UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 20-F

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

OR

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

For the fiscal year ended December 31, 2024

OR

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

OR

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

Commission File No.: 001-38041

SCISPARC LTD.

(Exact name of registrant as specified in its charter)

Translation of registrant’s name into English: Not applicable

State of Israel

(Jurisdiction of incorporation or organization)

20 Raul Wallenberg St.

Tower A, 2nd Floor

Tel Aviv 6971916, Israel

(Address of principal executive offices)

Oz Adler

Chief Executive Officer

Tel: +972-3-7175777

Email: oz@scisparc.com

20 Raul Wallenberg St.

Tower A, 2nd Floor

Tel Aviv 6971916, Israel

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

Securities to be registered or to be registered pursuant to Section 12(b) of the Act: None

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

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Ordinary Shares, no par value |  | SPRC |  | The Nasdaq Capital Market

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.

10,828,251 Ordinary Shares, no par value, as of December 31, 2024

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act of 1934.

Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted 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 such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☐ | Accelerated filer | ☐
Non-accelerated filer | ☒ | Emerging growth company | ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

U.S. GAAP ☐

International Financial Reporting Standards as issued by the International Accounting Standards Board ☒

Other ☐

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

☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company.

Yes ☐ No ☒

TABLE OF CONTENTS

|  | Page
INTRODUCTION | iii
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS | iv
SUMMARY RISK FACTORS | v
| 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 | 1
A. | [Reserved] | 1
B. | Capitalization and Indebtedness | 1
C. | Reasons for the Offer and Use of Proceeds | 1
D. | Risk Factors | 1
ITEM 4. | INFORMATION ON THE COMPANY | 72
A. | History and Development of the Company | 72
B. | Business Overview | 72
C. | Organizational Structure | 113
D. | Property, Plants and Equipment | 113
ITEM 4A. | UNRESOLVED STAFF COMMENTS | 114
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 114
A. | Operating Results | 114
B. | Liquidity and Capital Resources | 118
C. | Research and development, patents and licenses, etc. | 123
D. | Trend information | 123
E. | Critical Accounting Estimates | 123
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 125
A. | Directors and Senior Management | 125
B. | Compensation | 131
C. | Board Practices | 133
D. | Employees | 150
E. | Share Ownership | 150
F. | Action to Recover Erroneously Awarded Compensation | 150
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 150
A. | Major Shareholders | 150
B. | Related Party Transactions | 153
C. | Interests of Experts and Counsel | 155
ITEM 8. | FINANCIAL INFORMATION | 156
A. | Consolidated Statements and Other Financial Information | 156
B. | Significant Changes | 157
ITEM 9. | THE OFFER AND LISTING | 157
A. | Offer and Listing Details | 157
B. | Plan of Distribution | 157
C. | Markets | 157
D. | Selling Shareholders | 157
E. | Dilution | 157
F. | Expenses of the Issue | 157

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ITEM 10. | ADDITIONAL INFORMATION | 157
A. | Share Capital | 157
B. | Memorandum and Articles of Association | 157
C. | Material Contracts | 157
D. | Exchange Controls | 157
E. | Taxation | 158
F. | Dividends and Paying Agents | 168
G. | Statement by Experts | 168
H. | Documents on Display | 168
I. | Subsidiary Information | 169
J. | Annual Report to Security Holders | 169
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 169
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 169
A. | Debt Securities |
B. | Warrants and rights |
C. | Other Securities |
D. | American Depositary Shares |
| PART II | 170
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 170
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 170
ITEM 15. | CONTROLS AND PROCEDURES | 170
ITEM 16. | [Reserved]. | 171
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT | 171
ITEM 16B. | CODE OF ETHICS | 171
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 171
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | 171
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 171
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT | 171
ITEM 16G. | CORPORATE GOVERNANCE | 172
ITEM 16H. | MINE SAFETY DISCLOSURE | 173
ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 173
ITEM 16J. | INSIDER TRADING POLICIES | 173
ITEM 16K. | CYBERSECURITY | 173
| PART III | 175
ITEM 17. | FINANCIAL STATEMENTS | 175
ITEM 18. | FINANCIAL STATEMENTS | 175
ITEM 19. | EXHIBITS | 175
SIGNATURES | 178

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INTRODUCTION

We are a specialty clinical-stage pharmaceutical company. Our focus is creating and enhancing a portfolio of technologies and assets based on cannabinoid therapies. With this focus, we are currently engaged in the following development programs based on Δ9-tetrahydrocannabinol, or THC, and/or non-psychoactive cannabidiol, or CBD, and/or other cannabinoid receptors, or CBR, agonists: SCI-110 for the treatment of Tourette syndrome, or TS, for the treatment of obstructive sleep apnea, or OSA, and for the treatment of Alzheimer’s disease and agitation; and SCI-210 for the treatment of Autism Spectrum Disorder, or ASD, and Status Epilepticus, or SE. We also have a majority-owned subsidiary whose business focuses on the sale of hemp seeds oil-based products and others on Amazon Marketplace.

We were incorporated under the laws of the State of Israel on August 23, 2004. Our Ordinary Shares are listed on the Nasdaq Capital Market, or Nasdaq, under the symbol “SPRC”.

Unless otherwise indicated, all references to the “Company,” “we,” “us, “our” and “SciSparc” refer to SciSparc Ltd. (formerly known as Therapix Biosciences Ltd.) and its subsidiaries.

References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to “Ordinary Shares” are to our Ordinary Shares, no par value. We report financial information under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accounting principles in the United States. Unless derived from our financial statements or otherwise indicated, U.S. dollar translations of NIS amounts presented in this Annual Report on Form 20-F, or the Annual Report, are translated using a rate of NIS 3.699 to USD 1.00, the last exchange rate published by the Bank of Israel on December 31, 2024.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information included or incorporated by reference in this Annual Report may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forward-looking statements are often characterized by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are not the only way these statements are identified.

Forward-looking statements include, but are not limited to, statements about:

| ● | our ability to raise capital through the issuance of additional securities and ability to continue as a going concern;

| ● | likelihood of the satisfaction of certain conditions to the completion of the Merger, as defined herein, and whether and when the Merger will be consummated;

| ● | the expected benefits of and potential value created by the proposed Merger for the shareholders of SciSparc and AutoMax;

| ● | our ability to advance the development of our pharmaceutical product candidates, including the anticipated starting and ending dates of our anticipated clinical trials;

| ● | our assessment of the potential of our pharmaceutical product candidates to treat certain indications;

| ● | our ability to successfully receive approvals from the U.S. Food and Drug Administration, or FDA, or other regulatory bodies, including approval to conduct clinical trials, the scope of those trials and the prospects for regulatory approval of, or other regulatory action with respect to our product candidates, including the regulatory pathway to be designated to our product candidates;

| ● | the regulatory environment and changes in the health policies and regimes in the countries in which we operate, including the impact of any changes in regulation and legislation that could affect the pharmaceutical industry;

| ● | our ability to commercialize our existing product candidates and future sales of our existing product candidates or any other future potential product candidates;

| ● | our ability to meet our expectations regarding the commercial supply of our product candidates;

| ● | our ability to integrate our new eCommerce operations business, which focuses on the sale of hemp-based products on Amazon Marketplace;

| ● | our ability to pursue our intended restructuring plan which involves transferring our pharmaceutical activities to Jeffs’ Brand Holding Inc., a wholly owned subsidiary of Jeff’s Brands, or NewCo, or the Restructuring Plan, and list NewCo on a leading stock exchange;

| ● | the overall global economic environment;

| ● | the impact of competition and new technologies;

| ● | general market, political and economic conditions in the countries in which we operate including those related to recent unrest and actual or potential armed conflict in Israel and other parts of the Middle East, such as the multi-front conflict Israel faces;

| ● | projected capital expenditures and liquidity;

| ● | changes in our strategy;

| ● | litigation; and

| ● | those factors referred to in “Item 3. Key Information - D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects,” as well as in this Annual Report.

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These statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

Readers are urged to carefully review and consider the various disclosures made throughout this Annual Report which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

You should not put undue reliance on any forward-looking statements. Any forward-looking statements in this Annual Report are made as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Summary Risk Factors

The risk factors described below are a summary of the principal risk factors associated with an investment in us. These are not the only risks we face. You should carefully consider these risk factors, together with the risk factors set forth in Item 3.D of this Annual Report and the other reports and documents filed by us with the SEC.

Risks Related to Our Financial Condition and Capital Requirements

| ● | We are a specialty clinical-stage pharmaceutical company and have a limited operating history on which to assess the prospects for our business, have incurred significant losses since the date of our inception, and anticipate that we will continue to incur significant losses until we are able to successfully commercialize our product candidates.

| ● | We have not generated any revenue from the sale of our current product candidates and may never be profitable.

| ● | We expect that we will need to raise substantial additional funding before we can expect to become profitable from sales of our product candidates. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product candidate development efforts or other operations.

| ● | The report of our independent registered public accounting firm contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern, which could prevent us from obtaining new financing on reasonable terms or at all.

Risks Related to the Merger between SciSparc and AutoMax

| ● | Because the exchange ratio is fixed and will not be adjusted in the event of a change in either our share price or the share price of AutoMax Motors Ltd., or AutoMax, AutoMax shareholders cannot be certain of the precise value of the consideration that they may receive in the merger between SciSparc and AutoMax, or the Merger.

| ● | If the proposed merger with AutoMax is not consummated, our share price could decline.

| ● | If the conditions to the Merger are not met, the Merger will not occur.

| ● | The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and other causes.

| ● | The market price of the combined company’s shares may decline as a result of the Merger.

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Risks Related to the Discovery and Development of Our Pharmaceutical Product Candidates

| ● | We are heavily dependent on the success of our pharmaceutical product candidates, which are in the late stages of pre-clinical development or early stages of clinical development. We cannot give any assurance that any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.

| ● | Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not be predictive of future study results. We may also find it difficult to enroll patients in our clinical studies. Difficulty in enrolling patients could delay or prevent clinical studies of our pharmaceutical product candidates.

Risks Related to Our Reliance on Third Parties

| ● | We rely on third parties to conduct our preclinical and clinical studies and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our pharmaceutical product candidates and our business could be substantially harmed.

| ● | We will rely on third parties to manufacture our active pharmaceutical ingredient, or API, and formulations. Our business could be harmed if those third parties fail to provide us with sufficient quantities of our needed supplies or fail to do so at acceptable quality levels or prices.

Risks Related to Commercialization of Our Pharmaceutical Product Candidates

| ● | If the market opportunities for our pharmaceutical product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.

Risks Related to Our Intellectual Property

| ● | If we are unable to obtain and maintain effective patent rights for our product candidates, we may not be able to compete effectively in our markets. Further, if we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us.

Risks Related to Our Pharmaceutical Business Operations

| ● | From time to time, we may sign letters of intent and/or enter into term sheets or other similar arrangements that are subject to negotiation of definitive agreements. There can be no assurance that we will enter into any such definitive agreements. Similarly, we may strategically invest in transactions from time to time, and there can be no assurance that the value of our investment will increase or that it will not fluctuate.

Risks Related to our Intended Corporate Restructuring Plan

| ● | The Restructuring Plan may not be completed in accordance with the expected plans or anticipated timeline, or at all, and may not achieve the expected results.

Risks Related to Our Subsidiary’s eCommerce Operations

| ● | We may be unable to successfully integrate or execute our new subsidiary’s eCommerce operations business.

vi

Risks Related to the Ownership of Our Securities

| ● | We will need additional capital in the future. Raising additional capital by issuing securities may cause dilution to existing shareholders.

Risks Related to Israeli Law and Our Operations in Israel

| ● | Provisions of Israeli law may make it easy for our shareholders to demand that we convene a shareholders meeting, and/or allow shareholders to convene a shareholder meeting without the consent of our management, which may disrupt our management’s ability to run our company.

| ● | Our principal executive offices, most of our research and development activities and other significant operations are located in Israel, and, therefore, our results may be adversely affected by political, economic and military instability in Israel, including the multi-front war that Israel is facing.

Risks Related to AutoMax’s Business and Operations

| ● | AutoMax’s business is sensitive to changes in consumer preferences and global trends in the automotive industry.

Risks Related to the Combined Company

| ● | The combined company’s success depends on the experience and expertise of its management team and board of directors.

vii

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. [Reserved]

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

You should carefully consider the risks described below, together with all of the other information in this Annual Report. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our Ordinary Shares could decline.

Risks Related to Our Financial Condition and Capital Requirements

We are a specialty clinical-stage pharmaceutical company and have incurred significant losses since the date of our inception, and anticipate that we will continue to incur significant losses until we are able to successfully commercialize our product candidates.

We have historically incurred substantial net losses: including net losses of approximately $7.5 million for the year ended December 31, 2024, $5.9 million for the year ended December 31, 2023, and $2.6 million for the year ended December 31, 2022. As of December 31, 2024, we had an accumulated deficit of approximately $75 million.

We have devoted substantially all of our financial resources to develop our product candidates, and more recently, to a lesser degree, we have been searching for strategic transactions. We have financed our operations primarily through the issuance of equity securities. The amount of our future net losses will depend, in part, on completing the development of our product candidates, the demand for our product candidates, the rate of our future expenditures and our ability to obtain funding through the issuance of our securities, strategic collaborations or grants. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are in the late stages of preclinical and at the early stages of clinical development for our product candidates, we have not yet commenced pivotal clinical studies for any product candidate. Although we have begun early commercialization efforts for our proprietary Palmitoylethanolamide, or PEA, oral tablets formulation, CannAmide™, which we expect will be marketed to pharmacies and other retail outlets across Canada following our entering into a distribution agreement(s), it may be several years, if ever, before we complete pivotal clinical studies and have our lead product candidate approved for commercialization. Even if we obtain regulatory approval to market a product candidate, our future revenue will depend upon the size of the markets for which our product candidates may receive approval and our ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors and adequate market share for our product candidates in those markets.

We expect to continue to incur significant losses until we are able to commercialize our main pharmaceutical product candidates, which we may not be successful in achieving. We anticipate that our expenses will increase substantially if and as we:

| ● | continue the research and development of our product candidates;

| ● | expand the scope of our current clinical studies for our product candidates;

| ● | seek regulatory and marketing approvals for our product candidates that successfully complete clinical studies;

| ● | establish a sales, marketing and distribution infrastructure to commercialize our product candidates;

| ● | seek to identify, assess, acquire, license, and/or develop other product candidates and subsequent generations of our current product candidates;

| ● | seek to maintain, protect, and expand our intellectual property portfolio;

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| ● | seek to attract and retain skilled personnel; and

| ● | create additional infrastructure to support our operations as a public company and our product candidate development and planned future commercialization efforts.

We have not generated any revenue from the sale of our current pharmaceutical product candidates and may never be profitable.

We have not yet commercialized any of our pharmaceutical product candidates and have not generated any revenue from sales of our pharmaceutical product candidates since the date of our inception. Although we have begun early commercialization efforts for our proprietary PEA oral tablets formulation. CannAmide™, we do not currently expect the sale of CannAmide to result in material revenues, nor is CannAmide™ our lead pharmaceutical product candidate. We do not know whether or when we will become profitable. Our ability to generate revenue and achieve profitability depends on our ability to successfully complete the development of, and to commercialize, our pharmaceutical product candidates and on the demand for our pharmaceutical product candidates. Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain the regulatory and marketing approvals necessary to commercialize, one or more of our pharmaceutical product candidates. Our ability to generate future revenue from pharmaceutical product candidate sales depends heavily on our success in many areas, including but not limited to:

| ● | completing research and preclinical and clinical development of our pharmaceutical product candidates;

| ● | obtaining regulatory and marketing approvals for pharmaceutical product candidates for which we complete clinical studies;

| ● | establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate (in amount and quality) pharmaceutical products to support market demand for our pharmaceutical product candidates, if approved;

| ● | launching and commercializing pharmaceutical product candidates if and when we obtain regulatory and marketing approval, either directly or with a collaborator or distributor;

| ● | obtaining market acceptance of our pharmaceutical product candidates as viable treatment options;

| ● | addressing any competing pharmaceutical or biotechnological and market developments;

| ● | identifying, assessing, acquiring and/or developing new pharmaceutical product candidates;

| ● | negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;

| ● | maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and

| ● | attracting, hiring and retaining qualified personnel.

2

Even if one or more of the pharmaceutical product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved pharmaceutical product candidate. Our expenses could increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign, to perform clinical, nonclinical or other types of studies in addition to those that we currently anticipate. In cases where we are successful in obtaining regulatory approvals to market one or more of our pharmaceutical product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for the pharmaceutical product candidate, the ability to get reimbursement at an acceptable price and whether we own the commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the reasonably expected population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such pharmaceutical product candidates, even if approved. Additionally, if we are not able to generate revenue from the sale of any approved pharmaceutical product candidates, we may be forced to cease operations.

We expect that we will need to raise substantial additional funding before we can expect to become profitable from sales of our pharmaceutical product candidates. This additional financing may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our pharmaceutical product candidate development efforts or other operations.

As of December 31, 2024, our cash was approximately $2.1 million, other accounts receivable was approximately $0.5 million, we had working capital of approximately $4.9 million and we also had an accumulated deficit of approximately $69 million. Based upon our currently expected level of operating expenditures, we do not expect that our existing cash will be sufficient to fund operations for at least the next 12 months. We expect that we will require substantial additional capital to commercialize our pharmaceutical product candidates. In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future funding requirements will depend on many factors, including but not limited to:

| ● | the scope, rate of progress, results and cost of pharmaceutical product development, clinical studies, preclinical testing, and other related activities;

| ● | the cost, timing and outcomes of regulatory approvals;

| ● | the cost and timing of establishing sales, marketing, and distribution capabilities; and

| ● | the terms and timing of any collaborative, licensing, and other arrangements that we may establish.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our pharmaceutical product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of holders of our securities and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our Ordinary Shares to decline. The incurrence of indebtedness could result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable, and we may be required to relinquish rights to some of our technologies or pharmaceutical product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects. Even if we believe that we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.

3

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any pharmaceutical product candidates or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.

The report of our independent registered public accounting firm contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern, which could prevent us from obtaining new financing on reasonable terms or at all.

The report of our independent registered public accounting firm on our audited consolidated financial statements for the period ended December 31, 2024 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainty regarding our ability to continue as a going concern. This going concern opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Further reports on our consolidated financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as a going concern.

Risks Related to the Discovery and Development of Our Pharmaceutical Product Candidates

We are heavily dependent on the success of our pharmaceutical product candidates, which are in the late stages of pre-clinical development or early stages of clinical development. We cannot give any assurance that any of our pharmaceutical product candidates will receive regulatory approval, which is necessary before they can be commercialized.

To date, we have invested substantially all of our efforts and financial resources to design and develop our pharmaceutical product candidates, including conducting preclinical studies and providing general and administrative support for these operations. Our future success is dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize one or more pharmaceutical product candidates. We currently generate no revenue from sales of any pharmaceutical product candidate, and we may never be able to develop or commercialize a marketable pharmaceutical product candidate.

Each of our pharmaceutical product candidates is in the late stages of pre-clinical development or early stages of development and will require additional clinical development (and in some cases additional preclinical development), management of nonclinical, clinical and manufacturing activities, regulatory approval, obtaining adequate manufacturing supply, building of a commercial organization and significant marketing efforts before we generate any revenue from pharmaceutical product candidate sales. It may be years before a pivotal study is initiated, if at all. Any clinical trials in the United States will require the approval of an Investigational New Drug, or IND, application by the FDA, and we cannot assure that we will obtain such approval in a timely manner, or at all. We are not permitted to market or promote any of our pharmaceutical product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our pharmaceutical product candidates.

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We as a company have never submitted marketing applications to the FDA or comparable foreign regulatory authorities. We cannot be certain that any of our pharmaceutical product candidates will be successful in clinical studies or receive regulatory approval or what regulatory pathway the regulatory authorities shall designate for our pharmaceutical product candidates. Further, our pharmaceutical product candidates may not receive regulatory approval even if they are successful in clinical studies. If we do not receive regulatory approvals for our pharmaceutical product candidates, we may not be able to continue our operations.

We generally plan to seek regulatory approval to commercialize our pharmaceutical product candidates in the United States, the European Union and in additional foreign countries. To obtain regulatory approvals we must comply with the numerous and varying regulatory requirements of such countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical studies, commercial sales, pricing and distribution of our product candidates. Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdictions. If we are unable to obtain approval for our pharmaceutical product candidates in multiple jurisdictions, our revenue and results of operations would be negatively affected.

The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our pharmaceutical product candidates, our business will be substantially harmed.

The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable, typically takes many years following the commencement of clinical studies and depends upon numerous factors. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a pharmaceutical product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. We have not obtained regulatory approval for any pharmaceutical product candidate, and it is possible that none of our existing pharmaceutical product candidates or any pharmaceutical product candidates we may seek to develop in the future will ever obtain regulatory approval.

Applications for our pharmaceutical product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:

| ● | the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical studies;

| ● | we may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that a pharmaceutical product candidate’s safety-benefit ratio for its proposed indication is acceptable;

| ● | the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical studies;

| ● | the data collected from clinical studies of our pharmaceutical product candidates may not be sufficient to support the submission of a New Drug Application, or NDA, in the United States or elsewhere;

| ● | the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

| ● | the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

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This lengthy approval process, as well as the unpredictability of the results of clinical studies, may result in our failing to obtain regulatory approval to market any of our pharmaceutical product candidates, which would significantly harm our business, results of operations and prospects.

Inadequate funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the FDA and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.

Future legislative and regulatory proposals may materially impact the ability of the FDA and other regulatory agencies to operate as they have historically operated. We cannot be sure whether additional legislative changes or executive orders will be enacted, or whether any of the FDA’s regulations, guidance or interpretations will be changed, or what the impact of such changes on the agency and its scientific review staff, if any, may be. In addition, disruptions at the FDA and other agencies may slow the time necessary for new products to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, political disputes in the U.S. Congress may result in a shutdown of the U.S. federal government, and in such cases certain regulatory agencies, such as the FDA, would have to furlough critical employees and stop critical activities.

