------------------------------------



|                                             |  | Year ended  December 31, 2013 |      
|-------------------------------------------- |  | ----------------------------- | -----
|                                             |  | U.S. dollars in  thousands    |      
|                                             |  |                               |      
|Equity losses                                |  |                               | (845 
|Gain due to exercise of options in associate |  |                               | 10   
|Capital gain from sale of investment         |  |                               | 1,051
|                                             |  |                               |      
|                                             |  |                               | 216  



F-37







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 11:     INTANGIBLE ASSETS



| | a. | On August 3, 2010, the Company completed the share
swap transaction with the shareholders of Bio-Gal Ltd. (the “Transaction”) in which the Company acquired 100%
of the shares of Xtepo, which for the Transaction purposes held an exclusive license to use the patented recombinant EPO (rHuEPO)
drug for treating Multiple Myeloma and also held cash totaling approximately $ 1.5 million on the date of completion of the
transaction, in return for the allocation of 133,063,688 ordinary shares of NIS 0.1 par value each, representing approximately
69.44% of the Company’s issued and outstanding share capital after completion of the Transaction.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Following the closing of the
Transaction, the Company recognized in its accounts an intangible asset representing the license for the exclusive use of the patent
for the rHuEPO drug for Multiple Myeloma as well as every clinical study and accumulated knowhow underlying the patent in a total
of approximately $ 2,265 thousand (excluding transaction costs of approximately $ 187 thousand), based on its fair value
as of the date of closing of the Transaction according to an independent external valuation.



On May 29, 2011, the Company
received the approval of the FDA, a subdivision of the U.S. Health and Human Services, for orphan drug status for the rHuEPO drug
which is patented by the Company until 2019. An “orphan drug” is defined as a drug for treating diseases that affect
a relatively small number of people. In the U.S., an “orphan drug” is defined as a disease affecting fewer than 200,000
people a year. To encourage the development of drugs for these diseases, the different regulatory authorities grant benefits and
incentives to developers. The main standard benefit of orphan drugs in the U.S. is receiving seven years marketing exclusivity
from the date of marketing approval by the FDA, once the FDA gives such approval. Other benefits are local U.S. tax credits for
research and development expenses and waiver of FDA filing fees.



According to the guidance of
IAS 38, this asset is not systematically amortized and the Company reviews the asset for impairment once a year or more frequently
if indicators show that the asset may be impaired.



In December 2015, the
Company tested the asset for impairment in accordance with the guidance of IAS 36. According to the valuation performed, as
of December 31, 2015, the book value ($ 2,452 thousand) of the rHuEPO intangible asset exceeded its recoverable amount by $
1,604 thousand. Therefore, a loss from impairment should be recorded regarding the asset. The recoverable amount was
determined as fair value less costs of disposal, which was determined on the basis of
the discounted future cash flow method for the years 2016 to 2029 less costs of disposal. The discount period was determined
on the basis of the estimated timelines to perform the clinical trials in order to approve the drug for marketing and under
the limitation of the patent years and the orphan drug designation as above.



F-38







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 11:     INTANGIBLE ASSETS (Cont.)



The key
assumptions used in measuring the recoverable amount related to the rHuEPO intangible asset as of December 31, 2015 include: duration of phase 2 and 3 clinical trials of 2.5 and 3.5 years, respectively, expected penetration
levels from 10% in 2023 to 55% in 2027-2029 out of an estimate of 67,566 new cases of Multiple Myeloma diagnosed each year, royalties
at the rate of 12.5% and (post-tax) discount rate of 24%.



| | b. | On September 1, 2010, the Company and Yeda Research and Development Co. Ltd. (“Yeda”)
entered into a license agreement of an exclusive right to examine a medical technology in the field of the immune system, comprising
two proteins through which target molecules are examined and may serve as a basis for the development of therapeutics for diseases
relating to the immune system, such as acute Hepatitis, rheumatoid arthritis, ‎Crohn’s
disease, psoriasis etc. Under the agreement, the Company purchased this exclusive right to examine the medical technology for a
15-month period in consideration of $ 120 thousand (the “Option Fee”) payable by the Company in the following
manner and at the earlier of: (i) in the event of a capital raising by a public prospectus of more than $ 2 million, the Company
is obligated to settle the payment to Yeda in cash; or (ii) if 12 months after the date of closing of the agreement an amount of
more than $ 2 million is not raised, the liability to Yeda can be satisfied, at the Company’s election and after obtaining
Yeda’s approval to the timing, in cash or by issuance of Company stock options with an equivalent value. The Company’s
option to purchase said technology expired on November 30, 2011 and the Company elected not to exercise the option.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-39







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 11:     INTANGIBLE ASSETS (Cont.)



| |  | On July 11, 2013, the Company and Yeda entered into an amendment to the license agreement, according
to which the Company shall pay Yeda an amount of $ 120 thousand in the following manner: (a) $ 30 thousand in cash, payable as
of the date of the amendment, and (b) an additional amount of $ 90 thousand shall be paid by the Company to Yeda upon the earlier
of: (a) a capital raise in the amount of $ 2 million and (b) upon the consummation of a transaction relating to the Company’s
Erythropoetin technology with any third party, which includes the receipt by the Company of a consideration of at least $ 2 million.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | On January 7, 2014, the Company signed a licensing agreement with Yeda to develop hCDR1, a Phase
II-ready asset for the treatment of Systemic Lupus Erythematosus (“SLE”). The terms of the licensing agreement
include, among other things, expense reimbursement for patent expenses payable in six installments (see below), certain milestone
payments to Yeda, low single-digit royalties based on net sales, and additional customary royalties to the Office of the Chief
Scientist.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On May 14, 2014, the Company
issued 222,605 ordinary shares of the Company of NIS 0.1 par value each to Yeda, as the first of six installments for the aforementioned
patent expenses reimbursement, representing a value of approximately $ 38 thousand.



On January 21, 2015, the Company
issued Yeda 802,912 ordinary shares of the Company of NIS 0.1 par value each, as the second of six installments for the aforementioned
patent expenses reimbursement, representing a value of approximately $ 89 thousand.