If a prolonged government shutdown occurs, or if legislative or regulatory developments or global health concerns hinder or prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

Disruptions at the FDA and other agencies may also increase the time necessary for new drugs or medical devices to be reviewed and/or approved by necessary government agencies or to otherwise respond to regulatory submissions, which would adversely affect our business. For example, the Trump Administration has discussed several changes to the reach and oversight of the FDA, which could affect its relationship with the medical device and pharmaceutical industry, transparency in decision making and ultimately the cost and availability of prescription drugs or treatments. Additionally, over the last several years, the US government has shut down multiple times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA and other government employees and stop critical activities. If funding for the FDA is reduced, FDA priorities change, or a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

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Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not be predictive of future study results.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical study process. The results of preclinical studies and early clinical studies of our product candidates may not be predictive of the results of later-stage clinical studies. Product candidates that have shown promising results in early-stage clinical studies may still suffer significant setbacks in subsequent advanced clinical studies. There is a high failure rate for drugs proceeding through clinical studies, and product candidates in later stages of clinical studies may fail to show the desired safety and efficacy traits despite having progressed satisfactorily through preclinical studies and initial clinical studies. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical studies due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses. We do not know whether any Phase I, Phase II, Phase III or other clinical studies we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain regulatory approval to market our product candidates.

We may find it difficult to enroll patients in our clinical studies. Difficulty in enrolling patients could delay or prevent clinical studies of our pharmaceutical product candidates.

Identifying and qualifying patients to participate in clinical studies of our pharmaceutical product candidates is critical to our success. The timing of our clinical studies depends in part on the speed at which we can recruit patients to participate in testing our pharmaceutical product candidates, and we may experience delays in our clinical studies if we encounter difficulties in enrollment.

Some of the conditions for which we plan to evaluate our current pharmaceutical product candidates are for rare diseases. Accordingly, there is a limited patient pool from which to draw for clinical studies. Further, the eligibility criteria of our clinical studies will further limit the pool of available study participants as we will require that patients have specific characteristics that we can measure or to assure their disease is either severe enough or not too advanced to include them in a study.

Additionally, the process of finding patients may prove costly. We also may not be able to identify, recruit and enroll a sufficient number of patients to complete our clinical studies because of the perceived risks and benefits of the pharmaceutical product candidate under study, the availability and efficacy of competing therapies and clinical studies, the proximity and availability of clinical study sites for prospective patients and the patient referral practices of physicians. If patients are unwilling to participate in our studies for any reason, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential pharmaceutical product candidates will be delayed.

If we experience delays in the completion or termination of any clinical study of our pharmaceutical product candidates, the commercial prospects of our pharmaceutical product candidates will be harmed, and our ability to generate pharmaceutical product candidate revenue from any of these pharmaceutical product candidates could be delayed or prevented. In addition, any delays in completing our clinical studies will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence pharmaceutical product candidate sales and generate revenue. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical studies may also ultimately lead to the denial of regulatory approval of our pharmaceutical product candidates.

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If the FDA does not conclude that our pharmaceutical product candidates satisfy the requirements for the Section 505(b)(2) regulatory approval pathway, or if the requirements for our pharmaceutical product candidates under Section 505(b)(2) are not as we expect, the approval pathway would likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated and in either case may not be successful.

We intend to seek FDA approval through the Section 505(b)(2) regulatory pathway for our pharmaceutical product candidate- SCI-110 and potentially for our drug candidate SCI-210. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act of 1938, as amended, or the FDC Act, or Section 505(b)(2). Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference.

If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as anticipated, we may need to conduct additional clinical trials, provide additional data and information and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval, and complications and risks associated with FDA approval, would substantially increase. We may need to obtain additional funding, which could result in significant dilution to the ownership interests of our then existing shareholders to the extent we issue equity securities or convertible debt. We cannot assure you that we would be able to obtain such additional financing on terms acceptable to us, if at all. Moreover, inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive pharmaceutical product candidates reaching the market faster than our pharmaceutical product candidates, which could materially adversely impact our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, we cannot assure you that our pharmaceutical product candidates will receive the requisite approvals for commercialization.

In addition, notwithstanding the approval of a number of pharmaceutical product candidates by the FDA under Section 505(b)(2) over the last few years, some pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). For example, several companies have previously petitioned the FDA regarding the constitutionality of allowing others to rely upon FDA findings that are based on their proprietary data. If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its 505(b)(2) policies and practices, which could require that we generate full data regarding safety and effectiveness for previously approved active ingredients and delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approval of our potential future NDAs for up to 30 months depending on the outcome of any litigation. It is not uncommon for a manufacturer of an approved pharmaceutical product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing pharmaceutical products. If successful, such petitions can significantly delay, or even prevent, the approval of the new pharmaceutical product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. In addition, even if we are able to utilize the Section 505(b)(2) regulatory pathway for our pharmaceutical product candidates, there is no guarantee this would ultimately lead to faster pharmaceutical product development or earlier approval. Moreover, even if these pharmaceutical product candidates are approved under the Section 505(b)(2) pathway, as the case may be, the approval may be subject to limitations on the indicated uses for which the pharmaceutical products may be marketed or to other conditions of approval or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the pharmaceutical products. Our pharmaceutical product candidates are at early stages of development and are subject to uncertainty over what we must do on our development program in order to secure approval under Section 505(b)(2).

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We may encounter substantial delays in our clinical studies, or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.

Before obtaining marketing approval from regulatory authorities for the sale of our pharmaceutical product candidates, we must conduct extensive clinical studies to demonstrate the safety and efficacy of the pharmaceutical product candidates in humans. Clinical testing is expensive, time consuming and uncertain as to outcome. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical studies can occur at any stage of testing, and our future clinical studies may not be successful. Events that may prevent successful or timely completion of clinical development include but are not limited to:

| ● | inability to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of human clinical studies;

| ● | the occurrence of a pandemic or the spread of a virus that diverts the attention of regulatory agencies from reviewing our study design or results or which, as a result of such pandemic or widespread, requires us to materially modify our planned clinical studies;

| ● | delays in reaching a consensus with regulatory agencies on study design;

| ● | delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites;

| ● | delays in obtaining required Institutional Review Board, or IRB, approval at each clinical study site;

| ● | imposition of a clinical hold by regulatory agencies, after review of an IND, application, or equivalent application, or an inspection of our clinical study operations or study sites;

| ● | delays in recruiting suitable patients to participate in our clinical studies;

| ● | difficulty collaborating with patient groups and investigators;

| ● | failure by our CROs, other third parties or us to adhere to clinical study requirements;

| ● | failure to perform in accordance with the FDA’s Good Clinical Practices, or GCP, requirements, or applicable regulatory guidelines in other countries;

| ● | delays in having patients complete participation in a study or return for post-treatment follow-up;

| ● | patients dropping out of a study;

| ● | occurrence of serious adverse events associated with the pharmaceutical product candidate that are viewed to outweigh its potential benefits;

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| ● | changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;

| ● | the cost of clinical studies of our pharmaceutical product candidates being greater than we anticipate;

| ● | clinical studies of our pharmaceutical product candidates producing negative or inconclusive results, which may result in us deciding, or regulators requiring us, to conduct additional clinical studies or abandon pharmaceutical product candidate development programs; and

| ● | delays in manufacturing, testing, releasing, validating or importing/exporting sufficient stable quantities of our pharmaceutical product candidates for use in clinical studies or the inability to do any of the foregoing.

Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue. We may also be required to conduct additional safety, efficacy and comparability studies before we will be allowed to start clinical studies with our repurposed drugs. Clinical study delays could also shorten any periods during which our pharmaceutical product candidates have patent protection and may allow our competitors to bring pharmaceutical product candidates to market before we do, which could impair our ability to obtain orphan exclusivity and successfully commercialize our pharmaceutical product candidates and may harm our business and results of operations.

In respect of our pharmaceutical product candidates targeting rare indications, orphan drug exclusivity may afford limited protection, and if another party obtains orphan drug exclusivity for the drugs and indications we are targeting, we may be precluded from commercializing our pharmaceutical product candidates in those indications during that period of exclusivity.

We are seeking to obtain an orphan designation for some of our pharmaceutical product candidates in the United States. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug.

In the United States, the first NDA applicant with an orphan drug designation for a particular active moiety to treat a specific disease or condition that receives FDA approval is entitled to a seven-year exclusive marketing period in the United States for that product candidate, for that indication. In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market exclusivity is granted following drug approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

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In June 2016, we submitted a request for orphan drug designation to the FDA for SCI-110 for the treatment of TS. In a letter dated September 29, 2016, the FDA informed us that our request could not be granted at such time, and is being held in abeyance until and subject to us providing additional information pertaining to the overall prevalence of TS in both children and adults, and further clinical data to support our scientific rationale for our request for orphan drug designation within 12 months. In September 2017, we responded to such FDA letter within the designated time frame, and provided the FDA with our articulated and reasoned responses including documentation and clinical data that supports it. On December 26, 2017, we received the FDA’s response to our response. The FDA accepted that there is adequate scientific rationale for the treatment of TS with SCI-110 mainly through the preliminary results of ongoing clinical trials, suggesting that SCI-110 may provide benefit in treating TS. However, the FDA stated that it was unable to grant our request and indicated that we did not provide adequate prevalence estimates, and any evidence to support our statement that only moderate to severe TS patients would require pharmacological treatment. We further responded in January 2018 by providing additional information. On January 23, 2020, following additional correspondence with the FDA, the FDA still did not grant us our request due to the fact that we have not yet provided adequate prevalence estimates. However, the FDA did agree with our position that we could potentially qualify for orphan drug designation with respect to the moderate-to-severe TS sub-group population only rather than the entire population. After we had provided additional prevalence estimates, the FDA raised a concern in its letter, dated December 7, 2020, about our ability to limit the use of the pharmaceutical product to the subset of patients we are pursuing. Due to the fact that we disagree with this concern, we requested a clarification call. In the clarification call conducted on February 2, 2021, we agreed with the FDA concern about our ability to limit the use of the pharmaceutical product to the subset of patients in addition to a safety concern associated with THC treatment in pediatrics population so we suggested to amend our preliminary request and asked to include only adults in the treated population. An amendment letter was discussed and the FDA described what it would want to see in such an amendment. In March 2021, we sent our response to the FDA. In June 2021, we received a response from the FDA explaining that they are unable to grant our request until new information becomes available to support our request for orphan drug designation. We will re-visit the application after we obtain clinical results from our upcoming phase IIb clinical trial in TS.

There is no assurance that we will successfully obtain orphan drug designation for TS, any future rare indications or orphan exclusivity upon approval of any of our pharmaceutical product candidates that have already obtained designation.

Even if we do obtain orphan exclusivity for any pharmaceutical product candidate, the exclusive marketing rights may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug. Moreover, a drug product candidate with an active moiety that is a different cannabinoid from that in our drug candidate or, under limited circumstances, the same drug product candidate, may be approved by the FDA for the same indication during the period of marketing exclusivity. The limited circumstances include a showing that the second drug is clinically superior to the drug with marketing exclusivity through a demonstration of superior safety or efficacy or that it makes a major contribution to patient care. In addition, if a competitor obtains approval and marketing exclusivity for a drug product candidate with an active moiety that is the same as that in a pharmaceutical product candidate we are pursuing for the same indication, approval of our pharmaceutical product candidate would be blocked during the period of marketing exclusivity unless we could demonstrate that our product candidate is clinically superior to the approved pharmaceutical product candidate. In addition, if a competitor obtains approval and marketing exclusivity for a drug product candidate with an active moiety that is the same as that in a pharmaceutical product candidate we are pursuing for a different orphan indication, this may negatively impact the market opportunity for our pharmaceutical product candidate.

There have been legal challenges to aspects of the FDA’s regulations and policies concerning the exclusivity provisions of the Orphan Drug Act, and future challenges could lead to changes that affect the protections afforded our pharmaceutical product candidates in ways that are difficult to predict. In a recent successful legal challenge, a court invalidated the FDA’s denial of orphan exclusivity to a drug on the grounds that the drug was not proven to be clinically superior to a previously approved pharmaceutical product candidate containing the same ingredient for the same orphan use. In response to the decision, the FDA released a policy statement stating that the court’s decision is limited just to the facts of that particular case and that the FDA will continue to require the sponsor of a designated drug that is the “same” as a previously approved drug to demonstrate that its drug is clinically superior to that drug upon approval in order to be eligible for orphan drug exclusivity, or in some cases, to even be eligible for marketing approval. In the future, there is the potential for additional legal challenges to the FDA’s orphan drug regulations and policies, and it is uncertain how such challenges might affect our business.

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While orphan drug product candidates are typically sold at a high price relative to other medications, the market may not be receptive to high pricing of our product candidates.

We develop our product candidates to treat rare diseases, a space where medications are usually sold at high prices compared with other medications. However, our product candidates are repurposed drugs, which means, among other things, that they contain drug substances available in pharmacies for the purpose of treating indications that are different from the indications for which we plan to use. Accordingly, even if regulatory authorities approve our product candidates, the market may not be receptive to, and it may be difficult for us to achieve, a per-patient per-year price high enough to allow us to realize a return on our investment.

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following marketing approval, if any.

The use of dronabinol has been associated with seizures, paranoia, rapid heart rate and unusual thoughts and behaviors. Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical studies and could result in a more restrictive marketing label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Potential side effects of our cannabinoid-based treatments may include: asthenia, palpitations, tachycardia, vasodilation/facial flush, abdominal pain, nausea, vomiting, amnesia, anxiety/nervousness, ataxia, confusion, depersonalization, dizziness, euphoria, hallucinations, paranoid reaction, somnolence and abnormal thinking. Results of our studies may identify unacceptable severity and prevalence of these or other side effects. In such an event, our studies could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny or withdraw approval of our product candidates for any or all targeted indications.

Drug-related side effects could affect patient recruitment, the ability of enrolled patients to complete the study or result in potential product candidate liability claims.

Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such product candidates, a number of potentially significant negative consequences could result, including but not limited to:

| ● | regulatory authorities may withdraw approvals of such product candidate;

| ● | regulatory authorities may require additional warnings on the label;

| ● | we may be required to create a risk evaluation and mitigation strategy, or REMS, plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers and/or other elements to assure safe use, or ETASU;

| ● | we could be sued and held liable for harm caused to patients; and

| ● | our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.

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Even if we obtain regulatory approval for a product candidate, our product candidates will remain subject to regulatory scrutiny.

If our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post-market information, including both federal and state requirements in the United States. In addition, manufacturers and manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMP, regulations and Quality System Regulation, or QSR. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP, QSR and adherence to commitments made in any NDA. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control.

Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product candidate may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the product candidate. We will also be required to report certain adverse reactions and production problems, if any, to the FDA, and to comply with requirements concerning advertising and promotion for our product candidates. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product candidate’s approved label. As such, we may not promote our product candidates for indications or uses for which they do not have FDA approval. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product candidate, product candidate labeling or manufacturing process. We could also be asked to conduct post-marketing clinical studies to verify the safety and efficacy of our product candidates in general or in specific patient subsets. If original marketing approval were obtained via the accelerated approval pathway, we could be required to conduct a successful post-marketing clinical study to confirm clinical benefit for our product candidates. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval. Furthermore, any new legislation addressing drug safety issues could result in delays in product candidate development or commercialization or increased costs to assure compliance. Foreign regulatory authorities impose similar requirements.

If a regulatory agency discovers previously unknown problems with a product candidate, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product candidate is manufactured, or disagrees with the promotion, marketing or labeling of a product candidate, such regulatory agency may impose restrictions on that product candidate or us, including requiring withdrawal of the product candidate from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

| ● | issue warning letters;

| ● | impose civil or criminal penalties;

| ● | suspend or withdraw regulatory approval;

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| ● | suspend any of our ongoing clinical studies;

| ● | refuse to approve pending applications or supplements to approved applications submitted by us;

| ● | impose restrictions on our operations, including closing our contract manufacturers’ facilities; or

| ● | seize or detain product candidates, or require a product candidate recall.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our product candidates. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected.

We are subject to numerous complex regulations and failure to comply with these regulations, or the cost of compliance with these regulations, may harm our business.

The research, testing, development, manufacturing, quality control, approval, labeling, packaging, storage, recordkeeping, promotion, advertising, marketing, distribution, possession and use of our product candidates, among other things, are subject to regulation by numerous governmental authorities in the United States and elsewhere. The FDA regulates drugs under the FDC Act, and implementing regulations. Noncompliance with any applicable regulatory requirements can result in refusal to approve product candidates for marketing, warning letters, product candidate recalls or seizure of product candidates, total or partial suspension of production, prohibitions or limitations on the commercial sale of product candidates or refusal to allow the entering into of federal and state supply contracts, fines, civil penalties and/or criminal prosecution. Additionally, the FDA and comparable governmental authorities have the authority to withdraw product candidate approvals that have been previously granted. Moreover, the regulatory requirements relating to our product candidates may change from time to time and it is impossible to predict what the impact of any such changes may be.

We are developing product candidates that are controlled substances as defined in the Controlled Substances Act of 1970, or CSA, which establishes, among other things, certain registration, production quotas, security, recordkeeping, reporting, import, export and other requirements administered by the Drug Enforcement Administration, or the DEA. As a result, any product candidate that is a controlled substance (or includes a controlled substance) cannot be marketed before such substance is rescheduled by the DEA as a Schedule II, III, IV or V substance. The active ingredient in our product candidates is dronabinol, which is a Schedule III controlled substance. See Item 4.B. “Business-Government Regulation-Controlled Substances” for additional information.

The manufacture, shipment, storage, sale and use, among other things, of controlled substances that are pharmaceutical product candidates are subject to a high degree of regulation. The DEA also conducts periodic inspections of registered establishments that handle controlled substances. Facilities that conduct research, manufacture, distribute, import or export controlled substances must be registered to perform these activities and have the security, control and inventory mechanisms required by the DEA to prevent drug loss and diversion. Failure to maintain compliance, particularly non-compliance resulting in loss or diversion, can result in regulatory action that could have a material adverse effect on our business, results of operations, financial condition and prospects. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to suspend or revoke those registrations. In certain circumstances, violations could lead to criminal proceedings.

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Individual states also have controlled substances laws. Though state controlled substances laws often mirror federal law, because the states are separate jurisdictions, they may separately schedule our product candidates as well. While some states automatically schedule a drug when the DEA does so, other states schedule drugs through rulemaking or a legislative action. State scheduling may delay commercial sale of any product candidate for which we obtain federal regulatory approval and adverse scheduling could have a material adverse effect on the commercial attractiveness of such product candidate. We or our partners must also obtain separate state registrations, permits or licenses in order to be able to obtain, handle, and distribute controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions from the states in addition to those from the DEA or otherwise arising under federal law.

Risks Related to Our Reliance on Third Parties

We rely on third parties to conduct our preclinical and clinical studies and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing preclinical and clinical programs, including Target Health, Inc., FGK Clinical Research GmbH, or FGK, and others. We rely on these parties for execution of our preclinical and clinical studies, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with current cGMP, GCP, QSR and Good Laboratory Practices, or GLP, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, and comparable foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, study sites and other contractors. If we or any of our CROs or vendors fail to comply with applicable regulations, the clinical data generated in our clinical studies may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform additional clinical studies before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical studies comply with GCP regulations. In addition, our clinical studies must be conducted with product candidates which are produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical studies, which would delay the regulatory approval process.

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our on-going clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical studies may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. CROs may also generate higher costs than anticipated. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.

Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays may occur, which could materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

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We will rely on third parties to manufacture our API and formulations. Our business could be harmed if those third parties fail to provide us with sufficient quantities of our needed supplies, or fail to do so at acceptable quality levels or prices.

We do not have the infrastructure or capability internally to manufacture the API formulations, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. We plan to rely on third parties for such supplies. There are a limited number of manufacturers who have the ability to produce our API and there may be a need to identify alternate manufacturers to prevent a possible disruption of our clinical studies. Any significant delay or discontinuity in the supply of these components could considerably delay completion of our clinical studies, product candidate testing and potential regulatory approval of our product candidates, which could harm our business and results of operations.

We and our collaborators and contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.

All entities involved in the preparation of therapeutics for clinical studies or commercial sale, including our existing contract manufacturers for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or a product candidate used in late-stage clinical studies must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational product candidates and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We, our collaborators or our contract manufacturers must supply all necessary documentation in support of an NDA, or Marketing Authorization Application, or MAA, on a timely basis and must adhere to GLP and cGMP QSR regulations enforced by the FDA and other regulatory agencies through their facilities inspection program. Some of our contract manufacturers have never produced a commercially approved pharmaceutical product and therefore have not obtained the requisite regulatory authority approvals to do so. The facilities and quality systems of some or all of our collaborators and third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential product candidates. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential product candidates or the associated quality systems for compliance with the regulations applicable to the activities being conducted. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the product candidates may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.

The regulatory authorities also may, at any time following approval of a product candidate for sale, if ever, audit the manufacturing facilities of our collaborators and third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product candidate specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical study or commercial sales, or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.

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If we, our collaborators, or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or other applicable regulatory authority can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product, withdrawal of an approval or suspension of production. As a result, our business, financial condition and results of operations may be materially harmed.

Additionally, if supply from one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified through an NDA or MAA amendment, or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

These factors could cause us to incur higher costs and could cause the delay or termination of clinical studies, regulatory submissions, required approvals or commercialization of our product candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical studies may be delayed or we could lose potential revenue.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on third parties to develop and manufacture our product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

Risks Related to Commercialization of Our Pharmaceutical Product Candidates

If the market opportunities for our pharmaceutical product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.

Our projections of both the number of people who have our target diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our pharmaceutical product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, surveys of clinics, patient foundations or market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. The effort to identify patients with diseases we seek to treat is in early stages, and we cannot accurately predict the number of patients for whom treatment might be possible. Additionally, the potentially addressable patient population for each of our pharmaceutical product candidates may be limited or may not be amenable to treatment with our pharmaceutical product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business.

We face intense competition and rapid technological change and the possibility that our competitors may discover, develop or commercialize therapies that are similar, more advanced or more effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our product candidates.

The biotechnology and pharmaceutical industries are highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in the research and development of products that may be similar to our product candidates.