On August 3, 2015, the Company
paid Yeda an amount of approximately $ 64 thousand, as the third of six installments for the aforementioned patent expenses reimbursement.
For additional information see note 25 below.



| | d. | Composition and movement:
| | -- | -------------------------



The composition of intangible
assets and accumulated amortization, by major classes, and the movement therein in the three years ended December 31, 2015, 2014
and 2013, are:



|                                    |  | rHuEPO                    |        |   | hCDR1 |  |     | Other |  |  | Total |  
|----------------------------------- |  | ------------------------- | ------ | - | ----- |  | --- | ----- |  |  | ----- | -
|                                    |  | U.S. dollars in thousands |       
|Cost:                               |  |                           |        |   |       |  |     |       |  |  |       |  
|                                    |  |                           |        |   |       |  |     |       |  |  |       |  
|Balance at January 1, 2015          |  |                           | 2,452  |   |       |  | 41  |       |  |  | 5     |  
|                                    |  |                           |        |   |       |  |     |       |  |  |       |  
|Additions during the year           |  |                           | -      |   |       |  | 148 |       |  |  | -     |  
|Impairment of intangible assets     |  |                           | (1,604 | ) |       |  | -   |       |  |  | -     |  
|Disposal                            |  |                           | -      |   |       |  | -   |       |  |  | (5    | )
|                                    |  |                           |        |   |       |  |     |       |  |  |       |  
|Balance at December 31, 2015        |  |                           | 848    |   |       |  | 189 |       |  |  | -     |  
|                                    |  |                           |        |   |       |  |     |       |  |  |       |  
|Accumulated amortization:           |  |                           |        |   |       |  |     |       |  |  |       |  
|                                    |  |                           |        |   |       |  |     |       |  |  |       |  
|Balance at January 1, 2015          |  |                           | -      |   |       |  | -   |       |  |  | -     |  
|                                    |  |                           |        |   |       |  |     |       |  |  |       |  
|Additions during the year           |  |                           | -      |   |       |  | -   |       |  |  | -     |  
|Disposal                            |  |                           | -      |   |       |  | -   |       |  |  | -     |  
|                                    |  |                           |        |   |       |  |     |       |  |  |       |  
|Balance at December 31, 2015        |  |                           | -      |   |       |  | -   |       |  |  | -     |  
|                                    |  |                           |        |   |       |  |     |       |  |  |       |  
|Amortized cost at December 31, 2015 |  |                           | 848    |   |       |  | 189 |       |  |  | -     |  



F-40







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 11:     INTANGIBLE ASSETS (Cont.)



|                                    |  | rHuEPO                    |       |  | hCDR1 |  |    | Other |  |  | Total | 
|----------------------------------- |  | ------------------------- | ----- |  | ----- |  | -- | ----- |  |  | ----- | 
|                                    |  | U.S. dollars in thousands |      
|                                    |  |                           |       |  |       |  |    |       |  |  |       | 
|Cost:                               |  |                           |       |  |       |  |    |       |  |  |       | 
|                                    |  |                           |       |  |       |  |    |       |  |  |       | 
|Balance at January 1, 2014          |  |                           | 2,452 |  |       |  | -  |       |  |  | 5     | 
|                                    |  |                           |       |  |       |  |    |       |  |  |       | 
|Additions during the year           |  |                           | -     |  |       |  | 41 |       |  |  | -     | 
|                                    |  |                           |       |  |       |  |    |       |  |  |       | 
|Balance at December 31, 2014        |  |                           | 2,452 |  |       |  | 41 |       |  |  | 5     | 
|                                    |  |                           |       |  |       |  |    |       |  |  |       | 
|Accumulated amortization:           |  |                           |       |  |       |  |    |       |  |  |       | 
|                                    |  |                           |       |  |       |  |    |       |  |  |       | 
|Balance at January 1, 2014          |  |                           | -     |  |       |  | -  |       |  |  | -     | 
|                                    |  |                           |       |  |       |  |    |       |  |  |       | 
|Additions during the year           |  |                           | -     |  |       |  | -  |       |  |  | -     | 
|                                    |  |                           |       |  |       |  |    |       |  |  |       | 
|Balance at December 31, 2014        |  |                           | -     |  |       |  | -  |       |  |  | -     | 
|                                    |  |                           |       |  |       |  |    |       |  |  |       | 
|Amortized cost at December 31, 2014 |  |                           | 2,452 |  |       |  | 41 |       |  |  | 5     | 



|                                    |  | rHuEPO                    |       |  | Other |  |   | Total | 
|----------------------------------- |  | ------------------------- | ----- |  | ----- |  | - | ----- | 
|                                    |  | U.S. dollars in thousands |      
|                                    |  |                           |       |  |       |  |   |       | 
|Cost:                               |  |                           |       |  |       |  |   |       | 
|                                    |  |                           |       |  |       |  |   |       | 
|Balance at January 1, 2013          |  |                           | 2,452 |  |       |  | 5 |       | 
|                                    |  |                           |       |  |       |  |   |       | 
|Additions during the year           |  |                           | -     |  |       |  | - |       | 
|                                    |  |                           |       |  |       |  |   |       | 
|Balance at December 31, 2013        |  |                           | 2,452 |  |       |  | 5 |       | 
|                                    |  |                           |       |  |       |  |   |       | 
|Accumulated amortization:           |  |                           |       |  |       |  |   |       | 
|                                    |  |                           |       |  |       |  |   |       | 
|Balance at January 1, 2013          |  |                           | -     |  |       |  | - |       | 
|                                    |  |                           |       |  |       |  |   |       | 
|Additions during the year           |  |                           | -     |  |       |  | - |       | 
|                                    |  |                           |       |  |       |  |   |       | 
|Balance at December 31, 2013        |  |                           | -     |  |       |  | - |       | 
|                                    |  |                           |       |  |       |  |   |       | 
|Amortized cost at December 31, 2013 |  |                           | 2,452 |  |       |  | 5 |       | 



NOTE 12:    TRADE
PAYABLES



| | a. | Composition:
| | -- | ------------



|               |  | December 31,              |    
|-------------- |  | ------------------------- | ---
|               |  | 2015                      |    
|               |  | U.S. dollars in thousands |    
|               |  |                           |    
|Open accounts  |  |                           | 84 
|Checks payable |  |                           | 34 
|               |  |                           |    
|               |  |                           | 118



The carrying amount of trade
payables is a reasonable approximation of their fair value because the effect of discounting is immaterial.