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The first THC-based pharmaceutical, a pill sold under the commercial name of Marinol (scientific name: dronabinol), was developed by a company called Unimed Pharmaceuticals, with funding provided by the National Cancer Institute. In 1985, Marinol received FDA approval as a treatment for chemotherapy-related nausea and vomiting. Today, Marinol is marketed by AbbVie, Inc. Since the introduction of Marinol into the market, other pharmaceuticals containing THC have also been developed. These include generic oral capsules of dronabinol, such as those marketed by SVC Pharma LP and Akorn Inc., Meda AB’s Cesamet (nabilone), a synthetic derivative of THC, and Sativex (nabiximols), a whole cannabis extract administered as an oral spray. Furthermore, to the best of our knowledge, multiple companies that are working in the cannabis therapeutic area and are pursuing regulatory approval for their product candidates. For example, GW Pharmaceuticals PLC, or GW, which markets Sativex, a botanical cannabinoid oral mucosal for the treatment of spasticity due to multiple sclerosis, received FDA approval in the United States in June 2018 for Epidiolex, a liquid formulation of highly purified cannabidiol extract, as a treatment for Dravet’s Syndrome, Lennox Gastaut Syndrome, and various childhood epilepsy syndromes. In addition, GW is developing, among others, cannabidivarin, or CBDV, based therapy for ASD and therapy for neonatal hypoxic-ischemic encephalopathy and schizophrenia. Zynerba Pharmaceuticals, Inc., or Zynerba, is developing a transdermal formulation of cannabidiol for Fragile X and certain refractory epilepsies and ASD. Skye Bioscience, Inc., or Skye, is focused on developing proprietary, synthetic cannabinoid-derived molecules to treat glaucoma and other diseases with significant unmet need. Corbus Pharmaceuticals Holdings is seeking FDA approval for their synthetic cannabinoid for systemic sclerosis, cystic fibrosis, dermatomyositis and systemic lupus erythematosus and metabolism and solid tumors. RespireRx Pharmaceutical Inc., or RespireRx, developing dronabinol for OSA treatment. Synendos Therapeutics AG, or Synendos, is a developer of endocannabinoid modulators for the treatment of central nervous system, or CNS, disorders. It has developed pharmaceutical products to restore the natural function of the brain and treat neuropsychiatric disorders. Synendos is developing small molecules as selective endocannabinoid reuptake inhibitors that increase the levels of endogenous cannabinoids to treat CNS disorders caused by cannabinoid deficiency. Inversago Pharma (formerly GIcare Pharma) is focused on developing peripheral cannabinoid (CB1) receptor antagonist/inverse agonist for the treatment of metabolic diseases such as obesity, insulin resistance, and liver fibrosis. Its drug INV-101 (Inverse agonist of peripheral CB1) under phase-1.

More established companies may have a competitive advantage over us due to their greater size, cash flows and institutional experience. Compared to us, many of our competitors may have significantly greater financial, technical and human resources. As a result of these factors, our competitors may have an advantage in marketing their approved products and may obtain regulatory approval of their product candidates before we are able to, which may limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are safer, more effective, more widely used and less expensive than ours, and may also be more successful than us in manufacturing and marketing their products. These advantages could materially impact our ability to develop and commercialize our product candidates successfully.

Our product candidates may also compete with medical and recreational marijuana, in markets where the recreational and/or medical use of marijuana is legal. There is support in the United States for further legalization of marijuana. In markets where recreational and/or medical marijuana is not legal, our product candidates may compete with marijuana purchased in the illegal drug market. We cannot assess the extent to which patients may utilize marijuana obtained illegally for the treatment of the indications for which we are developing our product candidates.

Even if we successfully develop our product candidates, and obtain marketing approval for them, other treatments or therapeutics may be preferred and we may not be successful in commercializing our product candidates or in bringing them to market.

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Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. As a result, these companies may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products as well. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less costly than any product candidate that we may develop, or achieve earlier patent protection, regulatory approval, product commercialization and market penetration than we do. Additionally, technologies developed by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors.

We currently have no marketing and sales organization. If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenue.

Although our employees may have sold other similar products in the past while employed at other companies, we as a company have no experience selling and marketing our product candidates and we currently have no marketing or sales organization. To successfully commercialize any products that may result from our development programs, we will need to develop these capabilities, either on our own or with others. If our product candidates receive regulatory approval, we intend to establish a sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize our product candidates in major markets, which will be expensive, difficult and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of our products.

Further, given our lack of prior experience in marketing and selling pharmaceutical products, our initial estimate of the size of the required sales force may be materially more or less than the size of the sales force actually required to effectively commercialize our product candidates. As such, we may be required to hire substantially more sales representatives to adequately support the commercialization of our product candidates or we may incur excess costs as a result of hiring more sales representatives than necessary. With respect to certain geographical markets, we may enter into collaborations with other entities to utilize their local marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. If our future collaborators do not commit sufficient resources to commercialize our future products, if any, and we are unable to develop the necessary marketing capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We may be competing with companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.

The commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical community.

Even with the requisite approvals from the FDA and comparable foreign regulatory authorities, the commercial success of our product candidates will depend in part on the medical community, patients and third-party payors accepting our product candidates as medically useful, cost-effective and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical community. The degree of market acceptance of any of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

| ● | the safety and efficacy of the product as demonstrated in clinical studies and potential advantages over competing treatments;

| ● | the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;

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| ● | the clinical indications for which approval is granted;

| ● | relative convenience and ease of administration;

| ● | the cost of treatment, particularly in relation to competing treatments;

| ● | the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

| ● | the strength of marketing and distribution support and timing of market introduction of competitive products;

| ● | publicity concerning our products or competing products and treatments; and

| ● | sufficient third-party insurance coverage and reimbursement.

Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical studies, market acceptance of the product will not be fully known until after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the product candidates may require significant resources and may never be successful. If our product candidates are approved but fail to achieve an adequate level of acceptance by physicians, patients, third-party payors and others in the medical community, we will not be able to generate sufficient revenue to become or remain profitable.

The insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.

The pricing, coverage and reimbursement of our product candidates, if approved, must be adequate to support our commercial infrastructure. Our per-patient prices must be sufficient to recover our development and manufacturing costs and potentially achieve profitability. Accordingly, the availability and adequacy of coverage and reimbursement by governmental and private payors are essential for most patients to be able to afford expensive treatments such as ours, assuming approval. Sales of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid for by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government authorities, private health insurers and other third-party payors. If coverage and reimbursement are not available, or are available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a return on our investment.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions about coverage and reimbursement for new drugs are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, or DHHS, as CMS decides whether and to what extent a new drug will be covered and reimbursed under Medicare. Private payors tend to follow the coverage reimbursement policies established by CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for products such as ours.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In general, the prices of medicines under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medicinal products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

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Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.

Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. The following are among the provisions established by the Patient Protection and Affordable Care Act of 2010, or ACA, of greatest importance to the pharmaceutical and biotechnology industry:

| ● | an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs;

| ● | an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the Average Manufacturer Price, or AMP, for most branded and generic drugs, respectively, and capped the total rebate amount for innovator drugs at 100% of the AMP;

| ● | extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, or MCOs;

| ● | expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability;

| ● | a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (now 70%) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;

| ● | expansion of the entities eligible for discounts under federal 340B;

| ● | a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;

| ● | establishment of a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending. This center is currently focused on the following priorities:

| ● | testing new payment and service delivery models;

| ● | evaluating results and advancing best practices; and

| ● | engaging a broad range of stakeholders to develop additional models for testing.

| ● | implementation of the federal physician payment transparency requirements, or the Sunshine Act. The Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act, or the SUPPORT Act, signed into law on October 24, 2018, expanded Sunshine Act reporting to include data for physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and certified nurse midwifes. The amendment applies to reports submitted to CMS on or after January 1, 2022.

The ACA may be modified, amended or repealed at any time and may or may not be replaced with a different law or health care payment system. The ACA is expected to continue to have a significant impact on the health care industry. With regard to pharmaceutical product candidates, among other things, the ACA may expand and increase industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare D program. Since the enactment of the ACA, numerous regulations have been issued providing further guidance on its requirements. The ACA continues to be implemented through regulation and government activity but is subject to possible amendment, additional implementing regulations and interpretive guidelines. Several states have decided not to expand their Medicaid programs and are seeking alternative reimbursement models to provide care to the uninsured. The manner in which these issues are resolved could materially affect the extent to which and the amount at which pharmaceuticals are reimbursed by government programs such as Medicare, Medicaid and Tricare.

In 2016, CMS issued a final rule regarding the Medicaid Drug Rebate Program that, among other things, revised the manner in which the AMP is calculated by manufacturers participating in the program and implemented certain amendments to the Medicaid rebate statute created under the ACA. In addition, on December 21, 2020, CMS issued a final rule that made changes to the Medicaid Drug Rebate Program regulations in several areas, including some changes to the treatment of value-based purchasing arrangements and price reporting for patient benefit programs sponsored by pharmaceutical manufacturers.

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Two bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017, or the TCJA, included a provision that repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, that is commonly referred to as the “individual mandate.’’ Additionally, on January 22, 2018, then President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees. Further, the Bipartisan Budget Act of 2018, among other things, amended the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” In July 2018, CMS published a final rule permitting further collections and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On April 27, 2020, the U.S. Supreme Court reversed a Federal Circuit decision that previously upheld Congress’ denial of $12 billion in “risk corridor” funding. Congress may consider additional legislation to repeal, or repeal and replace, other elements of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued that the ACA is unconstitutional in its entirety because the individual mandate was repealed by Congress. Thus, the ACA will remain in effect in its current form. Prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how such challenges and the healthcare reform measures of the Biden administration will impact the ACA and our business. We continue to evaluate the ACA and its possible repeal and replacement, as the extent to which any such changes may impact our business or financial condition remains uncertain.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions, known as Medicare sequestration adjustments, went into effect in 2013. However, under the Coronavirus Aid, Relief, Economic Securities Act of 2020, and related legislation, Medicare sequestration adjustments from May 1, 2020 through March 31, 2021 have been suspended, though sequestration has been extended through 2030. Additionally, there has been heightened governmental scrutiny recently over the manner in which manufacturers set prices for their marketed products. For example, there have been several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. At the federal level, including the former Administration’s budget for fiscal year 2020, there were further drug price control measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part D, to continue to allow some states to negotiate drug prices under Medicaid through supplemental rebate negotiations and other mechanisms, and legislation was introduced to eliminate cost sharing for generic drugs for Part D low-income patients.

In addition, in November 2020, the U.S. DHHS, finalized a regulation aimed at lowering prescription drug prices and out-of-pocket spending for prescription drugs by excluding rebates on prescription drugs paid by manufacturers to or purchased by Medicare Part D plan sponsors or pharmacy benefit managers, or PBMs, acting under contract with Medicare Part D plan sponsors from the existing discount safe harbor under the federal Anti-Kickback Statute, or the AKS. The regulation reflects the first change to the AKS Statute discount safe harbor since the Medicare Part D program was established. In addition to the rebate exclusions, two new safe harbors were added. One of these new safe harbors protects point-of-sale reductions in price from a manufacturer to a plan sponsor under Medicare Part D or a MCO, for a prescription drug payable, in whole or in part, by a plan sponsor under Medicare Part D or a MCO, provided certain conditions are met. The other protects certain fixed-fee services arrangements between manufacturers and PBMs.

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Congress and the executive branch have each indicated that it will continue to seek new legislative or administrative measures to control drug costs. At the state level, legislatures have been increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, drug price increases, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize any of our product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or member state level may result in significant additional requirements or obstacles that may increase our operating costs. The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than European Union, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing European Union and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain marketing approval. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various EU member states, and parallel trade, i.e., arbitrage between low-priced and high-priced member states, can further reduce prices. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any products, if approved in those countries. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.

We expect that these and other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs, once marketing approval is obtained. We cannot predict what healthcare reform initiatives may be adopted in the future. However, it is possible that there will be further legislation or regulation that could harm the business, financial condition and results of operations.

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain effective patent rights for our product candidates, we may not be able to compete effectively in our markets. If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us

Historically, we have relied on trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies and product candidates. Since 2015, we have also sought patent protection for certain of our product candidates. Our success depends in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and in other countries with respect to our proprietary technology and new product candidates.

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We seek to protect our proprietary position by filing patent applications in the United States and in other countries, with respect to our novel technologies and product candidates, which are important to our business. Patent prosecution is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.

Not including patents and applications which we are in the process of being assigned, we have a portfolio of seven granted patents with the U.S. Patent and Trademark Office, or USPTO, nine patent families and two trademarks, of which four families include Patent Cooperation Treaty, or PCT, applications, that have entered the national phase in various national entities. We cannot offer any assurances about which, if any, patent applications will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to our patents after issuance could deprive us of rights necessary for the successful commercialization of any new product candidates that we may develop and would allow other third parties to compete with us.

We have exclusively licensed one U.S. patent family from Yissum Research Development Company of the Hebrew University of Jerusalem Ltd., or Yissum. We cannot assure you that we will ever enter into definitive license agreements with any third party licensor. See Item 4.B. “Business Overview-Intellectual Property-In-Licensed Patents and Patent Applications.” To the extent the licensed or future licensed patents are found to be invalid or unenforceable, we may be limited in our ability to compete and market our product candidates. Moreover, the terms of our licenses affect our ability to control the value of any of our product candidates. If we or any of the parties that control the enforcement of licensed patents elect not to enforce any or all of the licensed patents it could significantly undercut the value of any of our product candidates, which would materially adversely affect our future revenue, financial condition and results of operations. Moreover, fluctuating currency rates may create inconsistencies in the royalty payments we are obligated to make under our licenses.

Also, there is no guarantee that the patent registration applications that were submitted by us with regard to our technologies will result in patent registration. In the event of failure to complete patent registration, our developments will not be proprietary, which might allow other entities to manufacture our product candidates and compete with them.

Further, there is no assurance that all potentially relevant prior art relating to our patent applications has been found. Such prior art, to the extent it exists, may invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our product candidates, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, our patent applications and any future patents may not adequately protect our intellectual property, provide exclusivity for our new product candidates, or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

Engagement in any type of intellectual property collaboration agreement requires diligent management of intellectual property rights. Joint intellectual property engagements may create additional administrative and financial burdens and may place us at heightened risk of disputes or litigation regarding ownership, maintenance or enforcement of such joint intellectual property. For example, our collaboration with Clearmind Medicine Inc., or Clearmind, has resulted in filings of provisional patent applications related to certain combinations of our respective proprietary compounds. As a joint-owner of intellectual property, we are generally or would be unable to use or exploit the intellectual property without the consent of the other joint owner. If we cannot obtain sole commercial use rights for such jointly-owned intellectual property as a result of our collaboration, our future product development and commercialization plans may be adversely affected. Moreover, if we cannot obtain and maintain effective patent rights for our product candidates, we may not be able to compete effectively, and our business and results of operations may be harmed.

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We may not be able to identify infringements of our patents and accordingly the enforcement of our intellectual property rights may be difficult.

The drug substance in some of our product candidates is repurposed, which means that it is available in other pharmaceutical products for the purpose of treating indications that are different from the indications for our product candidates. It is possible that if we receive regulatory approval to market and sell our drug candidates, some patients that receive a prescription could be sold the same drug substance but not our product candidate. It would be difficult, if not impossible, for us to identify such instances that may constitute an infringement of our patents. In addition, because the drug substance of some of our product candidates is repurposed, such substance may not be eligible for patent protection or data exclusivity. Even if we identify infringing parties, there is no guarantee that a court will agree with our arguments and find that a third party is infringing our patents or that the court will issue an order for an adequate remedy for that infringement.

If we are unable to maintain effective proprietary rights for our product candidates, we may not be able to compete effectively in our markets.

In addition to the protection afforded by any patents currently owned and that may be granted, historically, we have relied on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes that are not easily known, knowable or easily ascertainable, and for which patent infringement is difficult to monitor and enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data, trade secrets and intellectual property by maintaining physical security of our premises and physical and electronic security of our information technology systems. Agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets and intellectual property may otherwise become known or be independently discovered by competitors.

We cannot provide any assurances that our trade secrets and other confidential proprietary information will not be disclosed in violation of our confidentiality agreements or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Also, misappropriation or unauthorized and unavoidable disclosure of our trade secrets and intellectual property could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets and intellectual property are deemed inadequate, we may have insufficient recourse against third parties for misappropriating any trade secret.

Intellectual property rights of third parties could adversely affect our ability to commercialize our product candidates, and we might be required to litigate or obtain licenses from third parties in order to develop or market our product candidates. Such litigation or licenses could be costly or not available on commercially reasonable terms.

It is inherently difficult to conclusively assess our freedom to operate without infringing on third party rights. Our competitive position may be adversely affected if existing patents or patents resulting from patent applications issued to third parties or other third party intellectual property rights are held to cover our product candidates or elements thereof, or our manufacturing or uses relevant to our development plans. In such cases, we may not be in a position to develop or commercialize product candidates or our product candidates unless we successfully pursue litigation to nullify or invalidate the third party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms. There may also be pending patent applications that if they result in issued patents, could be alleged to be infringed by our new product candidates. If such an infringement claim should be brought and be successful, we may be required to pay substantial damages, be forced to abandon our new product candidates or seek a license from any patent holders. No assurances can be given that a license will be available on commercially reasonable terms, if at all.

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It is also possible that we have failed to identify relevant third-party patents or applications. For example, certain U.S. patent applications that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our new product candidates or platform technology could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our new product candidates or the use of our new product candidates. Third party intellectual property right holders may also actively bring infringement claims against us. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in pursuing the development of and/or marketing our new product candidates. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing our new product candidates that are held to be infringing. We might, if possible, also be forced to redesign our new product candidates so that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.

Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing new product candidates. As our industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.

Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, designs or methods of manufacture related to the use or manufacture of our product candidates. There may be currently pending patent applications that may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents.

If any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for designs, or methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtain a license or until such patent expires or is finally determined to be invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all.

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us in the U.S. or any other relevant jurisdiction, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing product candidates or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

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Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents.

Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of any patents that may issue from our patent applications, or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. We therefore cannot be certain that we were the first to file the invention claimed in our owned and licensed patent or pending applications, or that we or our licensor were the first to file for patent protection of such inventions. Assuming all other requirements for patentability are met, in the United States prior to 2013, the first to make the claimed invention without undue delay in filing, is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. After 2013, the United States moved to a first to file system. Changes in patent litigation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents, all of which could have a material adverse effect on our business and financial condition.

We may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming, and unsuccessful.

Competitors may infringe our intellectual property. If we were to initiate legal proceedings against a third party to enforce a patent covering one of our new product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The validity of U.S. patents may also be challenged in post-grant proceedings before the USPTO. The outcome following legal assertions of invalidity and unenforceability is unpredictable.

Derivation proceedings initiated by third parties or brought by us may be necessary to determine the priority of inventions and/or their scope with respect to our patent or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our new product candidates to market.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our Ordinary Shares.

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

We may be subject to claims that former employees, collaborators or other third parties have an interest in, or right to compensation, with respect to our current patent and patent applications, future patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

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We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting, and defending patents on product candidates, as well as monitoring their infringement in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States.

Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product candidates. Future patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, which could make it difficult for us to stop the marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our future patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to monitor and enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Risks Related to Our Pharmaceutical Business Operations

From time to time, we may sign letters of intent and/or enter into term sheets or other similar arrangements that are subject to negotiation of definitive agreements. There can be no assurance that we will enter into any such definitive agreements. Similarly, we may strategically invest in transactions from time to time, and there can be no assurance that the value of our investment will increase or that it will not fluctuate.

From time to time, we may sign letters of intent and/or enter into term sheets or other similar arrangements that are subject to negotiation of definitive agreements. We may never enter into definitive agreements after signing a letter of intent and/or entering into a term sheet or other similar arrangement for a multitude of reasons, including, but not limited to, regulatory, operational, financial and other considerations. There may also be forces outside of our control that have an effect on our ability or decision as to whether we enter into such definitive agreements. As a result, there can be no assurance that upon signing a letter of intent and/or entering into a term sheet or similar arrangement, that we will enter into definitive documents. This could have a material adverse effect on our reputation and could cause us to incur expenses if any legal claims arise as a result thereof. For example, in November 2019, we entered into a memorandum of understanding with Heavenly Rx, Ltd., or Heavenly Rx, pursuant to which we and Heavenly Rx agreed to pursue a business combination. In accordance with the memorandum of understanding between the parties, any transaction between the parties remained subject to entry into definitive agreements, and to shareholder and regulatory approvals. We never entered into definitive agreements and do not expect to do so.

Similarly, we may strategically invest into various pharmaceutical companies. However, we can offer no assurance that the value of our investment will increase or that it will not fluctuate because the value of our investments may be adversely affected by a number of factors, such as negative changes in a company’s results of operations, cash flows, financial position and accounting impairment.

For example, on March 31, 2022, we entered into an agreement with and invested in MitoCare X Bio Ltd., or MitoCareX, a company focused on the discovery and development of potential drugs for cancers and other life-threatening conditions. Subsequent to this, we signed a non-binding letter of intent relating to the sale of our entire ownership interest in MitoCareX to a publicly traded company in the United States. In addition, on November 17, 2022, we invested in Clearmind, a psychedelic pharmaceutical biotech company focused on the discovery and development of novel psychedelic-derived therapeutics to solve widespread and underserved health problems. In addition, on August 13, 2024, we entered into an exclusive patent license agreement with Polyrizon Ltd., or Polyrizon, for the out-licensing of our SCI-160 program, or the Polyrizon License.

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The potential benefits of the agreement with MitoCareX, the investment in Clearmind, the exclusive patent license agreement with Polyrizon, or other potential investments may not be realized to the full extent, in a timely fashion, or at all, which may have a material adverse effect on our results of operations, cash flows and financial position. The potential benefits of agreements with potential ventures may not materialize or may not be realized to the full extent, in a timely fashion, or at all, which may have a material adverse effect on our results of operations, cash flows and financial position.

We will need to expand our organization and we may experience difficulties in recruiting needed additional employees and consultants, which could disrupt our operations.

As our development and commercialization plans and strategies develop and because we are so leanly staffed, we will need additional managerial, operational, sales, marketing, financial, legal and other resources. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.

Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional pharmaceutical product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize pharmaceutical product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.

We may not be successful in our efforts to identify, license or discover additional pharmaceutical product candidates.

Although a substantial amount of our effort will focus on the continued clinical testing, potential approval and commercialization of our existing pharmaceutical product candidates, the success of our business also depends in part upon our ability to identify, license or discover additional pharmaceutical product candidates. Our research programs or licensing efforts may fail to yield additional pharmaceutical product candidates for clinical development for a number of reasons, including but not limited to the following:

| ● | our research or business development methodology or search criteria and process may be unsuccessful in identifying potential pharmaceutical product candidates;

| ● | we may not be able or willing to assemble sufficient resources to acquire or discover additional pharmaceutical product candidates;

| ● | our pharmaceutical product candidates may not succeed in preclinical or clinical testing;

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| ● | our potential pharmaceutical product candidates may be shown to have harmful side effects or may have other characteristics that may make the pharmaceutical products unmarketable or unlikely to receive marketing approval;

| ● | competitors may develop alternatives that render our pharmaceutical product candidates obsolete or less attractive;

| ● | pharmaceutical product candidates we develop may be covered by third parties’ patents or other exclusive rights;

| ● | the market for a pharmaceutical product candidate may change during our program so that such a pharmaceutical product may become unreasonable to continue to develop;

| ● | a pharmaceutical product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

| ● | a pharmaceutical product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.