F-41







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 12:     TRADE
PAYABLES (Cont.)



| | b. | The carrying amount of trade payables is denominated in the following currencies:
| | -- | ---------------------------------------------------------------------------------



|                                    |  | December 31,              |    
|----------------------------------- |  | ------------------------- | ---
|                                    |  | 2015                      |    
|                                    |  | U.S. dollars in thousands |    
|                                    |  |                           |    
|U.S. dollars                        |  |                           | 80 
|NIS (not linked to the Israeli CPI) |  |                           | 38 
|                                    |  |                           |    
|                                    |  |                           | 118



NOTE 13:     OTHER ACCOUNTS PAYABLE



| | a. | Composition:
| | -- | ------------



|                                            |  | December 31,              |    
|------------------------------------------- |  | ------------------------- | ---
|                                            |  | 2015                      |    
|                                            |  | U.S. dollars in thousands |    
|                                            |  |                           |    
|Employees, consultants and payroll accruals |  |                           | 40 
|Accrued expenses                            |  |                           | 278
|                                            |  |                           |    
|                                            |  |                           | 318



The carrying amount of other
accounts payable is a reasonable approximation of their fair value because the effect of discounting is immaterial.



| | b. | The carrying amount of other accounts payable is denominated in the following currencies:
| | -- | -----------------------------------------------------------------------------------------



|                                    |  | December 31,              |    
|----------------------------------- |  | ------------------------- | ---
|                                    |  | 2015                      |    
|                                    |  | U.S. dollars in thousands |    
|                                    |  |                           |    
|U.S. dollars                        |  |                           | 234
|NIS (not linked to the Israeli CPI) |  |                           | 76 
|Other                               |  |                           | 8  
|                                    |  |                           |    
|                                    |  |                           | 318



F-42







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 14:     EMPLOYEE BENEFIT LIABILITIES



According
to the effective labor laws and employment agreements in Israel, the Company is obligated to pay compensation and/or pension to
employees who are dismissed and, under certain circumstances, to employees who retire.



The Company’s
obligation for pension payment in Israel and the Company’s obligation for compensation payments to employees in Israel for
whom the applicable obligation is pursuant to section 14 to the Severance Pay Law, are covered by fixed contributions into defined
contribution plans. The amounts contributed as above are not reflected in the statements of financial position. Section 14 to the
Severance Pay Law applies to all of the Company’s employees.



The amounts
recognized as expenses for defined contribution plans for employees of the Company in 2015, 2014 and 2013 was $ 16 thousand,
$ 25 thousand and $ 26 thousand, respectively.



F-43







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 15:     COMMITMENTS



| | a. | Royalty and contingent milestone payments:
| | -- | ------------------------------------------



| | 1. | On November 30, 2011, the Company completed the MinoGuard transaction according to which an exclusive
license to the SAM-101 drug (combined drug to treat mental disorders focusing on schizophrenia) was transferred to the Company.
According to the terms of the agreement with MinoGuard, the Company will act to conduct clinical trials, develop, register, market,
distribute and sell the drug candidates that will emerge from the technology, with no limitations to a specific disorder.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Under the agreement, if the Company does not commence a phase 2 clinical trial by June 30, 2013
(the agreement states that receipt of an approval to commence such trial or continuance of the clinical trials that were conducted/will
be conducted by MinoGuard and/or its researchers, shall be deemed commencement of phase 2 clinical trial for this matter), the
Company will then pay MinoGuard an annual license fee of $ 45 thousand for the first payment and its cost will increase by
$ 90 thousand per year (should the trial not commence) up to $ 675 thousand for the eighth year of license. The Company
can pay any of the above amounts in cash or by issuance of securities to MinoGuard, at its sole discretion. In accordance with
the agreement, and since as of June 30, 2013, the Company had not commenced a phase 2 clinical trial, it has paid MinoGuard an
annual license fee, by way of issuance of 175,633 ordinary shares of the Company, representing a value of $ 45 thousand, for the
12 month period between July 1, 2013 and June 30, 2014. On September 3, 2014, the Company issued an additional 889,822 ordinary
shares, representing a value of $ 135 thousand, for the 12 month period between July 1, 2014 and June 30, 2015. On May 25, 2015,
the Company provided MinoGuard with a notice of termination whereby, as of June 24, 2015, the rights and license granted according
to the license agreement were terminated and all rights in and to the licensed technology reverted to MinoGuard.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | On August 3, 2010, the Company closed the Bio-Gal
Transaction. According to this agreement, the Company is obligated to pay 1% royalties on net sales of the product and $ 350
thousand upon the successful completion of a phase 2 clinical trial. The payment conditions for the above amount are at the earlier
of occurrence of the following events:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | Raising capital of at least $ 2 million by the Company or Xtepo after a successful completion
of a phase 2 clinical trial;
| | --- | --------------------------------------------------------------------------------------------------------------------------



| | (ii) | Six months after the successful completion of a phase 2 clinical trial.
| | ---- | -----------------------------------------------------------------------



F-44







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 15:     COMMITMENTS (Cont.)



| | b. | Operating lease commitments:
| | -- | ----------------------------



| | 1. | The Company entered into an operating lease agreement on the offices it uses. The agreement is
in effect until April 2017. Under the lease agreement, the Company has the option to extend the lease for an additional period
of two years. The lease fees are stated in NIS and are not linked to the Israeli CPI. To secure the lease, the Company provided
a bank guarantee, which is secured by a restricted NIS deposit of approximately $ 10 thousand.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The expected lease fees and
management fees for subsequent years under the prevailing lease fees as of December 31, 2015 are as follows:



|     |  | U.S. dollars in thousands |   
|---- |  | ------------------------- | --
|     |  |                           |   
|2016 |  |                           | 30
|2017 |  |                           | 10



The Company entered into an
agreement with subtenants to lease part of the office space in exchange for approximately $ 1,200 per month. The sublease
agreement is in effect until April 2017.