If any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify, license or discover additional pharmaceutical product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations. Research programs to identify new pharmaceutical product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or pharmaceutical product candidates that ultimately prove to be unsuccessful.

We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

If we obtain FDA approval for any of our pharmaceutical product candidates and begin commercializing those pharmaceutical products in the United States, our operations may be directly or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal AKS, the federal False Claims Act and physician sunshine laws and regulations. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

| ● | the federal AKS, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

| ● | federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent;
| ● | the Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;
| ● | HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;
| ● | the federal physician sunshine requirements under the ACA requires manufacturers of drugs, devices and medical supplies to report annually to the U.S. DHHS information related to payments and other transfers of value to physicians, other healthcare providers and teaching hospitals and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; and
| ● | state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the ACA, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal AKS constitutes a false or fraudulent claim for purposes of the False Claims Act.

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

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The COVID-19 pandemic has resulted in delays to our product development and may adversely affect any potential future revenues, results of operations and financial condition.

COVID-19 and the various precautionary measures taken by many governmental authorities around the world to limit its spread had a severe effect on global markets and the global economy. The extent to which the coronavirus impacts our business and operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the nature and extent of governmental actions taken to contain or treat its impact and the availability, costs, effectiveness and public acceptance of any FDA-approved vaccines, among others. COVID-19 and official actions taken in response to it caused a major slowdown in overall economic activity in the U.S. and elsewhere, curtailed consumer spending and made it more challenging to adequately staff and manage our business and operations.

The COVID-19 pandemic impacted our various vendors, including CROs, and caused delays in the development of our product candidates. We also experienced delays in the preparation toward various clinical trials, including being unable to receive prioritization to conduct clinical trials, availability of physicians and other staff members involved in our clinical trials. At this time, we do not anticipate that the COVID-19 pandemic and official responses would cause a material adverse effect on our results of operations and financial condition but there can be no assurance that this will be the case.

The use of any of our pharmaceutical product candidates and marketed products could result in product liability or similar claims that could be expensive, damage our reputation and harm our business.

Our business exposes us to an inherent risk of potential pharmaceutical product liability or similar claims. The pharmaceutical and nutraceuticals industries have historically been litigious, and we face financial exposure to pharmaceutical product liability or similar claims if the use of any of our pharmaceutical products were to cause or contribute to injury or death. There is also the possibility that defects in the design or manufacture of any of our pharmaceutical products might necessitate a pharmaceutical product recall. Although we plan to maintain pharmaceutical product liability insurance, the coverage limits of these policies may not be adequate to cover future claims. In the future, we may be unable to maintain pharmaceutical product liability insurance on acceptable terms or at reasonable costs and such insurance may not provide us with adequate coverage against potential liabilities. A pharmaceutical product liability claim, regardless of merit or ultimate outcome, or any pharmaceutical product recall could result in substantial costs to us, damage to our reputation, customer dissatisfaction and frustration and a substantial diversion of management attention. A successful claim brought against us in excess of, or outside of, our insurance coverage could have a material adverse effect on our business, financial condition and results of operations.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials, including the components of our pharmaceutical product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts, business operations and environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste pharmaceutical products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.

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Risks Related to the eCommerce Operations of SciSparc Nutraceuticals

We may be unable to successfully pursue, integrate, or execute upon the eCommerce operations business of SciSparc Nutraceuticals.

In September 2022, we purchased Wellution™, a business and brand which sells hemp-based products on Amazon Marketplace.

Our management has limited prior experience in eCommerce business operations. There can be no assurance that we will be able to successfully implement our new business ventures or successfully operate within this industry. The successful integration of a new business also depends on our ability to manage the new business, realize forecasted synergies and full value from the combined business. Our business, results of operations, financial condition and cash flows could be materially adversely affected if we are unable to successfully integrate Wellution into our existing operations and any inability to do so may also hinder our ability to grow, divert the attention of management and our key personnel, disrupt our business and impair our financial results.

The eCommerce operations of SciSparc Nutraceuticals rely on Amazon Marketplace and fulfillment by Amazon.com and changes to Amazon Marketplace, Amazon’s services and their terms of use may harm our business.

Wellution’s products are sold predominantly on Amazon Marketplace and orders are fulfilled entirely by Amazon Marketplace utilizing the fulfilled by Amazon, or FBA, model. In order to continue to utilize Amazon Marketplace and FBA, we must comply with the applicable policies and terms of use relating to these services. Such policies and terms of use may be altered or amended at Amazon Marketplace’s sole discretion, including changes regarding the cost of securing these services, and changes that increase the burden of compliance with its requirements, may cause us to significantly alter our business model or incur additional costs in order to comply, which could negatively impact our results of operations. Non-compliance with applicable terms of use and policies can result in the removal of one or more products from the marketplace and suspension of fulfillment services either of which could have a material adverse effect on our business and results of our operations. In February 2024, Wellution was in non-compliance with changes in Amazon’s policies concerning claims associated with vitamin and cosmetic products. The new Amazon policy mandated that no claims, in any form, could be displayed on the product label, in the Amazon listing, or within the product descriptions. For instance, phrases such as “Our Keto Weight Loss Gummy Bear Reduces Appetite” were no longer permissible. Instead, it was required to describe the product using terminology such as “Keto Gummy Bears For A Healthy Lifestyle”. Due to the extensive descriptions present on both the Amazon listing and the product label itself, it took several weeks to achieve a comprehensive understanding of Amazon’s new requirements. Moreover, each word within the description required prior approval from the Amazon team, with revision responses typically taking several days or longer. Often, these responses originated from automated systems, lacking the clarity and specificity needed for effective resolution. To navigate this process efficiently, Amazon experts were engaged to assist with the necessary adjustments. As a result, all products sold by Wellution were removed for sale from the marketplace and product labels were updated, a process that spanned several weeks to complete and caused the sales on the Wellution platform to dramatically decrease for such period. Since implementing these changes and resolving the issue, we have experienced no further instances of non-compliance and remains committed to maintaining compliance. However, there is no guarantee that similar issues will not arise in the future, which could lead to product removal from the marketplace or suspension of fulfillment services, adversely impacting its business and operational outcomes.

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The eCommerce operations of SciSparc Nutraceuticals rely on other information technologies and systems to operate its business and to maintain its competitiveness, and any failure to invest in and adapt to technological developments and industry trends could harm our business.

We depend on sophisticated information technologies and systems, technology and systems used for Wellution’s websites and apps, customer service, logistics and fulfillment, supplier connectivity, communications and administration. As our operations grow in size, scope and complexity, we will need to continuously improve and upgrade our systems and infrastructure to offer an increasing number of consumer-enhanced services, features and functionalities, while maintaining and improving the reliability and integrity of our systems and infrastructure.

Our future success also depends on our ability to use A.I. tools and infrastructure, including logistics and fulfillment platform which leverages, to meet rapidly evolving eCommerce trends and demands. The emergence of alternative platforms may require us to continue to invest in new and costly technology. We may not be successful, or we may be less successful than our competitors, in adopting technologies that operate effectively across multiple eCommerce platforms, which would negatively impact our business and financial performance. New developments in other areas, such as cloud computing providers, could also make it easier for competitors to enter our markets due to lower up-front technology costs. In addition, we may not be able to maintain our existing systems or replace our current systems or introduce new technologies and systems as quickly or cost effectively as we would like. Failure to invest in and adapt to technological developments and industry trends may have a material adverse effect on our business, results of operations, financial condition and prospects.

The eCommerce operations of SciSparc Nutraceuticals rely on data provided by third parties, the loss of which could limit the functionality of our platforms, cause us to invest in the wrong product or disrupt our business.

We use third party software to determine market trends and what markets to enter into. Our ability to successfully use this software depends on our ability to analyze and utilize data, including search engine results, provided by unaffiliated third parties, primarily, Google and Amazon. Some of this data is provided to us pursuant to third-party data sharing policies and terms of use, under data sharing agreements by third-party providers or by customer consent. The majority of this data is sourced for free or for de minimis amounts. These sources of data allow us, along with A.I. tools, to determine trends, performance and consumer sentiment on products and searches within eCommerce platforms. This functionality allows us to help determine which products to market, in some cases manufacture through contract manufacturers, import and sell on eCommerce marketplaces. The connection to multiple eCommerce platforms through application programming interfaces allow us to develop the automation of the purchase of marketing and automate the change of pricing of product listings on those eCommerce platforms.

In the future, any of these third parties could change its data sharing policies, including making them more restrictive, charging fees or altering its algorithms that determine the placement, display and accessibility of search results and social media updates, any of which could result in the loss of, or significant impairment to, our ability to collect useful data. These third parties could also interpret our, or our service providers’, data collection policies or practices as being inconsistent with their policies, which could result in the loss of our ability to collect this data. Privacy concerns may cause end users to resist providing the personal data necessary to allow us to determine market trends as well as our ability to effectively retain existing customers. Privacy advocacy groups and the technology and other industries are considering various new, additional or different self-regulatory standards that may place additional burdens on us. Any such changes could impair our ability to use data and could adversely impact select functionality of our proprietary software, impairing our ability to use this data to anticipate customer demand and market trends, as well as adversely affecting our business and our ability to generate revenue.

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The eCommerce operations of SciSparc Nutraceuticals depend on our ability to build and maintain strong product listings on eCommerce platforms. We may not be able to maintain and enhance our product listings if we receive a substantial number of customer complaints, negative publicity or otherwise fail to live up to customers’ expectations, any of which could materially adversely affect our business, results of operations and growth prospects.

Maintaining and enhancing our product listings is critical in expanding and growing our business. However, a significant portion of our perceived performance to the customer depends on third parties outside of our control, including suppliers and logistics providers such as FedEx, UPS, postal services and other third-party delivery agents and online retailers, mainly Amazon. Because our agreements with our online retail partners are generally terminable at will, we may be unable to maintain these relationships, and our results of operations could fluctuate significantly from period to period. Because we rely on third party logistics companies to deliver our products, we are subject to shipping delays or disruptions caused by inclement weather, natural disasters, labor activism, health epidemics or bioterrorism. In addition, because we rely on national, regional and local transportation companies for the delivery of some of our other products, we are also subject to risks of breakage or other damage during delivery by any of these third parties. If these third parties do not meet our or our customers’ expectations, our brands may suffer irreparable damage. In addition, maintaining and enhancing our current and future brands may require us to make substantial investments, and these investments may not yield sufficient returns. If we fail to promote and maintain our brands, or if we incur excessive expenses in this effort, our business, operating results and financial condition may be materially adversely affected. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brands may become increasingly difficult and expensive. Maintaining and enhancing our brands will depend largely on our ability to anticipate market trends and customer demand and to provide high quality products to our customers and a reliable, trustworthy and profitable sales channel to our suppliers, which we may not be able to do successfully.

A substantial number of customer complaints or negative publicity about its sites, products, delivery times, customer data handling and security practices or customer support, especially on blogs, social media websites or its sites, could rapidly and severely diminish consumer views of its products and result in harm to its brands. Customers may also make safety-related claims regarding products sold through its online retail partners, such as Amazon, which may result in an online retail partner removing the product from its marketplace. Such removal may materially impact its financial results depending on the product that is removed and length of time that it is removed. SciSparc also uses and relies on other services from third parties, such as its telecommunications services, and those services may be subject to outages and interruptions that are not within its control.

A substantial number of customer complaints or negative publicity about our sites, products, delivery times, customer data handling and security practices or customer support, especially on blogs, social media websites or our sites, could rapidly and severely diminish consumer views of our products and result in harm to our brands. Customers may also make safety-related claims regarding products sold through our online retail partners, such as Amazon, which may result in an online retail partner removing the product from its marketplace. Such removal may materially impact our financial results depending on the product that is removed and length of time that it is removed. We also use and rely on other services from third parties, such as our telecommunications services, and those services may be subject to outages and interruptions that are not within our control.

The eCommerce operations’ efforts of SciSparc Nutraceuticals to acquire or retain customers, and our efforts to sell new products or increase sales of our existing products, may not be successful, which could prevent us from maintaining or increasing our sales and achieving profitability.

If we do not successfully promote and sustain our new and/or existing product listings and brands through marketing and other tools, we may fail to maintain or increase our sales and achieve profitability. Promoting and positioning our brands and product listings will depend largely on the success of our marketing efforts, our ability to attract customers cost effectively and our ability to consistently provide a high-quality product and maintain consumer satisfaction. We also use promotions to drive sales, which may not be effective and may adversely affect our gross margins. Our investments in marketing may not effectively reach potential customers, potential customers may decide not to buy our products or the spending of customers that purchase from us may not yield the intended return on investment, any of which could negatively affect our financial results. The failure of our marketing activities could also adversely affect our ability to promote our product listings and sell our products, and to develop and maintain relationships with our customers, retailers and brands, which may have a material adverse effect on our business, results of operations, financial condition and prospects.

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If the eCommerce operations of SciSparc Nutraceuticals fail to offer high-quality customer support, our business and reputation may suffer.

High-quality education and training of customer support personnel to deliver high-quality customer support are important for the successful retention of existing customers. Providing this education, training and support requires that our support personnel have specific knowledge and expertise of our products and markets, making it more difficult for us to hire experienced personnel and to scale up our support operations. The importance of high-quality customer support will increase as we expand our business and pursue new customers. If we do not provide effective and timely ongoing support, our ability to retain existing customers may suffer, and our reputation with existing or potential customers may be harmed, which would have a material adverse effect on our business, results of operations, financial condition and prospects.

The eCommerce operations’ efforts of SciSparc Nutraceuticals to expand our business into new brands, products, services, technologies and geographic regions will subject us to additional business, legal, financial and competitive risks and may not be successful.

Wellution’s business success depends to some extent on our ability to expand our consumer offerings by launching new brands, products and services and by expanding our existing offerings into new geographic regions. Our strategy is to use our skills to determine which markets to enter and optimize the mix of products and services that we offer.

Launching new brands, products and services requires significant upfront investments, including investments in marketing (namely digital marketing and Pay Per Click (PPC), information technology and additional personnel. We operate in highly competitive industries with relatively low barriers to entry and must compete successfully in order to grow our business. We may not be able to generate satisfactory revenue from these efforts to offset these costs. Any lack of market acceptance of our efforts to launch new brands, products or services or to expand our existing offerings could have a material adverse effect on our business, prospects, financial condition and results of operations. Further, as we continue to expand our fulfillment capability or add new businesses with different requirements, our logistics networks will become increasingly complex and operating them will become more challenging. There can be no assurance that we will be able to operate our networks effectively.

We have also entered and may continue to enter new markets and provide product offerings in which we have limited or no experience, which may not be successful or appealing to our customers.

The eCommerce consumer products goods industry is subject to evolving standards and practices, as well as changing consumer needs, requirements and preferences. Our ability to attract new customers and increase revenue from existing customers depends, in part, on our ability to enhance and improve our existing tools that enable us to pinpoint new markets and introduce new products. The success of any enhancements or new instruments depends on, in part, market-accepted pricing levels and overall market acceptance. We may not be successful in these efforts, which could result in significant expenditures that could impact our revenue or distract management’s attention from current offerings.

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Increased emphasis on the sale of new products could distract us from sales of our existing products in existing markets, negatively affecting our overall sales. We have invested and expect to continue to invest in new businesses, products, features, services and technologies. Such endeavors may involve significant risks and uncertainties, including insufficient revenue from such investments to offset any new liabilities assumed and expenses associated with these new investments, inadequate return of capital on our investments, distraction of management from current operations and unidentified issues not discovered in our due diligence of such investments that could cause us to fail to realize the anticipated benefits of such investments and incur unanticipated liabilities. Because these new strategies and offerings are inherently risky, no assurance can be given that they will be successful. Our new features or enhancements could fail to attain sufficient market acceptance for many reasons, including:

| ● | delays in introducing products in new markets;

| ● | failure to accurately predict market demand or end consumer preferences;

| ● | introduction of competing products;

| ● | poor financial conditions for our customers or poor general macroeconomic conditions;

| ● | changes in legal or regulatory requirements, or increased legal or regulatory scrutiny, adversely affecting our products;

| ● | failure of our brands, and products, digital promotion activities or negative publicity about the performance or effectiveness of our existing brands and products; and

| ● | disruptions or delays in the online retailers and, or in addition to, logistics providers distributing our products.

There is no assurance that we will successfully identify new opportunities or develop and bring new products to market on a timely basis, which could materially and adversely affect our business and operating results and compromise our ability to generate revenue.

The eCommerce operations’ use of social media and email by SciSparc Nutraceuticals may adversely impact our reputation or subject us to fines or other penalties.

We use social media and email as part of our digital marketing efforts. As laws and regulations rapidly evolve to govern the use of these channels, the failure by us, our employees or third parties acting at on our behalf to abide by applicable laws and regulations in the use of these channels could adversely affect our reputation or subject us to fines or other penalties. In addition, our employees or third parties acting on our behalf may knowingly or inadvertently make use of social media in ways that could lead to the loss or infringement of intellectual property, as well as the public disclosure of proprietary, confidential or sensitive personal information of our business, employees, customers or others. Any such inappropriate use of social media or email could also cause reputational damage.

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Customers value readily available information concerning retailers and their goods and services and often act on such information without further investigation and with no regard to its accuracy. Our customers may engage with us online through our social media platforms, including Facebook and Instagram, by providing feedback and public commentary about all aspects of our business. Information concerning us or our retailers and brands, whether accurate or not, may be posted on social media platforms at any time and may have a disproportionately adverse impact on our brand, reputation or business. The harm may be immediate without affording us an opportunity for redress or correction and could have a material adverse effect on our business, results of operations, financial condition and prospects.

With respect to the eCommerce operations of SciSparc Nutraceuticals, if our emails are not delivered and accepted or are routed by email providers less favorably than other emails, or our sites or mobile applications are not accessible or are treated disadvantageously by Internet service providers, our business may be substantially harmed.

If email providers or Internet service providers, or ISPs, implement new restrictive email or content delivery or accessibility policies, including with respect to net neutrality, or begin enforcement of existing policies, it may become more difficult to deliver emails to our customers or for customers to access our sites, products and services. For example, certain email providers, including Google, categorize our emails as “promotional”, and these emails are directed to an alternate, and less readily accessible, section of a customer’s inbox. If email providers materially limit or halt the delivery of our emails, or if we fail to deliver emails to customers in a manner compatible with email providers’ email handling or authentication technologies, our ability to contact customers through email could be significantly restricted. In addition, if we are placed on “spam” lists or lists of entities that have been involved in sending unwanted, unsolicited emails, our operating results and financial condition could be substantially harmed. Further, if ISPs prioritize or provide superior access to our competitors’ content, our business and results of operations may be negatively impacted.

The eCommerce operations of SciSparc Nutraceuticals are subject to risks related to online payment methods.

We accept payments using a variety of methods, including credit card, debit card, PayPal, Payoneer, credit accounts (including promotional financing) and gift cards. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. In addition, our credit card and other payment processors could impose receivable holdback or reserve requirements in the future. We rely on third parties to provide payment processing services, including the processing of credit cards and debit cards, and it could disrupt our business if these companies become unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with the rules or requirements of any provider of a payment method we accept, if the volume of fraud in our transactions limits or terminates our rights to use payment methods we currently accept, or if a data breach occurs relating to our payment systems, we may, among other things, be subject to fines or higher transaction fees and may lose, or face restrictions placed upon, our ability to accept credit card or debit card payments from customers or to facilitate other types of online payments. If any of these events were to occur, our business, financial condition and operating results could be materially adversely affected.

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With respect to the eCommerce operations of SciSparc Nutraceuticals, if we are unable to manage our inventory effectively, our operating results could be adversely affected.

To ensure timely delivery of products, we generally enter into purchase orders in advance with manufacturers. As a result, we are vulnerable to demand and pricing shifts and to suboptimal selection and timing of product purchases. We rely on our procurement team to order products and we rely on our data analytics to inform the levels of inventory we purchase, including when to reorder items that are selling well and when to write off items that are not selling well. In these instances, we may be unable to always predict the appropriate demand for our products by customers with accuracy, which may result in inventory shortages, inventory write offs and lower gross margins.

If our sales and procurement teams do not predict demand well or if our algorithms do not help us reorder the right products or write off the right products timely, we may not effectively manage our inventory, which could result in inventory excess or shortages, and our operating results and financial condition could be adversely affected.

The eCommerce operations of SciSparc Nutraceuticals, including the costs and supply chain, are subject to risks associated with sourcing, importing and warehousing.

We source the products we offer from third-party vendors and, as a result, we may be subject to price fluctuations or demand disruptions. Our operating results could be negatively impacted by increases in the prices of our products, and we have no guarantees that prices will not rise. In addition, as we expand into new categories and types of products, we expect that we may not have strong purchasing power in these new areas, which could lead to higher costs than we have historically seen in our current product categories and types. We may not be able to pass increased costs on to customers, which could adversely affect our operating results.

In addition, we cannot guarantee that products we receive from vendors will be of sufficient quality or free from damage or defects, or that such merchandise will not be damaged during shipping or storage. While we take measures to ensure product quality and avoid damage, including evaluating vendor facilities, operations and product samples, conducting inventory inspections and inspecting returned products, we cannot control merchandise while it is out of our possession or prevent all damage while in our distribution centers. We may incur additional expenses and our reputation could be harmed if or current or potential customers believe that our merchandise is not of high quality or may be damaged.

Risks associated with the suppliers from whom our products are sourced could materially adversely affect our financial performance, as well as our reputation and brand.

We depend on our ability to provide our customers with a wide range of products from high quality suppliers in a timely and efficient manner. Our agreements with most of our suppliers do not provide for the long-term availability of merchandise or the continuation of particular pricing practices, nor do they usually restrict such suppliers from selling products to other buyers or directly themselves. There can be no assurance that our current suppliers will continue to seek to sell us products on current terms or that we will be able to establish new or otherwise extend current supply relationships to ensure product acquisitions in a timely and efficient manner and on acceptable commercial terms. Our ability to develop and maintain relationships with reputable suppliers and offer high quality products to our customers is critical to our success. If we are unable to develop and maintain relationships with suppliers that would allow us to offer a sufficient amount and variety of quality products on acceptable commercial terms, our ability to satisfy our customers’ needs, and therefore our long-term growth prospects, would be materially adversely affected.

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We also are unable to predict whether any of the countries in which our suppliers’ products are currently manufactured or may be manufactured in the future will be subject to trade restrictions imposed by the U.S. or foreign governments or the likelihood, type or effect of any such restrictions. Any event causing a disruption or delay of imports from suppliers with international manufacturing operations, including the imposition of additional import restrictions, restrictions on the transfer of funds or increased tariffs or quotas, could increase the cost or reduce the supply of merchandise available to our customers and materially adversely affect our financial performance as well as our reputation and brand. Our competitors may have greater existing inventory positions and other advantages that may allow them to price more competitively relative to our products. Furthermore, some or all of our suppliers’ foreign operations may be adversely affected by political and financial instability, resulting in the disruption of trade from exporting countries, restrictions on the transfer of funds or other trade disruptions.

We may not accurately forecast revenues, profitability and appropriately plan our expenses.

We base our current and future expense levels on our operating forecasts and estimates of future income and operating results. Income and operating results are difficult to forecast because they generally depend on the volume and timing of the orders we receive, which are uncertain. Additionally, our business is affected by general economic and business conditions around the world. A softening in income, whether caused by changes in consumer preferences, a weakening in global economies or inflation, may result in decreased net revenue levels, and we may be unable to adjust our spending in a timely manner to compensate for any unexpected shortfall in income. This inability could cause our income (loss) from operations after tax in a given quarter to be lower or higher than expected. We also make certain assumptions when forecasting the amount of expenses we expect related to our share-based payments, which includes the expected volatility of our share price, and the expected life of equity awards granted. These assumptions are partly based on historical results. If actual results differ from our estimates, our operating results in a given quarter may be lower than expected.

The eCommerce operation’s operating results of SciSparc Nutraceuticals are subject to seasonal fluctuations.

The eCommerce business is seasonal in nature and the fourth quarter is a significant period for our operating results due to the holiday season. As a result, revenue generally declines and loss from operations generally increases in the first quarter sequentially from the fourth quarter of the previous year. Any disruption in our ability to process and fulfill customer orders during the fourth quarter could have a negative effect on our quarterly and annual operating results. For example, if a large number of customers purchase our products in a short period of time due to increased holiday demand, inefficient management of our inventory may prevent us from efficiently fulfilling orders, which may reduce sales and harm our brands.

The inability to acquire, use or maintain our marks and domain names for our sites could substantially harm our business and operating results.

We currently have registered trademarks for our brands in numerous jurisdictions and have registered the Internet domain names for our websites, as well as various related domain names. However, we have not registered our trademarks or domain names in all major international jurisdictions. Domain names generally are regulated by Internet regulatory bodies. If we do not have, or cannot obtain on reasonable terms, the ability to use our marks in a particular country or to use or register any of our domain names, we could be forced either to incur significant additional expenses to market our products within that country, including the development of a new brand and the creation of new promotional materials and packaging, or to elect not to sell products in that country. Either result could materially adversely affect our business, financial condition and operating results.

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Furthermore, the regulations governing domain names and laws protecting marks and similar proprietary rights could change in ways that block or interfere with our ability to use relevant domains or our current brand names. Furthermore, we might not be able to prevent third parties from registering, using or retaining domain names that interfere with our consumer communications or infringe or otherwise decrease the value of our marks, domain names and other proprietary rights. Regulatory bodies also may establish additional generic or country-code top-level domains or may allow modifications of the requirements for registering, holding or using domain names. As a result, we may not be able to register, use or maintain the domain names that utilize the Wellution name in all of the countries in which we currently or intend to conduct business.

Any significant disruption in service on our websites or apps or in our computer systems, a number of which are currently hosted or provided by third-party providers, could materially affect our ability to operate, damage our reputation and result in a loss of customers, which would harm our business and results of operations.

Our ability to sell and market our products relies on FBA platform whose functionality relies upon a number of third-party related services, including those relating to cloud infrastructure, technology services, servers, open-source libraries and vendor application programming interfaces. Any disruption or loss of any of these third-party services could have a negative effect on our business, results of operations, financial condition and prospects. We may experience interruptions in our systems, including server failures that temporarily slow down or interfere with the performance of our platforms and the ability to sell on eCommerce marketplaces.

Interruptions in these systems, whether due to system failures, human input errors, computer viruses or physical or electronic break-ins, and denial-of-service attacks on us, third-party vendors or communications infrastructure, could affect the availability of our services on our platform and prevent or inhibit the ability of selling our products. Volume of traffic and activity on eCommerce marketplaces spikes on certain days, such as during a Black Friday promotion, and any such interruption would be particularly problematic if it were to occur at such a high-volume time. Problems with the reliability of our systems or third-party marketplaces could prevent us from earning revenue and could harm our reputation. Damage to our reputation, any resulting loss of customers, eCommerce confidence and the cost of remedying these problems could negatively affect our business, results of operations, financial condition and prospects.

Our ability to maintain communications, network and computer hardware in the countries in which they are used may in the future be subject to regulatory review and licensing, and the failure to obtain any required licenses could negatively affect our business. Our systems and infrastructure are predominately reliant on third parties. Problems faced by our third-party service providers with the telecommunications network providers with whom they contract or with the systems by which they allocate capacity among their users, including us, could adversely affect the experience of our customers. Our third-party service providers could decide to close their facilities without adequate notice. Any financial difficulties, such as bankruptcy or reorganization, faced by our third-party service providers or any of the service providers with whom they contract may have negative effects on our business, the nature and extent of which are difficult to predict. If our third-party service providers are unable to keep up with our needs for capacity, this could have an adverse effect on our business. Any errors, defects, disruptions or other performance problems with our services could harm our reputation and may have a material adverse effect on our business, results of operations, financial condition and prospects.

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Risks Related to the Merger between SciSparc and AutoMax

Because the exchange ratio is fixed and will not be adjusted in the event of a change in either our share price or AutoMax’s share price, AutoMax shareholders cannot be certain of the precise value of the consideration that they may receive in the Merger.

At the effective time of the Merger, each outstanding share of AutoMax will be converted into the right to receive a number of our ordinary shares, to be determined in accordance with the exchange ratio, or Exchange Ratio, agreed upon in the Merger agreement, or Merger Agreement.

The Merger agreement does not provide for an adjustment to the total number of our ordinary shares that AutoMax shareholders will be entitled to receive to account for changes in the market price of our ordinary shares. Accordingly, the market value of the shares of our ordinary shares issued pursuant to the Merger will depend on the market value of our ordinary shares at the time the Merger closes and could vary significantly from the market value of our ordinary shares as of April 23, 2025.

Under the Exchange Ratio formula described in the Merger Agreement, immediately following the Merger, AutoMax’s shareholders (other than us, which currently holds shares in AutoMax) and its advisor are expected to own approximately 49.99% of our share capital and our shareholders are expected to own approximately 50.01% of our share capital on a fully-diluted basis (subject to certain exceptions).

The Exchange Ratio is the result of the following calculation : the number of our outstanding shares on a fully-diluted basis (subject to certain exceptions) divided by 0.5001, multiplied by 0.4749, then divided by the number of the AutoMax outstanding shares less the number of the AutoMax ordinary shares held by us; so that, in any event, immediately following the effective time, holders of AutoMax outstanding shares (and its advisor, but other than us), will hold together 49.99% of our share capital, on a fully-diluted basis (subject to certain exceptions), immediately following the effective time.

The market price of our ordinary shares and, as a result, the value of the consideration that AutoMax shareholders may receive pursuant to the Merger Agreement, has been fluctuating since the date that the Merger Agreement was executed and publicly announced and may continue to fluctuate through the date of the completion of the Merger. Accordingly, upon the completion of the Merger and the issuance of our ordinary shares to the AutoMax shareholders, the market price of our ordinary shares that will be issued to the AutoMax shareholders as the Merger consideration could be greater than, less than or the same as the market price of our ordinary shares on the date the Merger Agreement was executed, on February 13, 2025, or on the date of our and AutoMax shareholder meetings. Share price changes may result from a variety of factors, including, among others, changes in our or AutoMax’s respective businesses operations or prospects, risks described in the risk factors of each of us and AutoMax; legislative, regulatory and legal developments; general market, industry and economic conditions; shareholder litigation relating to the Merger or otherwise relating to us or to AutoMax; and market assessments of the likelihood that the Merger will be completed. Because the value of the consideration will depend on the market price of our ordinary shares at the time the Merger is completed, AutoMax shareholders will not know or be able to determine at the time of the AutoMax shareholders meeting the market value of the Merger consideration they may receive upon completion of the Merger. Similarly, our shareholders will not know or be able to determine at the time of the special meeting of our shareholders, the market value of the consideration to be paid to the AutoMax shareholders in the form of issuance of our ordinary shares pursuant to the Merger Agreement compared to the market value of AutoMax ordinary shares that are being exchanged. You are urged to obtain current market quotations for our ordinary shares and AutoMax ordinary shares in determining whether to vote for approval of the Merger-related proposals.

If the proposed merger with AutoMax is not consummated, our share price could decline.

The consummation of the proposed Merger with AutoMax is subject to a number of closing conditions, including the approval by our shareholders, approval by Nasdaq of our listing of additional securities application of its ordinary shares issued in connection with the Merger, and other customary closing conditions. We are targeting a closing of the transaction before September 30, 2025.

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If the proposed Merger is not consummated, we may be subject to a number of material risks, and its share price could be adversely affected, as follows:

| ● | We have incurred and expect to continue to incur significant expenses related to the proposed Merger with AutoMax, even if the Merger is not consummated.

| ● | The Merger Agreement contains covenants restricting our solicitation of competing acquisition proposals and the conduct of our business between the date of signing the Merger Agreement and the closing of the Merger. As a result, significant business decisions and transactions before the closing of the Merger require the consent of AutoMax. Accordingly, we may be unable to pursue business opportunities that would otherwise be in its best interest as a standalone company. We have invested significant time and resources in the transaction process and if the Merger Agreement is terminated we will have a limited ability to continue its current operations without obtaining additional financing.

| ● | Our collaborators and other business partners and investors in general may view the failure to consummate the Merger as a poor reflection on its business or prospects.

| ● | Some of our collaborators and other business partners may seek to change or terminate their relationships with us as a result of the proposed Merger or the failure thereof.

| ● | Our management team may be distracted from day to day operations as a result of the proposed Merger.

| ● | On July 16, 2024, we received a written notice, or the Notice, from Nasdaq indicating that it is not in compliance with the minimum bid price requirement for continued listing set forth in Nasdaq Listing Rule 5550(a)(2), which requires listed securities to maintain a minimum bid price of $1.00 per share. Under Nasdaq Listing Rule 5810(c)(3)(A), SciSparc was granted a period of 180 calendar days to regain compliance with the minimum bid price requirement. On January 14, 2025, we received an additional written notice from Nasdaq indicating that it had been granted, per its request, an additional 180-day compliance period, or until July 14, 2025, to regain compliance with the minimum bid price requirement. No assurance can be given that we will remain eligible to be listed on Nasdaq. Further, because of the previous delisting of our ADSs from Nasdaq, if we fall out of compliance with Nasdaq requirements in the future, our ordinary shares may be more likely to be subject to Nasdaq’s delisting process and no assurance can be given that we will be able to regain compliance. Any delisting could adversely affect our ability to obtain financing for the continuation of its operations and could result in the loss of confidence by investors, customers and employees.

| ● | In addition, if the Merger Agreement is terminated and our board of directors determines to seek another business combination, it may not be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the Merger. In such circumstances, our board of directors may elect to, among other things, divest all or a portion of our business, and, in such case, the consideration that we receive may be less attractive than the consideration to be received by us pursuant to the Merger Agreement.

If the conditions to the Merger are not met, the Merger will not occur.

Even if the Merger is approved by our shareholders and AutoMax’s shareholders, specified conditions must be satisfied or waived to complete the Merger. We and AutoMax cannot assure you that all of the conditions will be satisfied. If the conditions are not satisfied or waived, the Merger will not occur or will be delayed, and we and AutoMax each may lose some or all of the intended benefits of the Merger.

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Certain of our officers and directors and AutoMax’s officers and directors have interests in the Merger that are different from yours and that may influence them to support or approve the Merger without regard to your interests.

Certain of our officers and directors and AutoMax’s officers and directors participate in arrangements that provide them with interests in the Merger that are different from yours, including, among others, the continued service as an officer or director of the combined company, the continued receipt of compensation for such service, and continued indemnification. Each of Amitay Weiss, Amnon Ben Shay, Moshe Revach and Liat Sidi will continue as directors of the combined company after the effective time of the Merger.

Mr. Amitay Weiss is also the Chairman of our board of directors and serves as the chairman of AutoMax. In addition, contingent upon the approval and closing of the Merger, shareholders are asked to approve a one-time cash bonus to our Chief Executive Officer, Chairman and President. Furthermore, certain officers, directors and shareholders of AutoMax entered into an AutoMax shareholder support agreement, pursuant to which they agreed, solely in their capacity as shareholders, to vote their shares in AutoMax covering approximately 55.65% of the outstanding shares of AutoMax in favor of adoption of the Merger Agreement.

Mr. Yaki Baranes, a business analyst, presented a market overview on the motor vehicle market in Israel and a company overview of AutoMax as a vehicle importer in Israel, to our board of directors on February 23, 2023. Mr. Baranes was appointed on May 30, 2023, as our VP Strategy and Business Development. Mr. Baranes previously provided services to AutoMax. In addition, Mr. Baranes and Mr. Amitay Weiss both serve as members of the board of Charging Robotics Inc. and Mr. Baranes provided market overview services to certain other companies of which Mr. Amitay Weiss serves as a director.

These interests may present them with actual or potential conflicts of interest. These interests, among others, may influence our officers and directors AutoMax’s officers and directors to support or approve the Merger.

Our board of directors did not obtain a fairness opinion in determining whether or not to proceed with the Merger.

Our board of directors did not obtain a fairness opinion in connection with its determination to approve the Merger. In analyzing the Merger, our board of directors conducted due diligence on AutoMax and researched the industry in which AutoMax operates by obtaining, for example, an independent third-party valuation report on AutoMax from E.D.B. Accordingly, investors will be relying solely on the judgment of our board of directors in determining the value of the Merger and will not have assurance from an independent source that the terms of the Merger are fair to us from a financial point of view. The lack of a fairness opinion may also lead an increased number of our shareholders to vote against the proposed Merger, which could potentially impact our ability to consummate the Merger.

The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and other causes.

In general, either party can refuse to complete the Merger if there is a material adverse change affecting the other party following April 10, 2024, the date of the Merger Agreement. However, some types of changes do not permit either party to refuse to complete the Merger, even if such changes would have a material adverse effect on us or AutoMax, to the extent they resulted from the following (unless, in some cases, they have a disproportionate effect on us or AutoMax, as the case may be):

| ● | changes or conditions generally affecting the industries or markets in which we and AutoMax operate, and changes in the industries in which we and AutoMax operate regardless of geographic region (including legal and regulatory changes);

| ● | acts of war, armed hostilities or terrorism;

| ● | changes in financial, banking or securities markets;

| ● | any change in, or any compliance with or action taken for the purpose of complying with, any federal, state, national, foreign, material local or municipal or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any governmental body (including under the authority of Nasdaq or the Financial Industry Regulatory Authority), or changes in any interpretations thereof;

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| ● | any change in U.S. generally accepted accounting principles or interpretations thereof;

| ● | the announcement of the Merger Agreement or the pendency of the Merger;

| ● | the taking of any action required to be taken by the Merger Agreement;

| ● | pandemics, including any worsening thereof, man-made disasters, natural disasters, acts of God or other force majeure event; and

| ● | changes in U.S. or non-U.S. general economic or political conditions, or in the financial, credit or securities markets in general, including any shutdown of any governmental authority.

If adverse changes occur but we and AutoMax must still complete the Merger, the combined company’s share price may suffer.

The market price of the combined company’s shares may decline as a result of the Merger.

The market price of the combined company’s shares may decline as a result of the Merger for a number of reasons, including if:

| ● | the combined company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts;

| ● | the effect of the Merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or

| ● | investors react negatively to the effect on the combined company’s business and prospects from the Merger.

Our shareholders and AutoMax’s shareholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

If the combined company is unable to realize the strategic and financial benefits currently anticipated from the Merger, our shareholders will have experienced substantial dilution of their ownership interest without receiving any commensurate benefit. Significant management attention and resources will be required to operate the two companies. Delays in this process could adversely affect the combined company’s business, financial results, financial condition and share price following the Merger. Even if the combined company were able to operate the two businesses operations successfully, there can be no assurance that this operation will result in the realization of the full benefits of synergies, innovation and operational efficiencies that may be possible from this integration and that these benefits will be achieved within a reasonable period of time.

During the pendency of the Merger, we and AutoMax will be subject to contractual limitations set forth in the Merger Agreement that restrict the parties’ ability to enter into business combination transactions with another party.

Covenants in the Merger Agreement impede the ability of us or AutoMax to make acquisitions or complete other transactions that are not in the ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, the parties may be at a disadvantage to their competitors. In addition, while the Merger Agreement is in effect and subject to limited exceptions, each party is prohibited from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition of our securities, a tender offer for our securities, a Merger or other business combination outside the ordinary course of business. Any such transactions could be favorable to such party’s shareholders.

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Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit each of us and AutoMax from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals. Because the lack of a public market for AutoMax shares makes it difficult to evaluate the fairness of the Merger, the shareholders of AutoMax may receive consideration in the Merger that is less than the fair market value of the AutoMax shares.

Certain shareholders could attempt to influence changes within our company that could adversely affect our operations, financial condition and the value of our ordinary shares.

Our shareholders may from time to time seek to acquire a controlling stake in our company, engage in proxy solicitations, advance shareholder proposals or otherwise attempt to effect changes. Campaigns by shareholders to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short-term shareholder value through actions such as financial restructuring, increased debt, special dividends, share repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist shareholders can be costly and time-consuming and could disrupt our operations and divert the attention of our board of directors and senior management from the pursuit of the proposed transaction. These actions could adversely affect our operations, financial condition, our ability to consummate the Merger and the value of our ordinary shares.

We and AutoMax may become involved in securities litigation or shareholder derivative litigation in connection with the Merger, and this could divert the attention of our and AutoMax’s management and harm the combined company’s business, and insurance coverage may not be sufficient to cover all related costs and damages.

Securities litigation or shareholder derivative litigation frequently follows the announcement of certain significant business transactions, such as the sale of a business division or announcement of a business combination transaction. We and AutoMax may become involved in this type of litigation in connection with the Merger, and the combined company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the business of us, AutoMax and the combined company.

If any of the events described in “AutoMax’s General Risk Factors” or “Risks Related to the Combined Company” occur, those events could cause the potential benefits of the Merger not to be realized.

AutoMax’s business is expected to constitute a significant portion of the business of the combined company following the Merger. As a result, the risks described below in the sections entitled “Risks Related to the Merger between SciSparc and AutoMax” beginning on page 41, and “Risks Related to the Combined Company” beginning on page 69 are among the most significant risks to the combined company if the Merger is completed. To the extent any of the events in the risks described in the sections referenced in the previous sentence occur, those events could cause the potential benefits of the Merger not to be realized and the market price of the combined company’s shares to decline.

Risks Related to our Intended Corporate Restructuring Plan

The intended Restructuring Plan, which may involve transferring our pharmaceutical activities to a new wholly-owned subsidiary, may not be completed in accordance with the expected plans or anticipated timeline, or at all, and may not achieve the expected results.

On January 25, 2023, we announced that our board of directors resolved to pursue a restructuring plan, or the Restructuring Plan, which may involve transferring our pharmaceutical activities to a subsidiary, which may be listed on a stock exchange. As part of the plan, we announced that we would examine a spin-off of certain of our assets, followed by a listing of NewCo on a leading stock exchange, while maintaining our controlling interest in NewCo such that we will continue to control its current business activities. We also intend to explore other potential new opportunities, activities and investments in a variety of sectors.

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On November 22, 2023, we announced the signing of a non-binding letter of intent, to acquire AutoMax, with certain new negotiated terms as announced on December 7, 2023.

Pursuant to the Restructuring Plan, on June 25, 2023, we entered into a securities purchase agreement with AutoMax, pursuant to which, at the closing and upon the terms and conditions set forth in the securities purchase agreement with AutoMax, or the AutoMax SPA, we invested NIS 2,500 thousand (approximately $691 thousand) in cash, in exchange for ordinary shares of AutoMax based on a price per share of NIS 0.5. Following the closing, we held approximately 5.6% of the issued and outstanding share capital of AutoMax.

On January 14, 2024, we entered into, as lender, a bridge loan agreement with AutoMax, pursuant to which AutoMax received a bridge loan in the amount of $1.4 million, or the Bridge Loan, further to the previously-announced non-binding letter of intent for us to acquire AutoMax. On April 10, 2024, we signed the Merger Agreement with AutoMax. On August 14, 2024, on November 26, 2024, and March 27, 2025, we and AutoMax entered into an addendum to the Merger Agreement, or Merger Agreement Addendum, a second addendum to the Merger Agreement, or Merger Agreement Second Addendum, and third addendum to the Merger Agreement, or Merger Agreement Third Addendum, respectively. On June 9, 2024, we entered, as lender, into an amendment to the Bridge Loan, or the Amended Bridge Loan, pursuant to which AutoMax received an additional loan in the amount of $1.0 million, for an aggregate amount of $2.4 million. On September 5, 2024, we entered into a second amendment to the Bridge Loan, or the Second Amendment, pursuant to which we extended an additional loan in the amount of $1.85 million to AutoMax under terms similar to the Amended Bridge Loan, bringing the total Bridge Loan amount to $4.25 million, or the Loan Amount. During the month of September 2024, we provided AutoMax with the loan amounts due under the Second Amendment to the Bridge Loan, and offset any interest due until November 30, 2024 from the principal amount, such that on the closing date of the Merger, we will be entitled to be paid the due interest at a rate of 7% per annum (or 9% per annum if the Merger is not consummated), of the Loan Amount, accruing from the period beginning on December 1, 2024 and ending on the effective date of the Merger. In consideration for the Loan Amount, AutoMax established a first ranking fixed charge security interest on AutoMax’s shares of its wholly-owned subsidiary AutoMax Direct Import in favor of us. On February 27, 2025, we announced that we had entered into a loan agreement with AutoMax where a $2 million loan was provided, or the Additional Loan Agreement. The loan bears an 8% annual interest rate and will be repaid in equal monthly installments of $50,000 and interest, with AutoMax retaining the option to make early repayment without penalties. The interest on the loan will be cancelled as of the consummation of the Merger Agreement and AutoMax will continue to make monthly payments towards the principal amount of the loan. As collateral, AutoMax pledged a first-ranking fixed charge on its subsidiary’s shares, in accordance with a fixed charge debenture.