F-45







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 16:     SHARE CAPITAL, RESERVES
AND RETAINED EARNINGS



| | a. | Composition:
| | -- | ------------



|                             |  | Number of shares |         |  | Amount                  | 
|---------------------------- |  | ---------------- | ------- |  | ----------------------- | 
|                             |  | Authorized       |         |  | Issued and 
outstanding | 
|                             |  | December 31,     |         |  | December 31,            | 
|                             |  | 2015             |         |  | 2014                    | 
|                             |  | In thousands     |         |  | NIS in thousands        | 
|                             |  |                  |         |  |                         | 
|ordinary shares of NIS 0.1 * |  |                  | 700,000 |  |                         | 



| | * | Traded on the TASE. The Company’s ADSs are listed for trading on the Nasdaq Capital Market
in the U.S. The share price was NIS 0.295 as of December 31, 2015.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ** | Including 4,354,881 treasury shares held by InterCure as of December 31, 2014.
| | -- | ------------------------------------------------------------------------------



| | b. | Ordinary shares confer upon their holders voting rights and right to participate in the shareholders’
meeting, right to receive dividends and the right to participate in the excess of assets upon liquidation of the Company.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | On June 1, 2012, the Company applied for the relisting of its ADSs on the Nasdaq Capital Market
(after the ADSs had been delisted from trade on the Nasdaq Capital Market in July 2009), subject to compliance with all the criteria
reviewed by the Nasdaq Capital Market admissions committee, including minimum ADS price (according to the various listing criteria).
On September 24, 2012, the Company’s Board approved a change in the number of shares underlying the ADSs such that 20 ordinary
shares of the Company will constitute a single ADS, this in order to support the Company’s compliance with the Nasdaq Capital
Market’s ADS listing conditions. The record date of change in the ADS ratio is October 4, 2012. On July 10, 2013, the Company’s
management received a notice from Nasdaq Capital Market representatives stating that the admission committee had approved the Company’s
application to relist its ADSs for trading on the Nasdaq Capital Market Capital Market. Accordingly, on July 15, 2013, the Company’s
ADSs began trading on Nasdaq Capital Market.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | In April 2015, the Company raised $ 4.0 million by means of issuing a total of 1,777,778 ADSs to
several investors. In addition, under the share purchase agreements, the investors received unregistered warrants to purchase 888,889
ADSs. The warrants may be exercised from the six-month anniversary of the issuance date and for five years thereafter and have
an exercise price of $2.25 per ADS, subject to adjustments as set forth therein.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-46







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE
17:     SHARE-BASED PAYMENT



| | a. | Share-based payment in the Company:
| | -- | -----------------------------------



On August 29, 2011, the Company’s
Board approved the adoption of an employee share option plan for the grant of options exercisable into shares of the Company in
accordance with section 102 to the Israeli Tax Ordinance (the “2011 Plan”) in lieu of the option plan established
in 2001 (the “2001 Plan”) which ended after 10 years, and the holding of up to 10 million shares in the framework
of the 2011 Plan, for option allocation to Company employees, directors and consultants.



In May 2011,
after 10 years, the 2001 Plan ended and, accordingly, since that date no new options can be granted under this plan. In August
2011, the 2011 Plan was approved (see details above). As of December 31, 2014, the remaining number of options available for
grant under the 2011 Plan is 4,256,138 options.



The 2011 Plan shall be subject
to the directives determined for this purpose in section 102 to the Income Tax Ordinance. Under the capital track which was adopted
by the Company and the directives, the Company is not entitled to receive a tax deduction that relates to remuneration paid to
employees, including amounts recorded as salary benefit in the Company’s accounts for options granted to employees in the
framework of the plan, except the yield benefit component, if available, that was determined on the grant date.



The terms of the options which
will be granted according to the 2011 Plan, including the option period, exercise price, vesting period and exercise period shall
be determined by the Company’s Board on the date of the actual allocation.



| | 1. | On September 11, 2013, the Company’s Board received
notice from the former CEO of the Company that he wished to terminate his position as CEO, effective as of February 15, 2014.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On May
15, 2014, the Board of the Company resolved to allow the former CEO a pro-rata vesting of 106,945 in addition to the 750,000 already-vested
stock options granted to him on May 29, 2012. Accordingly, 643,055 stock options formerly granted to him, and that had not yet
vested as of the termination of his employment, were forfeited. The Board further resolved to extend the term of the remaining
vested 856,945 stock options by nine months, so that they were exercisable until February 15, 2015, on which date all remaining
options expired.



| | 2. | On May 15, 2014, the Board of the Company resolved
to allow the former CFO a pro-rata vesting of 131,417 in addition to the 997,500 already-vested stock options granted to him on
April 12, 2012. Accordingly, 581,083 stock options formerly granted to him, and that had not yet vested as of the termination
of his employment, were forfeited. The Board further resolved to extend the term of the remaining vested 1,128,917 stock options
by nine months, so that they were exercisable until April 5, 2015, on which date all remaining options expired.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-47







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE
17:     SHARE-BASED PAYMENT (Cont.)



| | 3. | On December 30, 2013, the Company’s Board approved
the allocation of 880,000 stock options to the new CFO and an employee of the Company, exercisable into 880,000 ordinary shares
of NIS 0.1 par value each of the Company, for an exercise price of NIS 0.5328 per stock option. The fair value of all the stock
options according to the Black-Scholes model pursuant to IFRS 2 as of the date of grant (the date of the Company’s Board’s
decision) was approximately $ 120,000. The exercise period of the stock options is a maximum of ten years from the grant
date. The stock options vest in twelve equal portions each quarter over a period of three years from the grant date. The value
of each stock option is based on the following assumptions: expected dividend rate of 0%, expected standard deviation of 117.86%,
risk-free interest rates of 3.98% and expected life until exercise of 5-6.5 years.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | On January 30, 2014, the Company’s Board approved
the allocation of 1,500,000 stock options to the new CEO of the Company, exercisable into 1,500,000 ordinary shares of NIS 0.1
par value each of the Company, as follows: 600,000 stock options are exercisable into 600,000 ordinary shares of the Company for
an exercise price of NIS 0.6 per stock option, and an additional 900,000 stock options are exercisable into 900,000 ordinary shares
of the Company for an exercise price of NIS 0.9 per stock option. The fair value of all the stock options according to the Black-Scholes
model pursuant to IFRS 2 as of the date of grant (the date of the Company’s Board’s decision) was approximately $ 244
thousand. The exercise period of the stock options is a maximum of ten years from the grant date. The stock options vest in twelve
equal portions each quarter over a period of three years from the grant date. The value of each stock option is based on the following
assumptions: expected dividend rate of 0%, expected standard deviation of 154.49%, risk-free interest rates of 2.60%-2.87% and
expected life until exercise of 5-6.5 years.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On March 17, 2014, the Company’s
extraordinary general meeting of shareholders of the Company decided to approve the terms of an employment agreement between the
Company and Mr. Joshua Levine, pursuant to which Mr. Levine will serve as the Company’s CEO in a fulltime position, in accordance
with the resolution of the Company’s Compensation Committee and Board of Directors dated January 30, 2014 and in accordance
with the Israeli Companies Law – 1999.



| | 5. | On February 26, 2014, the board of directors of the
Company approved the allocation of 30,000 stock options to a consultant, exercisable into 30,000 ordinary shares of NIS 0.1 par
value each of the Company, for an exercise price of NIS 0.644 per stock option. The fair value of all the stock options according
to the Black-Scholes model pursuant to IFRS 2 as of the date of grant (the date of the Company’s Board resolution on the
matter) was approximately $ 3 thousand. The exercise period of the stock options is a maximum of approximately four years
from the grant date. The stock options vest in twelve equal portions each month over a period of one year from the grant date.
The value of each stock option is based on the following assumptions: expected dividend rate of 0%, expected standard deviation
of 148.25%, risk-free interest rates of 1.56% and expected life until exercise of 2.5 years.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-48







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE
17:     SHARE-BASED PAYMENT (Cont.)



| | 6. | On December 30, 2014, the general meeting of shareholders of the Company approved the appointment
of four new directors. The general meeting also approved the allocation of 150,000 stock options to each of the four new directors,
exercisable into 600,000 ordinary shares of NIS 0.1 par value each of the Company, for an exercise price of NIS 0.4325 per stock
option. The fair value of all the stock options according to the Black-Scholes model pursuant to IFRS 2 as of the date of grant
(the date of the Company’s Board resolution on the matter) was approximately $ 47 thousand. The exercise period of the
stock options is a maximum of ten years from the grant date. 33.33% of the stock options vest at the lapse of one year from the
grant date, and the remaining 66.67% vest in eight equal portions each quarter over a period of two years from the grant date.
The value of each stock option is based on the following assumptions: expected dividend rate of 0%, expected standard deviation
of 75.56%, risk-free interest rates of 2.68% and expected life until exercise of 5-6.5 years.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | On December 30, 2014, the general meeting of shareholders of the Company approved the allocation
of 150,000 stock options to a consultant, exercisable into 150,000 ordinary shares of NIS 0.1 par value each of the Company, for
an exercise price of NIS 0.4915 per stock option. The fair value of all the stock options according to the Black-Scholes model
pursuant to IFRS 2 as of the date of grant (the date of the Company’s Board resolution on the matter) was approximately $ 12
thousand. The exercise period of the stock options is a maximum of ten years from the grant date. 33.33% of the stock options vest
at the lapse of one year from the grant date, and the remaining 66.67% vest in eight equal portions each quarter over a period
of two years from the grant date. The value of each stock option is based on the following assumptions: expected dividend rate
of 0%, expected standard deviation of 75.56%, risk-free interest rates of 2.68% and expected life until exercise of 5-6.5 years.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8. | On February 12, 2015, the Company’s Board approved the allocation of 100,000 stock options
to the Company’s CFO, exercisable into 100,000 ordinary shares of NIS 0.1 par value each of the Company, for an exercise
price of NIS 0.4 per stock option. The fair value of all the stock options according to the Black-Scholes model pursuant to IFRS
2 as of the date of grant (the date of the Company’s Board’s decision) was approximately $ 6,000. The exercise
period of the stock options is a maximum of ten years from the grant date. 50% of the stock options vest at the grant date, and
the remaining 50% vest in twelve equal portions each quarter over a period of three years from the grant date. The value of each
stock option is based on the following assumptions: expected dividend rate of 0%, expected standard deviation of 80.24%, risk-free
interest rates of 2.68% and expected life until exercise of 5-6.5 years.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-49







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE
17:     SHARE-BASED PAYMENT (Cont.)



| | 9. | On March 25, 2015, an extraordinary general meeting of the shareholders of the Company approved
the appointment of two new external directors. The general meeting also approved the allocation of 150,000 stock options to each
of the two new directors, exercisable into 300,000 ordinary shares of NIS 0.1 par value each of the Company, for an exercise price
of NIS 0.4 per stock option. The fair value of all the stock options according to the Black-Scholes model pursuant to IFRS 2 as
of the date of grant (the date of the extraordinary general meeting) was approximately $ 25 thousand. The exercise period
of the stock options is a maximum of ten years from the grant date. 33.33% of the stock options vest at the lapse of one year from
the grant date (the First Anniversary), and the remaining 66.67% vest in eight equal portions each quarter over a period of two
years from the First Anniversary. The value of each stock option is based on the following assumptions: expected dividend rate
of 0%, expected standard deviation of 79.81%, risk-free interest rates of 2.68% and expected life until exercise of 5-6.5 years.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10. | On March 25, 2015, an extraordinary general meeting of the shareholders of the Company approved
the allocation of 100,000 stock options to the Company’s CEO, exercisable into 100,000 ordinary shares of NIS 0.1 par value
each of the Company, for an exercise price of NIS 0.4 per stock option. The fair value of all the stock options according to the
Black-Scholes model pursuant to IFRS 2 as of the date of grant (the date of the extraordinary general meeting) was approximately
$ 8 thousand. The exercise period of the stock options is a maximum of ten years from the grant date. 50% of the stock options
vest at the grant date, and the remaining 50% vest in twelve equal portions each quarter over a period of three years from the
grant date. The value of each stock option is based on the following assumptions: expected dividend rate of 0%, expected standard
deviation of 79.81%, risk-free interest rates of 2.68% and expected life until exercise of 5-6.5 years.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 11. | On June 1, 2015, the Company’s Board approved
the allocation of 200,000 stock options to the Company’s CFO, exercisable into 200,000 ordinary shares of NIS 0.1 par value
each of the Company, for an exercise price of NIS 0.4283 per stock option. The fair value of all the stock options according to
the Black-Scholes model pursuant to IFRS 2 as of the date of grant (the date of the Company’s Board’s decision) was
approximately $ 14,000. The exercise period of the stock options is a maximum of ten years from the grant date. 50,000 stock
options shall vest at the expiry of one year from the grant date. The remaining 150,000 stock options vest in eight equal portions
each quarter over a period of two years from the grant date. The value of each stock option is based on the following assumptions:
expected dividend rate of 0%, expected standard deviation of 78.72%, risk-free interest rates of 1.39% and expected life until
exercise of 5-6.5 years.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-50







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE
17:     SHARE-BASED PAYMENT (Cont.)