On July 8, 2024, we signed a non-binding letter of intent, or the Spin-off LOI, for the spin-off of our advanced clinical stage pharmaceutical portfolio to a publicly traded company on the Toronto Stock Exchange Venture in Canada, or TSXV. Pursuant to the letter of intent, we will sell, assign, convey and transfer to Miza III Ventures Inc., or Miza, certain assets for consideration of common shares and contingent rights of Miza, based on pre-determined milestones. Following the closing of such transaction, we would hold a controlling interest in Miza, the exact percentage of which is contingent on agreeing on definitive terms between the parties. The resulting entity, in which we will hold an equity interest, will be active in both the pharmaceutical and supplement sectors. On December 16, 2024, we announced that we entered into an amendment to the Spin-off LOI, solely to extend the deadline to enter into definitive agreements by no later than March 31, 2025, which was extended from July 31, 2024, provided that such date may be further extended by mutual written agreement of the parties, and to close the proposed transaction by no later than April 30, 2025, which was extended from October 31, 2024. On March 31, 2025, we announced that we entered into a second amendment to the Spin-off LOI solely to extend again the deadline to close the proposed transaction to no later than June 30, 2025.

Completion of the transactions contemplated by the Merger Agreement, the Spin-off LOI or any other potential restructuring plans or transactions in addition to the possible listing of NewCo on a stock exchange, may be subject to, among other things, market conditions, tax or other business analyses, regulatory approvals, receipt of any necessary consents, final approvals from its board of directors and shareholders and satisfaction of any closing conditions to effectuate such corporate restructuring.

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Unanticipated developments or changes, including but not limited to, changes in the general or financial market conditions, possible delays in obtaining various regulatory and tax approvals, changes in the law, and challenges in executing the Acquisition or any other restructuring plan could delay or prevent the completion of the Restructuring Plan and listing of NewCo, or cause the restructuring and listing of NewCo to occur on terms or conditions that are different or less favorable than initially expected. These or other developments could cause us not to realize some or all of the expected benefits of the Restructuring Plan and listing of NewCo or to realize them on a different timeline than expected. If the Restructuring Plan and listing of NewCo do not occur, we could pursue other transactions involving our pharmaceutical activities.

The Restructuring Plan and listing of NewCo may not achieve the anticipated benefits and may expose us to additional risks.

We may not realize the anticipated strategic, financial, operational or other benefits of the Restructuring Plan and listing of NewCo. We cannot predict with certainty when the benefits expected from these transactions will occur or the extent to which they will be achieved. There is no assurance that following the Restructuring Plan and listing of NewCo that each separate company will be successful. Whether or not the Restructuring Plan and listing of NewCo is completed, we may face material challenges in connection with the intended transactions, including but not limited to, the diversion of management time on matters relating to the Restructuring Plan and listing of NewCo, the impact of having to operate under the terms of any transition service agreements, the impact on our ability to retain talent and potential impacts on our relationships with customers, suppliers, employees and other counterparties. In addition, we will incur one-time costs and ongoing costs in connection with, or as a result of, the Restructuring Plan and listing of NewCo, including costs of operating as independent, publicly-traded companies that the separate businesses will no longer be able to share. Those costs may exceed our estimates or could negate some of the benefits we expect to realize. Further, we have not yet analyzed whether the Restructuring Plan and listing of NewCo will be tax-free to our shareholders for U.S. federal income tax or Israeli tax purposes and there is no assurance that the Restructuring Plan and listing of NewCo will qualify for this treatment. If the Restructuring Plan and listing of NewCo is ultimately determined to be taxable, any of NewCo, our shareholders or us could incur income tax liabilities that could be significant. If we do not realize the anticipated benefits of the Restructuring Plan and listing of NewCo it could adversely affect our business, results of operations, cash flows and financial condition.

Following any Restructuring Plan and listing of NewCo, the trading price of our Ordinary Shares may fluctuate significantly.

We cannot predict whether the market value of our Ordinary Shares after any Restructuring Plan and listing of NewCo will be, in the aggregate, less than, equal to or greater than the market value of our ordinary shares prior to such transactions. The trading price of our Ordinary Shares may be more volatile around the time of the intended separation.

Risks Related to the Ownership of Our Securities

We will need additional capital in the future. Raising additional capital by issuing securities may cause dilution to existing shareholders.

We have incurred losses every year since our inception. If we continue to use cash at our historical rates of use we will need significant additional financing, which we may seek through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, an existing shareholder’s ownership interest will be diluted, and the terms of any such offerings may include liquidation or other preferences that may adversely affect the then existing shareholders rights. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt or making capital expenditures. If we raise additional funds through collaboration, strategic alliance or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that are not favorable to us.

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We do not know whether a market for the Ordinary Shares will be sustained or what the trading price of the Ordinary Shares will be and as a result it may be difficult for you to sell your Ordinary Shares.

Although our Ordinary Shares are listed on Nasdaq, an active trading market for the Ordinary Shares may not be sustained. It may be difficult for you to sell your Ordinary Shares without depressing the market price for the Ordinary Shares or at all. Further, an inactive market may also impair our ability to raise capital by selling Ordinary Shares and may impair our ability to enter into strategic partnerships or acquire companies, products, or services by using our equity securities as consideration.

Sales of a substantial number of our Ordinary Shares in the public market by our existing shareholders could cause our share price to fall.

Sales of a substantial number of our Ordinary Shares in the public market, or the perception that these sales might occur, could depress the market price of our Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our Ordinary Shares.

The exercise of outstanding warrants or conversion of outstanding convertible securities will cause significant dilution to holders of our equity securities and could adversely affect the price of our Ordinary Shares.

As of April 23, 2025, holders of warrants (including pre-funded warrants) may exercise their warrants into up to 3,993,375 Ordinary Shares. In the event that such warrants are exercised in full, the ownership interest of existing holders of our equity securities will be diluted and may have a negative effect on the trading price of our Ordinary Shares. On February 25, 2025, we also sold and issued to certain investors convertible debentures which are convertible into Ordinary Shares at a purchase price equal to 95% of the subscription amount. In the event such convertible debentures are converted into Ordinary Shares, the ownership interest of existing holders of our equity securities will also be diluted and may have a negative effect on the trading price of our Ordinary Shares.

The market price of our securities may be highly volatile, and you may not be able to resell your Ordinary Shares at or above the price you paid.

The market price of our Ordinary Shares is volatile. Our Ordinary Share price is and will continue to be subject to wide fluctuations in response to a variety of factors, including the following:

| ● | adverse results or delays in preclinical studies or clinical trials;

| ● | reports of adverse events in our product candidates or clinical trial failures of our product candidates;

| ● | inability to obtain additional funding;

| ● | any delay in filing a regulatory submission for any of our product or product candidates and any adverse development or perceived adverse development with respect to the review of that regulatory submission by the FDA or European or Asian authorities;

| ● | failure to successfully develop and commercialize our products or product candidates;

| ● | failure to enter into strategic collaborations or failure to successfully integrate acquisitions we have made;

| ● | failure by us or strategic collaboration partners to prosecute, maintain or enforce our intellectual property rights;

| ● | changes in laws or regulations applicable to future products;

| ● | inability to scale up our manufacturing capabilities through third-party manufacturers, inability to obtain adequate product supply for our products or the inability to do so at acceptable prices;

| ● | introduction of new products or technologies by our competitors;

| ● | failure to meet or exceed financial projections we may provide to the public;

| ● | failures or delays in our intended Restructuring Plan;

| ● | failure to meet or exceed the financial expectations of the investment community;

| ● | announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by our competitors;

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| ● | disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our platform technologies, technologies, products or product candidates;

| ● | additions or departures of key scientific or management personnel;

| ● | significant lawsuits, including patent or shareholder litigation;

| ● | changes in the market valuations of similar companies;

| ● | changes in general conditions in the economy and the financial markets in the countries in which we operate including those related to recent unrest and actual or potential armed conflict in Israel and other parts of the Middle East, such as the multi-front conflict Israel faces;

| ● | sales of our securities by us or our shareholders in the future; and

| ● | trading volumes of our securities.

In addition, companies trading in the stock market have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our Ordinary Shares, regardless of our actual operating performance.

Outstanding warrants and pre-funded warrants to acquire our Ordinary Shares are speculative in nature. Furthermore, holders of our warrants and pre-funded warrants will have no rights as shareholders until such holders exercise their warrants and acquire our Ordinary Shares.

Until holders of the warrants and pre-funded warrants acquire our Ordinary Shares upon exercise of the warrants and pre-funded warrants, holders of the warrants and pre-funded warrants will have no rights with respect to our Ordinary Shares underlying such warrants and pre-funded warrants. Upon exercise of the warrants and pre-funded warrants, the holders thereof will be entitled to exercise the rights of a holder of Ordinary Shares only as to matters for which the record date occurs after the exercise date.

Our warrants and pre-funded warrants only represent the right to acquire Ordinary Shares at a fixed price, and in the case of the warrants, for a limited period of time. Specifically, holders of the warrants and pre-funded warrants that we issued in private placements in March 2020, March 2021, June 2022 and October 2023 and in our November 2020 and August 2023 public offerings may exercise their right to acquire Ordinary Shares and pay an exercise price per Ordinary Shares (in the case of the pre-funded warrants, $0.001 to $0.026 per Ordinary Share and in the case of other warrants, ranging from $68.38 to $637.00 per Ordinary Share), subject to adjustment upon certain events, within five years from their date of issuance, with the exception of the June 2022 warrants, which will expire seven years from the date of issuance.

We cannot assure you that our Ordinary Shares will remain listed on Nasdaq or any other securities exchange.

Our ADSs, which previously represented our Ordinary Shares, were listed on Nasdaq from March 2017 through July 2020. On September 21, 2020, our ADSs were delisted from Nasdaq as a result of not meeting the shareholders equity requirements of Nasdaq. Between December 2020 and August 2021, our ADSs were quoted on the OTCQB. In August 2021, our ADR program was terminated and our ADSs were converted to Ordinary Shares on a one-for-one basis. In September 2021, our Ordinary Shares began to be quoted for trading on the OTCQB under the ticker “SPRCF”. In December 2021, our Ordinary Shares were re-listed on Nasdaq and began trading under the symbol “SPRC”.

In addition, on July 26, 2024, we received the Notice from Nasdaq indicating that we are not in compliance with the minimum bid price requirement for continued listing set forth in Nasdaq Listing Rule 5550(a)(2), which requires listed securities to maintain a minimum bid price of $1.00 per share. Under Nasdaq Listing Rule 5810(c)(3)(A), we were granted a period of 180 calendar days to regain compliance with the minimum bid price requirement, or until January 12, 2025. On January 14, 2025, we received an additional written notice from Nasdaq indicating that we had been granted, per our request, an additional 180-day compliance period, or until July 14, 2025, to regain compliance with the minimum bid price requirement. There is a risk that we could be subject to additional notices of delisting for failure to comply with Nasdaq Listing Rule 5550(a)(2) or other Nasdaq Listing Rules and no assurance can be given that we will remain eligible to be listed on Nasdaq.

Further, because of the previous delisting of our ADSs from Nasdaq, if we fall out of compliance with Nasdaq requirements in the future, our Ordinary Shares may be more likely to be subject to Nasdaq’s delisting process and no assurance can be given that we will be able to regain compliance. Any delisting could adversely affect our ability to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, customers and employees.

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Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting, which could have a material adverse effect on the price of our Ordinary Shares.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies or weaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reported financial information, which could have a material adverse effect on the price of our Ordinary Shares. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed.

We have not paid, and do not intend to pay, dividends on our Ordinary Shares and, therefore, unless our traded securities appreciate in value, our investors may not benefit from holding our securities.

We have not paid any cash dividends on our Ordinary Shares since inception. We do not anticipate paying any cash dividends our Ordinary Shares in the foreseeable future. Moreover, the Israeli Companies Law-1999, or the Companies Law, imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in our Ordinary Shares will not be able to benefit from owning these securities unless their market price becomes greater than the price paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess of the price paid.

Unfavorable outcomes in legal proceedings may harm our business and results of operations.

Regardless of whether or not there is merit to the claims underlying any legal proceedings to which we are subject, and regardless of whether we are found as a result of such proceedings to have violated any applicable laws, such proceedings can be expensive to defend or respond to, and could result in substantial costs and diversion of management’s attention and resources, which could harm our business, and potentially could cause substantial and irreparable harm to our public reputation. For example, on May 2, 2023, Capital Point Ltd., or Capital Point, filed a lawsuit in the Tel Aviv-Jaffa District Court against us as the sole defendant in connection with the warrant we issued to Capital Point pursuant to a joint venture transaction entered into on May 15, 2020 by and between us, Capital Point and Evero Health Ltd. one of our subsidiaries. The lawsuit includes allegations of breaches of contract under the Israeli Contracts Law (General Part), 1973, unjust enrichment under the Israeli Unjust Enrichment Law, 1979 and breaches under the Israeli Torts Ordinance (New Version), 1968. The lawsuit claims damages in the amount of NIS 10,000,000 (approximately $2.75 million), which accounts for, as of the date of the filing of the lawsuit, liquidated damages according to the provisions set forth in the warrant, and seeks as well for the court to order a mandatory injunction order for us to issue a warrant to Capital Point to purchase $340,000 of our ordinary shares, the return of any unlawful profits received by us and punitive damages. As of April 23, 2025, in connection with the aforementioned litigation, the shares of Evero Health Ltd. held by Capital Point are dormant and were forfeited by Evero Health Ltd. As of April 23, 2025, we cannot predict the likelihood of our success in the lawsuit. If we do not prevail in such lawsuit, our results of operations and reputation could be adversely affected.

We may be a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes in the current taxable year or may become one in any subsequent taxable year. There generally would be negative tax consequences for U.S. taxpayers that are holders of our Ordinary Shares if we are or were to become a PFIC.

In general, we will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (1) at least 75% of our gross income is “passive income” or (2) on average at least 50% of our assets by value produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. We do not believe that we would be deemed a PFIC for 2025. If we are a PFIC in any taxable year during which a U.S. taxpayer holds the Ordinary Shares, such U.S. taxpayer would be subject to certain adverse U.S. federal income tax rules. In particular, if the U.S. taxpayer did not make an election to treat us as a “qualified electing fund,” or QEF, or make a “mark-to-market” election, then “excess distributions” to the U.S. taxpayer, and any gain realized on the sale or other disposition of the Ordinary Shares by the U.S. taxpayer: (1) would be allocated ratably over the U.S. taxpayer’s holding period for the Ordinary Shares; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the U.S. Internal Revenue Service, or the IRS, determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. taxpayer to make a timely QEF or mark-to-market election. U.S. taxpayers that have held the Ordinary Shares during a period when we were a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. taxpayer who made a timely QEF or mark-to-market election. A U.S. taxpayer can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto. U.S. taxpayers that hold the Ordinary Shares are strongly urged to consult their tax advisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or mark-to-market election with respect to the Ordinary Shares in the event that we are a PFIC. See Item 10.E. “Taxation-U.S. Federal Income Tax Considerations-Passive Foreign Investment Companies” for additional information.

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Risks Related to Israeli Law and Our Operations in Israel

We conduct our operations in Israel. Conditions in Israel, including the recent attack by Hamas and other terrorist organizations and Israel’s war against them, may affect our operations.

We are incorporated under Israeli law, and many of our employees, including our Chief Executive Officer and our Chief Financial Officer, and other senior members of our management team, operate from our headquarters located in Israel. In addition, all of our officers and directors are residents of Israel. Accordingly, our business and operations are directly affected by economic, political, geopolitical, and military conditions in Israel.

Since the establishment of the State of Israel in 1948 and in recent years, armed conflicts between Israel and its neighboring countries and terrorist organizations active in the region have involved missile strikes, hostile infiltrations, terrorism against civilian targets in various parts of Israel, and recently abduction of soldiers and citizens.

Following the October 7, 2023 attacks by Hamas terrorists in Israel’s southern border, Israel declared war against Hamas and since then, Israel has been involved in military conflicts with Hamas, Hezbollah, a terrorist organization based in Lebanon, and Iran, both directly and through proxies like the Houthi movement in Yemen and armed groups in Iraq and other terrorist organizations. Additionally, following the fall of the Assad regime in Syria, Israel has conducted limited military operations targeting the Syrian army, Iranian military assets and infrastructure linked to Hezbollah and other Iran-supported groups. Although certain ceasefire agreements have been reached with Hamas and Lebanon (with respect to Hezbollah), these agreements failed to be upheld and military activity and hostilities continue to exist at varying levels of intensity, and the situation remains volatile, with the potential for escalation into a broader regional conflict involving additional terrorist organizations and possibly other countries. Also, the fall of the Assad regime in Syria may create geopolitical instability in the region.

While our facilities have not been damaged during the current war, the hostilities with Hamas, Hezbollah, Iran and its proxies and others have caused and may continue to cause damage to private and public facilities, infrastructure, utilities, and telecommunication networks, and potentially disrupting our operations and supply chains. For example, our SCI-210 ASD clinical trial at Soroka Medical Center was delayed by three months. In addition, Israeli organizations, government agencies and companies have been subject to extensive cyber attacks. This could lead to increased costs, risks to employee safety, and challenges to business continuity, with potential financial losses.

In connection with the ongoing war, several hundred thousand Israeli military reservists were drafted to perform immediate military service, and military reservists are expected to perform long reserve duty service in the coming years. None of our employees have been called to active military duty as of April 23, 2025. The absence of our employees due to any future military service may materially and adversely affect our ability to conduct our operations.

Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of certain direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that such government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business.

The global perception of Israel and Israeli companies, influenced by actions by international judicial bodies, may lead to increased sanctions and other negative measures against Israel, as well as Israeli companies and academic institutions. There is also a growing movement among countries, activists, and organizations to boycott Israeli goods, services and academic research or restrict business with Israel, which could affect business operations. If these efforts become widespread, along with any future rulings from international tribunals against Israel, they could significantly and negatively impact business operations

Prior to the war, the Israeli government pursued changes to Israel’s judicial system and has recently renewed its efforts to effect such changes. In response to the foregoing developments, certain individuals, organizations, and institutions, both within and outside of Israel, voiced concerns that such proposed changes, if adopted, may negatively impact the business environment in Israel. Such proposed changes may also lead to political instability or civil unrest. If such changes to Israel’s judicial system are pursued by the government and approved by the parliament, the reaction to such changes may have an adverse effect on our business, our results of operations, and our ability to raise additional funds, if deemed necessary by our management and board of directors.

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Provisions of Israeli law may make it easy for our shareholders to demand that we convene a shareholders meeting, and/or allow shareholders to convene a shareholder meeting without the consent of our management, which may disrupt our management’s ability to run our company.

As a company listed on an exchange in the U.S., Israeli law may allow any one or more of our shareholders holding, in the aggregate, at least 10% of our voting rights to demand that we convene a special shareholders meeting. Also, in the event that we choose not to convene a special shareholders meeting pursuant to such a request, Sections 64-65 of the Companies Law provide, among others, that such shareholders may independently convene a special shareholders meeting within three months (or under court’s ruling) and require us to cover the costs, within reason, and as a result thereof, our directors might be required to repay us such costs. If our shareholders decide to exercise these rights in a way inconsistent with our management’s strategic plans, our management’s ability to run our company may be disrupted, and this process may entail significant costs to us.

Our operations are subject to currency and interest rate fluctuations.

We incur expenses in U.S. dollars and NIS, but our financial statements are denominated in U.S. dollars. U.S. dollars is our functional currency and is the currency that represents the principal economic environment in which we operate. As a result, we are affected by foreign currency exchange fluctuations through both translation risk and transaction risk. As a result, we are exposed to the risk that the NIS may appreciate relative to the dollar, or, if the NIS instead devalues relative to the dollar, that the inflation rate in Israel may exceed such rate of devaluation of the NIS, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, the dollar cost of our operations in Israel would increase and our dollar-denominated results of operations would be adversely affected.

Provisions of Israeli law and our amended and restated articles of association 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.

Provisions of Israeli law and our amended and restated articles of association could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to acquire us or our shareholders to elect different individuals to our board of directors, even if doing so would be considered to be beneficial by some of our shareholders, and may limit the price that investors may be willing to pay in the future for our Ordinary Shares. Among other things:

| ● | Israeli corporate law regulates mergers and requires that a tender offer be effected when more than a specified percentage of shares in a company are purchased;

| ● | Israeli corporate law does not provide for shareholder action by written consent, thereby requiring all shareholder actions to be taken at a general meeting of shareholders;

| ● | our amended and restated articles of association divide our directors into three classes, each of which is elected once every three years;

| ● | our amended and restated articles of association require a vote of the holders of a majority of our outstanding Ordinary Shares entitled to vote present and voting on the matter at a general meeting of shareholders (referred to as simple majority), and the amendment of a limited number of provisions, such as the provision stating that each year the term of office of only one class of directors will and dividing our directors into three classes, requires a vote of the holders of 65% of the voting power represented at a general meeting of our shareholders and voting thereon has been obtained, provided the majority constitutes more than 33.33% of the total issued and outstanding share capital as of the record date of such meeting. The affirmative vote of at least three-quarters (3/4) of the directors, in addition to the approval of our shareholders, is also required in order to amend our amended and restated articles of association;

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| ● | our amended and restated articles of association provide that director vacancies may be filled by our board of directors;

| ● | subject to certain exceptions, our amended and restated articles of association restrict us from engaging in certain business combination transactions, with any shareholder who holds 15% or more of our voting power. The transactions subject to such restrictions include mergers, consolidations and dispositions of our assets with a market value of 10% or more of our assets or outstanding shares. Subject to certain exceptions, such restrictions will apply for a period of three years following each time a shareholder became the holder of 15% or more of our voting power; and
| ● | subject to certain exceptions, our amended and restated articles of association restrict certain transactions which may have a significant effect on the Company’s structure, assets or business, including significant mergers and acquisitions, a disposition of all or substantially all of the assets of the Company, a voluntary dissolution and material changes to the principal business of the Company.

Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax. 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 certain sales and dispositions of shares of the participating companies are restricted. See “Item 10.E. Taxation-Israeli Tax Considerations and Government Programs” for additional information.

It may be difficult to enforce a judgment of a United States court against us and our officers and directors and the Israeli experts named in this Annual Report in Israel or the United States, to assert United States securities laws claims in Israel or to serve process on our officers and directors and these experts.