Movements
in the number of share options and their related weighted average exercise prices (in dollars) are as follows:



|                                 |  | Year ended December 31, |           
|-------------------------------- |  | ----------------------- | ----------
|                                 |  | 2015                    |           
|                                 |  | Number of options       |           
|                                 |  |                         |           
|Outstanding at beginning of year |  |                         | 6,683,862 
|Granted                          |  |                         | 700,000   
|Exercised                        |  |                         | -         
|Expired                          |  |                         | (2,513,862
|Forfeited                        |  |                         | -         
|                                 |  |                         |           
|Outstanding at end of year       |  |                         | 4,870,000 
|                                 |  |                         |           
|Exercisable at end of year       |  |                         | 2,939,168 



Below is
information about the exercise price (in dollars) and the remaining contractual life (in years) for options outstanding at end
of year:



|December 31,                       |          
|---------------------------------- | ---------
|2015                               |          
|Options outstanding at end of year |          
|                                   |          
|                                   | 4,810,000
|                                   | 60,000   
|                                   |          
|                                   | 4,870,000



Net expenses
recognized in the Company’s statements of comprehensive loss for the years ended December 31, 2015, 2014 and 2013 for grant
of options to employees were $ 148 thousand, $ 278 thousand and $ (6) thousand, respectively.



These plans
are administered in accordance with the principles set forth in this issue in section 102 to the Income Tax Ordinance.



F-51







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 18:     RESEARCH AND DEVELOPMENT
EXPENSES



|                                                                  |  | Year ended December 31,   |    
|----------------------------------------------------------------- |  | ------------------------- | ---
|                                                                  |  | 2015                      |    
|                                                                  |  | U.S. dollars in thousands |    
|                                                                  |  |                           |    
|Salaries and expenses relating to employees and service providers |  |                           | 121
|Expenses relating to options to employees and service providers   |  |                           | 8  
|Professional consulting                                           |  |                           | 360
|Lab materials                                                     |  |                           | 75 
|Other                                                             |  |                           | 14 
|                                                                  |  |                           |    
|                                                                  |  |                           | 578



NOTE 19:     GENERAL AND ADMINISTRATIVE
EXPENSES



|                                                                  |  | Year ended December 31,   |      
|----------------------------------------------------------------- |  | ------------------------- | -----
|                                                                  |  | 2015                      |      
|                                                                  |  | U.S. dollars in thousands |      
|                                                                  |  |                           |      
|Salaries and expenses relating to employees and service providers |  |                           | 405  
|Expenses relating to options to employees and service providers   |  |                           | 140  
|Patents and fees                                                  |  |                           | 203  
|Directors’ fees                                                   |  |                           | 96   
|Investor relations and travel                                     |  |                           | 145  
|Rent and office maintenance                                       |  |                           | 59   
|Vehicle maintenance                                               |  |                           | -    
|Insurance                                                         |  |                           | 62   
|Professional services                                             |  |                           | 192  
|Depreciation, amortization and loss from disposal                 |  |                           | 7    
|Other                                                             |  |                           | 110  
|                                                                  |  |                           |      
|                                                                  |  |                           | 1,419



F-52







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 20:     OTHER GAINS, NET



|                                                       |  | Year ended December 31,   |    
|------------------------------------------------------ |  | ------------------------- | ---
|                                                       |  | 2015                      |    
|                                                       |  | U.S. dollars in thousands |    
|                                                       |  |                           |    
|Gain from sale of investment in associate (a)          |  |                           | -  
|Loss from disposal of property, plant and equipment    |  |                           | (5 
|Gain (loss) from decrease in holding rate in associate |  |                           | -  
|Loss from disposal of intangible asset                 |  |                           | (5 
|                                                       |  |                           |    
|                                                       |  |                           | (10



| | (a) | Gain from sale of investment in associate:
| | --- | ------------------------------------------



|                                                               |  | 2015                      |   |  | 2014 |  |   | 2013 | 
|-------------------------------------------------------------- |  | ------------------------- | - |  | ---- |  | - | ---- | 
|                                                               |  | U.S. dollars in thousands |  
|                                                               |  |                           |   |  |      |  |   |      | 
|Consideration                                                  |  |                           | - |  |      |  | - |      | 
|Balance as of September 17, 2013                               |  |                           | - |  |      |  | - |      | 
|Transaction-related expenses                                   |  |                           | - |  |      |  | - |      | 
|Reclassification to Other gains, net due to sale of investment |  |                           | - |  |      |  | - |      | 
|                                                               |  |                           |   |  |      |  |   |      | 
|                                                               |  |                           | - |  |      |  | - |      | 



F-53







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 21:     FINANCE INCOME (EXPENSES),
NET



|                                             |  | Year ended December 31,   |    
|-------------------------------------------- |  | ------------------------- | ---
|                                             |  | 2015                      |    
|                                             |  | U.S. dollars in thousands |    
|Finance expenses:                            |  |                           |    
|                                             |  |                           |    
|Exchange rate differences                    |  |                           | -  
|Bank account management fees and commissions |  |                           | 9  
|Other financial expenses                     |  |                           | 6  
|                                             |  |                           |    
|Total finance expenses                       |  |                           | 15 
|                                             |  |                           |    
|Finance income:                              |  |                           |    
|                                             |  |                           |    
|Interest income on bank deposits             |  |                           | -  
|Exchange rate differences                    |  |                           | 4  
|                                             |  |                           |    
|Total finance income                         |  |                           | 4  
|                                             |  |                           |    
|Finance income (expenses), net               |  |                           | (11



NOTE 22:     TAXES ON INCOME



| | a. | Taxation in Israel: The corporate tax rate in Israel was 26.5%, 26.5% and 25% for the years ended
December 31, 2015, 2014 and 2013, respectively.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------



On January
5, 2016, the Israeli Parliament officially published the Law for the Amendment of the Israeli Tax Ordinance (Amendment 216), that
reduces the corporate tax rate from 26.5% to 25%, effective for the year beginning January 1, 2016.



The change
in corporate tax rate in 2016 is not expected to influence the Company’s financial statements.



| | b. | Foreign subsidiaries:
| | -- | ---------------------



The tax rates
applicable to the dissolved subsidiaries whose place of incorporation was the U.S. are (progressive) corporate tax of 35% with
the addition of State tax and local tax at rates which vary according to the State and city in which the subsidiaries conduct their
business affairs.



| |  | As a rule, intragroup transactions between the Company and the foreign subsidiaries are subject
to the guidance and reporting of the Income Tax Regulations (Determination of Market Conditions), 2006.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-54







XTL BIOPHARMACEUTICALS
LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 22:     TAXES ON INCOME (Cont.)



| | c. | The Company’s carryforward tax losses as of December 31, 2015 and 2014, totaled approximately
$ 28 million and $ 27 million, respectively.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------



The Company
did not recognize deferred taxes for carryforward losses, as well as capital losses and real losses, because their utilization
in the foreseeable future is not probable.



| | d. | Below is the reconciliation between the “theoretical” tax expense, assuming that all
the income were taxed at the regular tax rate applicable to companies in Israel and the taxes recorded in the statements of comprehensive
income in the reporting year:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                        |  | Year ended December 31,   |       
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------
|                                                                                                                        |  | 2015                      |       
|                                                                                                                        |  | U.S. dollars in thousands |       
|                                                                                                                        |  |                           |       
|Loss before taxes on income, as reported in the statements of comprehensive loss                                        |  |                           | (4,311
|                                                                                                                        |  |                           |       
|Theoretical tax saving on this loss                                                                                     |  |                           | (1,142
|Increase (decrease) in taxes resulting from different tax rates for foreign subsidiaries                                |  |                           | -     
|Expenses not deductible for tax purposes                                                                                |  |                           | 40    
|Utilization of taxable losses for which no deferred taxes were recognized                                               |  |                           | -     
|Effect of lower tax rates on capital gains                                                                              |  |                           | -     
|Increase in taxes resulting mainly from taxable losses in the reported year for which no deferred taxes were recognized |  |                           | 1,102 
|                                                                                                                        |  |                           |       
|Tax benefit                                                                                                             |  |                           | -     



| | e. | Tax assessments:
| | -- | ----------------



The Company filed self-assessments
that are deemed final through the 2008 tax year. The subsidiary, Xtepo, has not received tax assessments since its incorporation
in November 2009.



F-55







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    AS OF DECEMBER 31, 2015
|----------------------------------------------------------------------



NOTE 23:     TRANSACTIONS AND BALANCES
WITH RELATED PARTIES



“Related party”
- as the term is defined in IAS 24, “Related Party Disclosures” (“IAS 24”).



The Company’s key management
personnel who are included, along with other factors, in the definition of related party, as above in IAS 24, includes directors
and members of the executive committee.



Compensation
to key management personnel:



The compensation to key management
personnel for employee services provided to the Company is shown below:



|                                                                          |  | Year ended December 31,   |    
|------------------------------------------------------------------------- |  | ------------------------- | ---
|                                                                          |  | 2015                      |    
|                                                                          |  | U.S. dollars in thousands |    
|                                                                          |  |                           |    
|Salaries, management and consulting fees and other short-term benefits *) |  |                           | 503
|Share-based payments, net **)                                             |  |                           | 143
|                                                                          |  |                           |    
|                                                                          |  |                           | 646
|Number of persons                                                         |  |                           | 11 



| | *) | In 2013, includes grants to senior officers based on agreements signed with them in a total amount
of approximately $ 35 thousand.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------



| | **) | In 2013 – includes share-based payments expenses less a reversal of expenses due to forfeiture
of stock options in the amount of $ 647 thousand.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------



As of December 31, 2015 and
2014, the Company’s balances with related parties total approximately $ 58 thousand ($ 37 thousand of which were linked
to the NIS) and $ 92 thousand (of which $ 75 thousand were linked to the NIS), respectively.



For further information regarding
share-based payment to related parties, see note 17 above.



F-56







XTL BIOPHARMACEUTICALS LTD.



|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015
|------------------------------------------------------------------



NOTE 24:     SEGMENT INFORMATION



The Group’s management
establishes operating segments in accordance with reports reviewed by the Chief Operating Decision Maker (“CODM”)
and which are used to make strategic decisions. Given the deconsolidation of InterCure and the classification of related results
to discontinued operations, the Company operates in one operating segment.



NOTE 25:     EVENTS AFTER THE REPORTING
DATE



| | a. | On February 1, 2016, the Company paid Yeda an amount of approximately $ 64 thousand, as the fourth
of six installments for the aforementioned patent expenses reimbursement.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | In February 2016, the Company issued 340,000 ordinary shares, represented by 17,000 ADSs, to a
service provider, as part of the terms of a service agreement signed in January 2016. Shares are restricted in accordance with
Rule 144 of the U.S. Securities and Exchange Commission.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | On March 4, 2016, the Company entered into an agreement with its newly appointed Medical Director,
Dr. Daphna Paran. According to the agreement, Dr. Paran’s compensation includes an allocation of 50,000 stock options, exercisable
into 50,000 ordinary shares of NIS 0.1 par value each of the Company, for an exercise price of NIS 0.6 per stock option, as previously
approved by the Board of Directors of the Company. The fair value of all the stock options according to the Black-Scholes model
pursuant to IFRS 2 as of the date of grant (the date of the Company’s Board’s decision) was approximately $ 2
thousand. The exercise period of the stock options is a maximum of ten years from the grant date. The stock options vest in twelve
equal portions each quarter over a period of three years from the date of grant. The value of each stock option is based on the
following assumptions: expected dividend rate of 0%, expected standard deviation of 78.72%, risk-free interest rates of 1.31% and
expected life until exercise of 5-6.5 years.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | On March 31, 2016, a general meeting of shareholders of the Company approved the remuneration terms
of the Chairman of the Board of Directors of the Company, retroactive to as of September 1, 2015. The terms include monthly remuneration
in the amount of NIS 20,000, as well as the allocation of 1,500,000 stock options, exercisable into 1,500,000 ordinary shares of
NIS 0.1 par value each of the Company, for an exercise price of NIS 0.6 per stock option. The fair value of all the stock options
according to the Black-Scholes model pursuant to IFRS 2 as of the date of grant (the date of approval by the general meeting) was
approximately $ 49 thousand. The exercise period of the stock options is a maximum of ten years from the grant date. The stock
options vest in twelve equal portions each quarter over a period of three years from the date of grant. The value of each stock
option is based on the following assumptions: expected dividend rate of 0%, expected standard deviation of 78.72%, risk-free interest
rates of 1.32% and expected life until exercise of 5-6.5 years.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-57