We were incorporated in Israel and our corporate headquarters are located in Israel. All of our executive officers and directors and the Israeli experts named in this Annual Report are located in Israel. All of our assets and most of the assets of these persons are located in Israel. Service of process upon us or our non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against us or our non-U.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted in Israel, or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our non-U.S. officers and directors because Israel may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israeli courts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our non-U.S. officers and directors.

Moreover, an Israeli court will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases), if its enforcement is likely to prejudice the sovereignty or security of the State of Israel, if it was obtained by fraud or in the absence of due process, if it is at variance with another valid judgment that was given in the same matter between the same parties, or if a suit in the same matter between the same parties was pending before a court or tribunal in Israel at the time the foreign action was brought.

Competition for skilled technical and other personnel in Israel is intense, and as a result we may fail to attract, recruit, retain and develop qualified employees, which could materially and adversely impact our business, financial condition and results of operations.

We compete in a market marked by rapidly changing technologies and an evolving competitive landscape. In order for us to successfully compete and grow, we must attract, recruit, retain and develop personnel with requisite qualifications to provide expertise across the entire spectrum of our intellectual capital and business needs.

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Our principal research and development as well as significant elements of our general and administrative activities are conducted at our headquarters in Israel, and we face significant competition for suitably skilled employees in Israel. While there has been intense competition for qualified human resources in the Israeli high-tech industry historically, the industry experienced record growth and activity in 2021, both at the earlier stages of venture capital and growth equity financings, and at the exit stage of initial public offerings and mergers and acquisitions. This flurry of growth and activity has caused a sharp increase in job openings in both Israeli high-tech companies and Israeli research and development centers of foreign companies, and intensification of competition between these employers to attract qualified employees in Israel. As a result, the high-tech and bio-tech industry in Israel has experienced significant levels of employee attrition and is currently facing a severe shortage of skilled human capital, including engineering, research and development, sales and customer support personnel. Many of the companies with which we compete for qualified personnel have greater resources than we do, and we may not succeed in recruiting additional experienced or professional personnel, retaining personnel or effectively replacing current personnel who may depart with qualified or effective successors. Failure to retain or attract qualified personnel could have a material adverse effect on our business, financial condition and results of operations.

Your rights and responsibilities as a holder of our securities will be governed by Israeli law, which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.

We are incorporated under Israeli law. The rights and responsibilities of holders of our Ordinary Shares are governed by our amended and restated articles of association and the Companies Law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, pursuant to the Companies Law, each shareholder of an Israeli company has to act in good faith and in a customary manner in exercising his or her rights and fulfilling his or her obligations toward the Company and other shareholders and to refrain from abusing his or her power in the Company, including, among other things, in voting at the general meeting of shareholders, on amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and certain transactions requiring shareholders’ approval under the Companies Law. In addition, a controlling shareholder of an Israeli company or a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or who has the power to appoint or prevent the appointment of a director or officer in the Company, or has other powers toward the Company has a duty of fairness toward the Company. However, Israeli law does not define the substance of this duty of fairness. There is little case law available to assist in understanding the implications of these provisions that govern shareholder behavior.

We received Israeli government grants for certain of our past research and development activities and programs, some of which we sold or are in the process of selling. The terms of such grants may require us, in the future, to pay royalties and to satisfy specific conditions if and to the extent we generate revenues from the know-how funded with these grants. We may be required to pay penalties in addition to payment of the royalties.

Our research and development efforts with respect to some of our past activities, which was focused on developing an immunotherapeutic monoclonal antibody for the treatment of Alzheimer’s disease, which we sold in March 2015, and our Anti-CD3 technology directed toward the treatment of inflammatory and autoimmune diseases, which in part was returned and re-assigned to Hadasit Medical Research Services & Development Ltd., or Hadasit, and in part is still in the process of being sold, were financed in part through royalty-bearing grants from the Israeli Innovation Authority, or the IIA. As of December 31, 2024, we had received the aggregate amount of approximately $1.1 million from the IIA for the development of our abovementioned technologies. As of December 31, 2024, our contingent liabilities regarding IIA grants received by us were in an aggregate amount of $1.1 million including interest. With respect to such grants, we are committed to pay royalties up to $1.1 million relating only to technologies in our possession and excluding any royalties for technologies that we sold to third parties. We are required to comply with the requirements of the Israeli Encouragement of Industrial Research, Development and Technological Innovation Law, 5744-1984, as amended, or the Innovation Law, and related regulations, as amended, with respect to those past grants. When a company develops know-how, technology or products using IIA grants, the terms of these grants and the Innovation Law restrict the transfer or license of such know-how, and the transfer of manufacturing or manufacturing rights of such products, technologies or know-how outside of Israel, without the prior approval of the IIA. Therefore, the discretionary approval of an IIA committee would be required for any transfer or license to third parties inside or outside of Israel of know how or for the transfer outside of Israel of manufacturing or manufacturing rights related to those aspects of such technologies. We may not receive those approvals. Furthermore, the IIA may impose certain conditions on any arrangement under which it permits us to transfer technology or development.

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Under the Innovation Law and the regulations thereunder, a recipient of IIA grants is required to return the grants by the payment of royalties of 3% to 5% on the revenues generated from the sale of products (and related services) developed (in whole or in part) under an IIA program up to the total amount of the grants received from IIA plus the relevant interest rate, if any. Under IIA regulations, grants received before June 30, 2017, bear the annual interest rate that applied at the time of the approval of the applicable IIA file which will apply to all of the funding received under such IIA approval. Grants received from the IIA after June 30, 2017, bear an annual interest rate based on the 12-month Secured Overnight Financing Rate, or SOFR, or at an alternative rate published by the Bank of Israel plus 0.71513%. Grants approved after January 1, 2024, shall bear the higher rate of (i) 12 months SOFR, plus 1%, or (ii) a fixed annual interest rate of 4%.

The transfer or license of IIA-supported technology or know-how outside of Israel and the transfer of manufacturing of IIA-supported products, technology or know-how outside of Israel may involve the payment of significant amounts, depending upon the value of the transferred or licensed technology or know-how, our research and development expenses, the amount of IIA support, the time of completion of the IIA-supported research project and other factors. These restrictions and requirements for payment may impair our ability to sell, license or otherwise transfer our technology assets outside of Israel or to outsource or transfer development or manufacturing activities with respect to any product or technology outside of Israel. Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with IIA funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the IIA.

General Risk Factors

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

Our status as a foreign private issuer also exempts us from compliance with certain SEC laws and regulations, including the proxy rules and the short-swing profits recapture rules. In addition, we will not be required under the Exchange Act to file current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act and we will generally be exempt from filing quarterly reports with the SEC. Also, although the Companies Law requires us to disclose the annual compensation of our five most highly compensated senior officers on an individual basis, this disclosure is not as extensive as that required of a U.S. domestic issuer. Furthermore, as a foreign private issuer, we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protections to which you are entitled as an investor.

International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States or Israel.

Other than our headquarters and other operations which are located in Israel (as further described below), we currently have limited international operations, but our business strategy incorporates potentially significant international expansion, particularly in anticipation of approval of our product candidates. We plan to maintain sales representatives and conduct physician and patient association outreach activities, as well as clinical trials, outside of the United States and Israel. Doing business internationally involves a number of risks, including but not limited to:

| ● | multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits and licenses;

| ● | failure by us to obtain regulatory approvals for the use of our products in various countries;

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| ● | additional potentially relevant third-party patent rights;

| ● | complexities and difficulties in obtaining protection and enforcing our intellectual property;

| ● | difficulties in staffing and managing foreign operations;

| ● | complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;

| ● | limits in our ability to penetrate international markets;

| ● | financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations;

| ● | natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions;

| ● | an outbreak of a contagious disease, such as coronavirus, which may cause us, third party vendors and manufacturers and/or customers to temporarily suspend our or their respective operations in the affected city or country;

| ● | certain expenses including, among others, expenses for travel, translation and insurance; and

| ● | regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act of 1977, or FCPA, its books and records provisions or its anti-bribery provisions.

Any of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.

Failure to comply with the FCPA could subject us to penalties and other adverse consequences.

We are subject to the FCPA, which generally prohibits companies, such as us, whose securities are listed in the United States, from paying, offering or authorizing payment or offering of anything of value, directly or indirectly, to any foreign government official, political party or candidate for public office for the purpose of influencing any act or decision of such foreign person in order to assist companies like us in obtaining or retaining business. The FCPA also obligates companies like us, whose securities are listed in the United States, to comply with accounting provisions requiring the companies to maintain books and records that accurately and fairly reflect all transactions of the companies, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The U.S. Department of Justice and the SEC, which have responsibility for enforcement of the FCPA, both consider employees of government-operated health care systems to be “foreign officials” for FCPA purposes. In addition, the U.S. Department of Justice and the SEC are both engaged in a long-running FCPA compliance review of pharmaceutical companies. If our employees or agents are found to have engaged in conduct that violates the FCPA, we would be held responsible and could suffer severe penalties and other consequences, including adverse publicity and damage to our reputation.

Cybersecurity issues, security breaches and other disruptions could compromise our information, expose us to liability and harm our reputation and business.

Our business relies upon information technology systems operated by us and by our third-party service providers. These systems may fail or experience operational disruption, experience cybersecurity attacks, or be damaged by computer viruses and unauthorized access. In the ordinary course of our business we collect and store sensitive data, including intellectual property, personal information and our proprietary business information. The secure maintenance and transmission of this information is critical to our operations and business strategy. We rely on commercially available systems, software, tools and domestically available monitoring to provide security for processing, transmitting and storing this sensitive data.

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Hackers may attempt to penetrate our computer systems, and, if successful, misappropriate personal or confidential business information. In addition, an associate, contractor or other third-party with whom we do business may attempt to circumvent our security measures in order to obtain such information, and may purposefully or inadvertently cause a breach involving such information. While we continue to implement additional protective measures to reduce the risk of and detect cyber incidents, cyber-attacks are becoming more sophisticated and frequent, and the techniques used in such attacks change rapidly. If our third-party vendors fail to protect their information technology systems and our confidential and proprietary information, we may be vulnerable to disruptions in service and unauthorized access to our confidential or proprietary information and we could incur liability and reputational damage and the further development and commercialization of our product candidates could be delayed. While we have not, to our knowledge, experienced any material IT system failures or cybersecurity attacks to date, we cannot assure you that our data protection efforts and our investment in information technology will prevent significant breakdowns, data leakages, breaches in our systems or those of our third-party vendors and other contractors and consultants, or other cyber incidents that could have a material adverse effect upon our reputation, business, operations or financial condition. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs, business operations, a breach of sensitive personal information or a loss or corruption of critical data assets including trade secrets or other proprietary information. For example, the loss of clinical trial data from future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Such IT system failures, cybersecurity attacks or vulnerabilities to our or our third-party vendors’ information security programs or defenses could result in legal liability, reputational damage, business interruption, and our competitive position could be harmed and the further development and commercialization of our products or any future products could be delayed or disrupted. Moreover, containing and remediating any IT system failure, cybersecurity attack or vulnerability may require significant investment of resources.

Our information technology networks and infrastructure may still be vulnerable to damage, disruptions or shutdowns due to attack by hackers or breaches, employee error or malfeasance, power outages, computer viruses, telecommunication or utility failures, systems failures, natural disasters or other catastrophic events. Furthermore, significant security breaches or disruptions of our internal information technology systems or those of our third-party vendors and other contractors and consultants could result in the loss, misappropriation and/or unauthorized access, use, or disclosure of, or the prevention of access to, confidential information (including trade secrets or other intellectual property, proprietary business information and personal information), which could result in financial, legal, business and reputational harm to us., Any such compromise could disrupt our operations, damage our reputation and subject us to additional costs and liabilities, any of which could adversely affect our business.

We may be subject to securities litigation, which is expensive and could divert management attention.

In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our shares, the share price and trading volume of our securities could decline.

The trading market for our Ordinary Shares will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our securities, or provide more favorable relative recommendations about our competitors, the price of our securities would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price or trading volume of our securities to decline.

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Risks Related to AutoMax’s Business and Operations

A decline in available financing may adversely affect AutoMax’s business.

Many of AutoMax’s customers finance their vehicle purchase. As the credit markets have historically experienced volatility and disruption, such downturns could adversely affect the credit market and affect AutoMax clients’ ability to secure the required financing. A part of AutoMax’s success is subject to the availability of affordable financing.

Additionally, AutoMax has non-guaranteed credit lines from four banking corporations, which aggregated to approximately NIS 175.5 million (approximately $48.12 million) for the year ended December 31, 2024, of which it had utilized approximately NIS 170.5 million (approximately $46.75 million). These credit lines bear interest rates that vary between prime +0.5% and prime +2.25%. If the financial market or the banking system deteriorates, AutoMax’s ability to obtain additional financing may be affected. Such a decline in available financing could have an adverse effect on its business, operations, and financial results.

AutoMax signed certain indemnification clauses within asset and share purchase agreements, as part of the sale of its digital media operations between the years 2017 and 2019, and if such indemnification is sought out, AutoMax’s results of operations and financial conditions could be adversely impacted.

Between the years 2017 and 2019, AutoMax sold its digital media and advertising operations to various third parties. As part of such sales, AutoMax has agreed to identify the buyers in case of a breach of representations provided by AutoMax. While AutoMax estimates that there is a low probability it will be required to indemnify any such purchasers, any such indemnification could adversely impact its financial condition and results of operations.

Failure to renew AutoMax permits and licenses or their revocation could materially adversely affect its business, results of operations, financial condition and cash flows.

AutoMax’s subsidiary, Global AutoMax, operates in accordance with and subject to the permits and licenses granted to it for the purpose and within the framework of its activity as a parallel importer. The main licenses used for the AutoMax operations are in accordance with the Vehicle Services Licensing Law, Licensing Regulations for Services and Professions in the Automotive Industry (Vehicle Import and Marketing and Vehicle Trade), 5775-2016, or the Vehicle Services Licensing Law. Since its inception, Global AutoMax was granted the required permits and licenses, and these were extended, from time to time, new permits were obtained when required. However, failure to meet certain criteria as detailed in the Vehicle Services Licensing Law may lead to such permits and licenses being suspended or not eligible for renewal and/or extensions. Furthermore, such permits could be suspended or revoked until the required conditions are met. There are currently pending legal proceedings against AutoMax that could, among other things, impede on its ability to renew or obtain new licenses. Cancellation, conditioning, limitation or non-renewal of any of the AutoMax licenses, due to the aforementioned reasons or for any other reason, may have an effect on its activities and business results.

AutoMax’s ability to import and sell vehicles depends in large part on agreements with suppliers and, therefore, any disruption or deterioration in its relationship with such suppliers could impact its business.

AutoMax purchases its vehicles and components from a limited number of suppliers. Disruption or termination of these sources could occur (due to several factors, including, but not limited to, supplier capacity limitations, bankruptcy, acts of war, terrorism, fire, earthquake). Good relationships with such suppliers are important for AutoMax’s business prospects. If AutoMax’s relationship with its suppliers were to deteriorate, or if its suppliers fail to supply vehicles, its business, financial condition, commercialization and results of operations could be materially adversely affected.

In recent years, as a result of difficulties faced by major vehicle manufacturers, there has been an increase in consolidation of activities and mergers and acquisitions in the automotive industry, as well as collaborations between vehicle manufacturers. The acquisition of a major supplier by a larger group may lead to cancellation or non-renewal of franchise agreements, and concentration of the import of brands to Israel under one importer.

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AutoMax’s success depends greatly on its ability to retain and/or recruit suppliers who will provide it with a vehicle inventory, in the scope that will enable AutoMax to remain competitive in the marketing of vehicles to its customers in Israel.

Exchange rate fluctuations between the U.S, dollar, Euro and the New Israeli Shekel currencies may negatively affect AutoMax’s earnings.

As a result of the international nature of AutoMax’s business, it is exposed to risks associated with changes in foreign currency exchange rates. Substantially all its cost of purchases are either in U.S. dollars or Euros while the majority of its revenues and AutoMax’s management, marketing, sales and research and development costs are in NIS. AutoMax is therefore exposed to foreign currency risk due to fluctuations in exchange rates. This may result in gains or losses with respect to movements in exchange rates, which may be significant and may also cause fluctuations in reported financial information that are not necessarily related to its operating results.

Increases in interest rates could materially adversely affect AutoMax’s business, financial condition, and results of operations.

The recent inflation, geopolitical issues, increase in energy costs, increases in interest rates, unstable global conditions and changes in currency exchange rates have led to global economic instability. Furthermore, as interest rates are reaching historically high records, it could impede AutoMax’s ability to obtain financing or comply with its existing credit lines if the banks. Such changes, and their impact on the global macro-economic environment, can impact AutoMax’s business, operating results, and financial condition. Furthermore, as the majority of the customers require financing to purchase vehicles, such increase in interest rates could make it less appealing and/or more difficult to purchase vehicles and thus decrease sales, which could adversely affect AutoMax’s business, financial condition and results of operations.

Import product restrictions may impair AutoMax’s ability to sell vehicles or parts profitably.

Many of the spare or replacement parts AutoMax installs in its vehicles are manufactured outside of Israel. As a result, the AutoMax business is sensitive to customary risks of importing merchandise, such as import duties, trade regulations and restrictions, transportation costs, unforeseeable disasters, work stoppages, exchange rates, and general political conditions in other countries. Changes in trade policies could limit AutoMax’s ability to import vehicles and/or its ability to purchase vehicles and/or parts at reasonable prices. Such restrictions could additionally limit AutoMax’s ability to provide servicing for vehicles and decrease its sales and/or marketability for customers.

In addition, any inability to receive the required approvals to import its vehicles or any disputes or disagreements with officials regarding the import duties, tariffs, or similar matters, could adversely affect AutoMax’s ability to import vehicles into Israel as well as impact its profit margins.

AutoMax is subject to various legal proceedings. If the outcomes of these proceedings are adverse to AutoMax, it could have a material adverse effect on its business, results of operations and financial condition.

From time to time, AutoMax or its subsidiaries may be party to legal proceedings and claims in the ordinary course of business. While the outcomes of these matters cannot be predicted with certainty, AutoMax does not believe they will have a material effect on its consolidated financial position, results of operations, or cash flows.

There are currently two pending legal proceedings against AutoMax, certain beneficial owners as well as officers of AutoMax and its subsidiaries, which AutoMax considers material to its business.

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On August 5, 2021, the Tel Aviv District Attorney’s Office filed an indictment against Global AutoMax, Haim Levy Trade-In Ltd., and the following beneficial owners and officers: Daniel Levy, CEO of AutoMax; Yinon Amit, Chief Business Officer of AutoMax; and Haim Levy, Trade and Procurement Officer of AutoMax and the son of Daniel Levy, or together the Officers, together with Global AutoMax and Haim Levy Trade-In, the Defendants. Pursuant to the indictment:

| ● | Global AutoMax was accused of committing forgery offenses according to the Penal Law, fraud under the Penal Law, smuggling according to the Customs Ordinance [new version] and money laundering offenses, according to the Money Laundering Prohibition Law.

| ● | Haim Levy Trade In was accused of committing forgery offences under the Penal Law, fraud under the Penal Law, smuggling under the Customs Ordinance, tax and customs violations under the Customs Ordinance [new version], Value Added Tax Law and the Purchase Tax Law (Goods and Services), and money laundering offenses according to the Prohibition of Money Laundering Law and the Penal Law.

| ● | The Officers were accused of forgery offences under the Penal Law, fraud under the Penal Law, smuggling under the Customs Ordinance, and money laundering offenses according to the Prohibition of Money Laundering Law and the Penal Law.

The preliminary hearings were completed, and the evidence trials began in March 2023 for each of the Defendants. AutoMax denies the claims against Global AutoMax.

We were informed that AutoMax believes, based on the position taken by its legal counsel on this matter, that Global AutoMax has strong claims in order to deal with the allegations in the indictment. Furthermore, based on information received from its legal counsel, in the event of a conviction against Global AutoMax, the penal sanctions would consist of a monetary fine, and if convicted of money laundering there could be repossessions. In addition, AutoMax could be exposed to an administrative procedure on behalf of the Israeli Ministry of Transportation and Road Safety, or the Ministry of Transportation. Subject to Section 8 of the Vehicle Services Licensing Law, the Deputy Director General has the authority to refuse granting a license or the renewal of a license, if the applicant has been convicted of a criminal offense that, due to its nature, severity, or circumstance the applicant is not deemed fit to provide vehicle services or to provide services in the automotive field for which the application was submitted. The Deputy Director General has the same authority in the event an indictment was filed, even if a final verdict has not yet been reached. Furthermore, under Section 10(a)(7) of the Vehicle Services Licensing Law, the Deputy Director General can revoke or suspend a license until the licensee complies with the conditions put in place.

An additional lawsuit was filed on September 29, 2022, with the District Court in Tel Aviv in the form of a request for approval as a class action, or the Request, against Global AutoMax, Union Motors Ltd., or Union, Lex Motors Ltd., or Lex, Toyota Motor Corporation, or Toyota, and Denso Corporation, or Denso.

The applicant claims that the defendants, Toyota as a manufacturer of vehicles; Danso as a manufacturer of allegedly defective fuel pumps, installed in Toyota and Lexus vehicles, and are the subject of the Request. Union and Lex served as direct importers of Toyota and Lexus vehicles in Israel. Global AutoMax served as a parallel importer of Toyota vehicles in Israel, and Global AutoMax imported the applicant’s vehicle to Israel. The applicant claims that each of Lex, Union and Global AutoMax breached their obligations towards the group represented in the class action, inter alia, producing and/or importing and/or marketing and/or selling vehicles in which a defective fuel pump was installed, refraining from performing a service recall on all vehicles in which defective pumps were installed, avoided bearing the costs of damages caused by the defective fuel pumps and the service recall, etc.

This, according to the applicant, is in breach of the defendants’ obligations according to the Liability for Defective Products Law, 5740-1980, the Sales Law, 5728-1968, the Contracts Law (General Part), 5733-1973, the Licensing of Services and Professions in the Automotive Industry Law, 5776-2016 and other laws.

The applicant estimates the total damages for all members of the claim exceed an aggregate of NIS 2.5 million (approximately $691,000), and as such that cannot be estimated by him.

In November 2023, Global AutoMax submitted a reply to the Request, in which Global AutoMax rejected all of the applicant’s claims in the Request. In February 2024, the applicant submitted a reply to the respondents’ reply to the Request. A preliminary hearing is scheduled for July 2025.

While AutoMax cannot accurately predict the outcome of this proceeding, it does not believe the claims are substantial and estimate the exposure with respect to such claim is likely immaterial.