XTL BIOPHARMACEUTICALS LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015



NOTE 25:     EVENTS AFTER THE REPORTING
DATE (Cont.)



| | e. | On March 31, 2016, a general meeting of shareholders of the Company approved the allocation of
1,000,000 stock options to the Company’s Chief Executive Officer, exercisable into 1,000,000 ordinary shares of NIS 0.1 par
value each of the Company, for an exercise price of NIS 0.6 per stock option. The fair value of all the stock options according
to the Black-Scholes model pursuant to IFRS 2 as of the date of grant (the date of approval by the general meeting) was approximately
$ 33 thousand. The exercise period of the stock options is a maximum of ten years from the date of grant. 33.33% of the stock
options vest following the lapse of 12 months from the grant date, and the remaining 66.67% vest in eight equal portions each quarter
over a period of two years from the first anniversary. The value of each stock option is based on the following assumptions: expected
dividend rate of 0%, expected standard deviation of 78.72%, risk-free interest rates of 1.32% and expected life until exercise
of 5-6.5 years.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



F-58







ITEM 19. EXHIBITS



The following exhibits are filed as part
of this annual report:



|Exhibit No. |  | Description                                                                                                                                                                                                              
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                          
|3.1         |  | Articles of Association (1)                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                          
|4.1         |  | Form of Share Certificate (including both Hebrew and English translations) (2)                                                                                                                                           
|            |  |                                                                                                                                                                                                                          
|4.2         |  | Form of American Depositary Receipt (included in Exhibit 10.1)                                                                                                                                                           
|            |  |                                                                                                                                                                                                                          
|10.1        |  | Deposit Agreement, dated as of August 31, 2005, by and between XTL Biopharmaceuticals Ltd., The Bank of New York, as Depositary, and each holder and beneficial owner of American Depositary Shares issued thereunder (1)



74







|10.2  |  | 2001 Share Option Plan dated February 28, 2001 (1)                                                                                                                                                                                         
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                            
|10.3  |  | 2011 Share Option Plan dated August 29, 2011 (7)                                                                                                                                                                                           
|      |  |                                                                                                                                                                                                                                            
|10.4  |  | Research and License Agreement Between Yeda Research and Development Company Ltd., Mor Research Applications Ltd., Biogal Ltd. (under its previous name Haverfield Ltd.) and Biogal Advanced Biotechnology Ltd. dated January 7, 2002 (3) †
|      |  |                                                                                                                                                                                                                                            
|10.5  |  | Amendment to Research and License Agreement Between Yeda Research and Development Company Ltd., Mor Research Applications Ltd., Haverfield Ltd. and Biogal Advanced Biotechnology Ltd. effective as of April 1, 2008 (3) †                 
|      |  |                                                                                                                                                                                                                                            
|10.6  |  | Option to License Agreement, dated as of September 1, 2010, between XTL Biopharmaceuticals Ltd. and Yeda Research and Development Company Limited (4)                                                                                      
|      |  |                                                                                                                                                                                                                                            
|10.7  |  | License Agreement dated January 7, 2014, by and between Yeda Research and Development Company Limited and XTL Biopharmaceuticals Ltd (5)                                                                                                   
|      |  |                                                                                                                                                                                                                                            
|10.8  |  | Form of First Amendment to License Agreement by and by and between Yeda Research and Development Company Limited and XTL Biopharmaceuticals Ltd (7)                                                                                        
|      |  |                                                                                                                                                                                                                                            
|10.9  |  | Form of Employment Agreement dated September 11, 2013 between XTL Biopharmaceuticals Ltd. and Joshua Levine (7)                                                                                                                            
|      |  |                                                                                                                                                                                                                                            
|10.10 |  | Form of Employment Agreement dated January 9, 2014 between XTL Biopharmaceuticals Ltd. and David Kestenbaum (7)                                                                                                                            
|      |  |                                                                                                                                                                                                                                            
|10.11 |  | Form of Consulting Agreement dated January 1, 2015 between XTL Biopharmaceuticals Ltd. and Schapiro Education Ltd. (7)                                                                                                                     
|      |  |                                                                                                                                                                                                                                            
|21.1  |  | List of Subsidiaries (6)                                                                                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                            
|23.1  |  | Consents of Kesselman & Kesselman, a member firm of PricewaterhouseCoopers International Ltd *                                                                                                                                             
|23.2  |  | Consent of BDO Ziv Haft Consulting and
        Management Ltd.                                                                                                                                                                             
|      |  |                                                                                                                                                                                                                                            
|31.1  |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated April 25, 2013.*                                                                
|      |  |                                                                                                                                                                                                                                            
|31.2  |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated April 25, 2013.*                                                                
|      |  |                                                                                                                                                                                                                                            
|32.1  |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 USC. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated April 25, 2013*                                                
|      |  |                                                                                                                                                                                                                                            
|99.1  |  | Consolidated Financial Statements of Proteologics Ltd. for the nine months ended September 30, 2013 (5)                                                                                                                                    





|*   | Filed herewith.                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|†   | Certain confidential information contained in this exhibit was omitted.                                                                                                     
|    |                                                                                                                                                                             
|(1) | Incorporated by reference from the registration statement on F-6 filed with the Securities and Exchange Commission on November 28, 2007, as it may be amended or restated.  
|(2) | Incorporated by reference from the annual report on Form 20-F filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on March 23, 2007.           
|(3) | Incorporated by reference from the annual report on Form 20-F filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on April 6, 2009.            
|(4) | Incorporated by reference from the annual report on Form 20-F filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on May 30, 2011.             
|(5) | Incorporated by reference from the annual report on Form 20-F filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on April 2, 2014.            
|(6) | Incorporated by reference from the registration statement on Form F-1 filed by XTL Biopharmaceuticals Ltd. with the Securities and Exchange Commission on December 31, 2015.



75







SIGNATURES



The registrant hereby certifies that it
meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this registration
statement on its behalf.



|                     | XTL BIOPHARMACEUTICALS LTD.
|-------------------- | ---------------------------
|                     | (Registrant)               
|                     |                            
|Date: March 31, 2016 | Signature:                 
|                     |                            
|                     |                            





76