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AutoMax is dependent on its management team and professional personnel, and its business could be harmed if it is unable to attract and retain personnel necessary for its success.

AutoMax’s success depends highly on its ability to attract and retain skilled, professional personnel, consultants, and contractors. The departure of highly skilled professional personnel, in particular, any particular key management personnel, could have an adverse impact on AutoMax’s operations and ability to execute its growth plan.

AutoMax’s efforts to retain and attract professional personnel may also result in significant additional expenses, which could adversely affect its profitability. There can be no assurance that professional personnel will continue to be employed or that AutoMax will be able to attract and retain qualified personnel in the future. Failure to retain or attract qualified personnel could have a material adverse effect on AutoMax’s business, financial conditions and results of operations.

AutoMax’s business is sensitive to changes in the prices of new and used vehicles.

AutoMax’s business is sensitive to various changes, specifically to changes in the prices of new and used vehicles. A decrease in the prices of new or used vehicles, due to a reduction in import taxes or a reduced tax for purchasing vehicles could reduce its profit margins. For example, following an update of the Pollution Regulations and the Procedure for Testing Pollutants in Vehicles in the European Union (WLTP) the Israeli green taxation formula was updated. Pursuant to such updated taxation formula, the tax benefits in relation to vehicles with a low polluting level and set tax benefit limits, are gradually decreasing, which causes an increase in the prices of the vehicles that benefited from the purchase tax. For example, on January 1, 2023, the purchase tax on hybrid vehicles increased from 40% in 2022 to 50%, while the limit of the tax benefit was reduced from NIS 40,000 (approximately $11,055) in 2021 to NIS 30,000. The purchase tax on electric vehicles was doubled from 10% in 2022 to 20% in 2023, while the limit of the tax benefit was reduced from NIS 75,000 (approximately $20,730) in 2021 to NIS 60,000 (approximately $16,583) in 2022. On January 1, 2024, the purchase tax on hybrid and plug-in cars increased to 83% and the tax benefit limit was cancelled, and the purchase tax on electric cars increased to 35% and the tax benefit limit was reduced to NIS 50,000. As of the date of this Annual Report, the purchase tax on electric vehicles is 45% and the tax benefit is NIS 35,000.

AutoMax operates in Israel, and prices AutoMax sets are denominated in NIS. Any depreciation of the NIS against foreign currencies in which AutoMax purchases vehicles from manufactures and the reduction of the price of the vehicles by the manufactures or the importers for other reasons may adversely affect the value of the vehicles important and marketed by AutoMax. AutoMax has a policy in place to reduce exchange risk, which includes both financial protections and options to import the same vehicle models from different suppliers in different currencies.

These factors could lead to a decrease in the value of AutoMax’s inventory, and a decrease in AutoMax’s sales, which could adversely affect AutoMax’s business, sales, and results of operations.

AutoMax’s business and operations face many risks inherent to international trade, and its location in Israel including the ongoing interplay of the Israel – Hamas war, may exacerbate the import process, which is material to the success of AutoMax’s business and operations.

AutoMax imports, distributes and sells vehicles in Israel, and all the vehicles AutoMax sells are manufactured outside of Israel. While AutoMax manages its inventory of vehicles and spare parts in a manner that allows AutoMax to provide a rapid response to its customers’ needs, AutoMax’s business remains sensitive to customary risks of importing merchandise, such as currency fluctuations, import duties, trade regulations and restrictions, transportation costs, unforeseeable disasters, work stoppages, exchange rates, and general political conditions in other countries. Changes in trade policies could limit AutoMax’s ability to import vehicles and/or its ability to purchase vehicles and/or parts at reasonable prices.

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Disruptions to the maritime route in the Red Sea may adversely affect AutoMax’s business.

The Red Sea is a vital maritime route for international trade traveling to or from Israel. Following Hamas’ attack on Israel and the Israeli security cabinet’s declaration of war against Hamas, the Houthi movement, which controls parts of Yemen, launched a number of attacks on marine vessels traversing the Red Sea, which marine vessels were thought to either be in route towards Israel or to be partly owned by Israeli businesses or persons. As a result of such disruptions, and in order to mitigate continued economic harm, suppliers have changed routes from Europe to the Middle East, and, as a result, AutoMax has experienced, and may continue to experience in the future, delays in vehicle deliveries, extended lead times, and increased cost of freight, increased insurance costs, purchased materials and manufacturing labor costs. All of these factors have had and may continue to have an effect on AutoMax, which is substantially reliant on its ability to import and sell vehicles, and such delays and increased costs could have an impact on AutoMax’s inventory which may prevent AutoMax from supplying vehicles in a timely fashion to purchasers and/or impede AutoMax’s ability to replenish its inventory based on consumer trends. Such delays in supplying vehicles could result in purchasers cancelling orders, which could have a negative effect on AutoMax’s results of operation. Furthermore, such increase in costs could impact AutoMax’s ability to sell vehicles at competitive prices, which could materially affect its financial results and operations. Additionally, some of the main maritime companies have announced they will no longer plan routes to Israel, until such time as it is safe, which could impede on AutoMax’s ability to import vehicles, and as a result could have a material adverse effect on its business and financial results. The risk of ongoing supply disruptions may further result in delayed deliveries of AutoMax’s products.

Turkey’s trade embargo on Israel may adversely affect AutoMax’s business.

In May 2024, the Turkish Trade Ministry announced an embargo on trade between Turkey and Israel, which restricts the export of goods from Turkey to Israel and the import of products from Israel to Turkey, or the Embargo. The Embargo could have a short-term impact on the supply of vehicles and on the prices of logistics and transportation of vehicles to Israel. As a result of the Embargo, AutoMax may experience delays in vehicle deliveries, extended lead times, increased cost of freight, and increased insurance costs. All of these factors have had and may continue to have an effect on AutoMax, which is substantially reliant on its ability to import and sell vehicles, and such delays and increased costs could have an impact on AutoMax’s inventory, which may in turn prevent AutoMax from supplying vehicles in a timely fashion to purchasers or impede AutoMax’s ability to replenish its inventory based on consumer trends. Such delays in supplying vehicles could result in purchasers cancelling orders, which could have a negative effect on AutoMax’s results of operations. As of April 23, 2025, the Embargo remains ongoing.

Macroeconomic factors such as fluctuation in vehicle prices, fuel prices, supply chain disruptions, and vehicle-related technology advancements could have an adverse effect on AutoMax’s revenues and operating results.

Macroeconomic factors that affect oil prices and the automobile and commodity markets can have adverse effects on AutoMax’s revenues, revenue growth rates (if any), and operating results. Significant increases in the cost of fuel could lead to a reduction in miles driven per car and a reduction in accident rates. A material reduction in accident rates, whether due to, among other things, a reduction in miles driven per car, vehicle-related technological advances such as accident avoidance systems and, to the extent widely adopted, the advent of autonomous vehicles, could have a material impact on revenue growth. Similarly, a reduction in total loss frequency rates, due to among other things, sharp increases in used car prices that make it less economical for insurance company sellers to declare a vehicle involved in an accident a total loss, could also have a material impact on revenue growth. In addition, under the AutoMax Percentage Incentive Program contracts, or PIP, the cost of transporting the vehicle to one of AutoMax’s facilities is included in the PIP fee. AutoMax may incur increased fees, which it may not be able to pass on to its vehicle sellers. A material increase in transportation rates could have a material impact on AutoMax’s operating results. Volatility in fuel, commodity, and used car prices could have a material adverse effect on its revenues and revenue growth rates in future periods.

Conditions in Israel, including the ongoing war between Israel and Hamas, and other conflicts in the region, may adversely affect AutoMax’s operations and limit its ability to market its products, which would lead to a decrease in revenues.

AutoMax is incorporated under the laws of the State of Israel, and its employees, including management members, operate from their headquarters that are located in Jerusalem, Israel. In addition, all its officers and directors are residents of Israel. Accordingly, AutoMax’s business and operations are directly affected by economic, political, geopolitical and military conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries and terrorist organizations active in the region. These conflicts have involved missile strikes, hostile infiltrations and terrorism against civilian targets in various parts of Israel, which have negatively affected business conditions in Israel.

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In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and terror attacks. Since the commencement of these events, there have been additional active hostilities, including with Hezbollah in Lebanon, the Houthi movement which controls parts of Yemen, and most recently with Iran. As a result of the war, operations at two of AutoMax’s branch locations were closed permanently.

The intensity and duration of Israel’s current war against Hamas is difficult to predict, as are such war’s economic implications on AutoMax’s business and operations and on Israel’s economy in general. These events may be intertwined with wider macroeconomic indications of a deterioration of Israel’s economic standing, for instance, a downgrade in Israel’s credit rating by rating agencies, which may have a material adverse effect on AutoMax and its ability to effectively conduct its operations. As many of AutoMax’s customers purchase their vehicles through credit financing, an adverse material effect on Israel’s economy could impact the ability to obtain such credit financing on favorable terms, which in turn could lead to a decrease in AutoMax sales.

In connection with the Israeli security cabinet’s declaration of war against Hamas and possible hostilities with other organizations, several hundred thousand Israeli military reservists were drafted to perform immediate military service. As of April 23, 2025, none of AutoMax’s current employees have been called to active military duty. AutoMax also relies on service providers located in Israel and has entered into certain agreements with Israeli counterparties. AutoMax’s employees and consultants in Israel, in addition to employees of AutoMax’s service providers located in Israel, may be called for service in the current or future wars or other armed conflicts with Hamas and others, and such persons may be absent for an extended period of time. As a result, its operations may be disrupted by such absences, which disruption may materially and adversely affect its business and results of operations. Additionally, the absence of employees of AutoMax’s Israeli suppliers and contract manufacturers due to their military service in the current or future wars or other armed conflicts may disrupt their operations, which in turn may materially and adversely affect its ability to deliver or provide products and services to customers.

In the event that AutoMax’s facilities are damaged as a result of hostile actions, or hostilities otherwise disrupt its ongoing operations, its ability to deliver or provide products and services in a timely manner to meet AutoMax’s contractual obligations towards customers and vendors could be materially and adversely affected. AutoMax’s commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of certain direct damages that are caused by terrorist attacks or acts of war, AutoMax cannot assure you that such government coverage will be maintained or that it will sufficiently cover its potential damages. Any losses or damages incurred by AutoMax could have a material adverse effect on its business.

AutoMax is a holding company and as a result are dependent on its operating subsidiaries to generate sufficient cash to fund its ongoing operations.

The continuation of AutoMax’s activities depends on its operating subsidiaries’ ability to generate sufficient cash and raise additional financial sources in order to develop its activities. The loss of operations or not sufficient operations of its subsidiaries could have a material adverse effect on its business, sales and results of operations. There is no certainty that AutoMax will succeed in raising funds in the required amount, or at all.

AutoMax’s business is sensitive to changes in consumer preferences and global trends in the automotive industry.

AutoMax may be affected by various global trends and/or events in the environment in which it operates, on which AutoMax has no ability to influence, which in turn may affect its operating results. The vehicle manufacturing industry has been characterized in recent years by significant technological progress, especially in the fields of vehicles driven by alternative energy sources and autonomous vehicles.

In addition, there is a noticeable increase in the cooperative economy trend and a trend of decreasing the environmental damages caused by the use of vehicles, which are expressed, inter alia, by increase in demand for the use of electric and hybrid vehicles, by the development of new models of vehicle’ sharing, by short-term vehicle rentals, in a pay-as-you-go model, and by shared travels. Alongside this, major cities in Europe are promoting processes intended to reduce and even limit completely the entrance of polluting vehicles into the cities. This trend has recently expanded to Israel, as part of which, restrictions were imposed on the entry of polluting vehicles into Jerusalem and Haifa, and potentially in other cities.

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The developments described above may create uncertainty in the long term regarding the motorization level as well as the growth rate of the vehicle manufacturing industry in which manufacturers whose vehicles AutoMax imports are operating, as well as reducing, in the long term, the demand for car ownership, which in turn may influence AutoMax’s activity and affect AutoMax’s business results.

AutoMax may experience credit default or losses if AutoMax’s customers default from the financing it provides.

As for the date of the report, through certain subsidiaries, AutoMax provides its corporate customers with credit lines in low volumes (by way of payment in installments). However, as is customary in the automotive industry, it is possible that according to AutoMax’s management decision, sales made to its corporate customers will be partially made on credit. In such cases, AutoMax may be exposed to the risk that these customers will not meet their obligations to repay the full amount of the loan made available to them for the purpose of purchasing the vehicles. As of April 23, 2025, these credit lines are in volumes which are immaterial to AutoMax.

AutoMax’s operations are subject to a wide range of governmental regulations and laws. Its failure to comply with or any changes to these regulations and laws, could adversely affect AutoMax’s business, sales, results of operations and financial condition.

AutoMax operates in a highly regulated industry, and it is subject to various local laws and regulations. Additionally, the automotive industry in Israel is characterized by vast regulation and strict regulatory requirements, including the standardization requirements, which may affect AutoMax’s expenditures and its operational results. Changes in regulatory arrangements that apply to the automotive industry, such as changes in government taxation policy, changes in the policy regarding the classification of vehicles as private or commercial for tax purposes or changes in the policy regarding the value of use of a personal vehicle provided by the employer for the use of the employee, or changes in the standards of vehicles permitted to be imported into Israel, may, in AutoMax’s estimation, lead to changes in demand for various types of vehicles, and affect in the long term the results of its activity. In addition, regulatory changes introduced following the recommendations of the Committee for the Increase of Competitiveness, as well as changes in the legal provisions that will completely remove or ease the barriers to entry into the industry, will allow the entry of additional parallel importers, increase competition and, as a result, may cause a decrease in AutoMax’s revenues and profitability.

AutoMax operates in a highly competitive industry. Failure to develop and execute strategies to remain a preferred importer and seller of vehicles and to adapt to the increasing use of digital and online tools to market, buy, sell, lease and finance vehicles could adversely affect its business, sales and results of operations.

The automotive imports industry is highly competitive, including publicly and privately owned car importers, which import the same vehicle brands in a variety of models. The value chain in the automotive industry includes international vehicle manufactures and importers. There are approximately 25 official import groups in Israel, representing various manufactures, and responsible for approximately 97% of the automotive imports to Israel. In addition, there are a few dozen parallel importers, who are collectively responsible for approximately 3% of the imports. AutoMax’s competition is dynamic and changes annually based on the selection of vehicles its choses to import and hold in inventory for that year. AutoMax’s selection of product lineup is done annually and determined by a comprehensive analysis of various factors, including vehicle availability in the importing country, local market demand, tax advantages, currency exchange rates, and other relevant factors. Certain of AutoMax’s competitors have access to more capital than it, which may provide them with an advantage in forging relationships or providing customers with more competitive prices. Certain car dealers leverage relationships with vehicle manufacturers to sell used cars as “certified pre-owned”, which could provide such competitors with an advantage over AutoMax.

Additionally, competitors are shifting more focus to online sales, as this is becoming a consumer trend. While AutoMax currently provides online sale services, there is no guarantee it will be successful in transitioning to online tools, for buying, selling, leasing and financing vehicles which could adversely affect its business, sales and results of operations.

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AutoMax’s agreement with Al Damani is conditioned upon receiving the required regulatory approvals.

AutoMax’s strategic agreements with Al Damani New Motor Vehicles Trading LLC, or Al Damani, is contingent on obtaining necessary regulatory approvals, which have not yet been fully secured. These approvals are crucial for importing and distributing vehicles in Israel. Delays or failures in securing these approvals could adversely impact AutoMax’s revenues, market expansion, and competitive position.

On March 13, 2023, Dalhom AutoMax Ltd., or Dalhom AutoMax, entered into a direct import agreement with Al Damani, a United Arab Emirates manufacturer, to import, distribute, sale and market fully electric Al Damani vehicles in Israel. Dalhom AutoMax’s obligations under such direct importer agreement are conditional on receiving the required regulatory approvals from the Ministry of Transportation for the import of vehicles manufacturer by Al Damani to Israel, which have not yet been granted as of April 23, 2025.

The failure to secure these regulatory approvals could delay or prevent the importation and sale of Al Damani vehicles in Israel, which in turn may negatively impact AutoMax’s revenue and plans. Additionally, any changes in regulatory requirements or delays in the approval process could increase AutoMax’s operational costs and affect its competitive position in the market, which could adversely affect its business, sales and results of operations.

New laws, regulations, or governmental policies in response to climate change, including fuel economy and greenhouse gas emission standards, or changes to existing standards, could adversely impact AutoMax’s business, results of operations, financial condition, cash flow, and prospects.

AutoMax is subject to a variety of local laws and regulations that pertain to the environment. Its business involves the use, handling and disposal of hazardous materials and wastes, including motor oil, gasoline, solvents, lubricants, paints and substances. AutoMax is subject to compliance with regulations concerning, among other things, the operation of underground and above-ground gasoline storage tanks, gasoline dispensing equipment, above-ground oil tanks and automotive paint booths.

The Clean Air Law, 5768-2008, or the Clean Air Law, authorizes the Israeli Minister of Environmental Protection, or the Minister to set provisions regarding the prevention and reduction of air pollution from mobile emission sources, in accordance with values commonly accepted in the developed countries of the world. The Clean Air Law determines that a person shall not sell, import or market a mobile emission source, except in accordance with the provisions set by the Minister. This law also states that it is mandatory to include the degree of air pollution of the vehicle and data regarding the fuel consumption of the vehicle in any new vehicle’ advertisement, as part of the advertisement itself; and, in addition, said data must be displayed by any entity engaged in the business of selling and marketing new vehicles within its premises. Similar provisions were established as part of the Clean Air Regulations (disclosure of air pollution data from a motor vehicle in an advertisement), 5769-2009, as well.

To the best of AutoMax’s understanding, it complies with the provisions of the Clean Air Law and the regulations established by virtue thereof and includes the required data in its publications. In addition, the Clean Air Regulations (air pollution from vehicles), 5772-2012 determines what constitutes unreasonable air pollution from a vehicle and regulates the obligation to carry out an air pollution test for a vehicle before registering it, issuing a license, and renewing it. It should be noted that new vehicles imported to Israel undergo inspections to verify their suitability for delivery and registration.

In addition, there is a noticeable increase in the cooperative economy trend and a trend of decreasing the environmental damages caused by the use of vehicles, which are expressed, inter alia, by increase in demand for the use of electric and hybrid vehicles, by the development of new models of vehicle’ sharing, by short-term vehicle rentals, in a pay-as-you-go model, and by shared travels. Alongside this, major cities in Europe are promoting processes intended to reduce and even limit completely the entrance of polluting vehicles into the cities. This trend has recently expanded to Israel, as part of which, restrictions were imposed on the entry of polluting vehicles into Jerusalem and Haifa, and potentially, in other cities. The developments described above may create uncertainty in the long term regarding the motorization level as well as the growth rate of the vehicle manufacturing industry in which manufacturers whose vehicles AutoMax imports are operating, as well as reducing, in the long term, the demand for car ownership, and thus influence AutoMax’s activity.

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Failure to maintain the security and functionality of AutoMax’s information systems, or to defend against or otherwise prevent a cybersecurity attack or data breach, could adversely affect its business, financial position, results of operations and liquidity.

AutoMax’s activities are linked by information systems, including telecommunications, the internet, network communications, emails and various computer hardware and software applications. As such, it could suffer damage to the aforementioned communication systems. In the current environment, there are numerous and evolving risks with regards to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. While AutoMax implements various measures to minimize and even prevent these risks, including having a detailed action policy, it cannot guarantee no cyber-attack may be carried out. Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees, customers, sub-contractors, agents, distributors or others to disclose information or unwittingly provide access to systems or data.

Although AutoMax has invested in measures to reduce these risks, it can provide no assurance that its current IT systems are fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats. The cost and operational consequences of implementing, maintaining and enhancing further data or system protection measures could increase significantly to overcome increasingly intense, complex, and sophisticated global cyber threats.

Despite its best efforts, AutoMax is not fully insulated from data breaches and system disruptions and, accordingly, it has experienced and expects to continue to experience actual or attempted cyberattacks of its IT networks. To the best of AutoMax’s knowledge, no cybersecurity incidents were detected. Although no attempted cyberattacks has had a material adverse effect on its operations or financial condition thus far, AutoMax cannot guarantee that any such incidents will not have a material adverse effect on AutoMax’s operations or financial condition in the future.

As such, its tools and servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with the AutoMax computer systems and tools located at its facility, at cloud services or at customer sites, or could be subject to system failures or malfunctions for other reasons. Increased information technology security threats and more sophisticated computer crime pose a risk to the security of AutoMax’s systems and networks and the confidentiality, availability and integrity of AutoMax’s data or customer data. Cybersecurity attacks could also include attacks targeting the security, integrity and/or reliability of the hardware and software installed in its products. System failures or malfunctioning could disrupt AutoMax’s operations and its ability to timely and accurately process and report key components of its financial results.

Environmental, social and corporate governance, or ESG issues, including those related to climate change and sustainability, may have an adverse effect on AutoMax’s business, financial condition and results of operations and damage AutoMax’s reputation.

Public companies are facing increasing scrutiny related to ESG practices and disclosures from certain investors, capital providers, shareholder advocacy groups, other market participants, and other stakeholder groups. For example, certain institutional and individual investors have requested various ESG-related information and disclosures as they increasingly incorporate ESG criteria in making investment and voting decisions. With this increased focus, public reporting regarding ESG practices is becoming more broadly expected. Such increased scrutiny may result in increased costs, enhanced compliance or disclosure obligations, or other adverse impacts on AutoMax’s business, financial condition or results of operations. If AutoMax’s ESG practices and reporting do not meet investor or other stakeholder expectations, which continue to evolve, AutoMax may be subject to investor or regulator engagement regarding such matters.

In March 2024, the SEC published climate disclosure rules, subject to which we, upon consummation of the Merger, would be required to disclose certain climate-related information such as governance of climate-related risks and relevant risk management processes, among other things. While the final rules have yet to be implemented and are subject to ongoing litigation, AutoMax cannot predict the ultimate scope and impact these rules will have on AutoMax’s business. If the SEC’s climate disclosure rules are implemented, they would likely result in additional legal, accounting and financial compliance and increased general and administrative expenses. Moreover, this could result in increased management time and attention to ensure AutoMax are compliant with the regulations and expectations.

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Changes in local or foreign tax laws, changing interpretations of existing tax laws, or adverse determinations by tax authorities could increase AutoMax’s tax burden or otherwise adversely affect its results of operations, and financial condition.

A certain degree of judgment is required in evaluating its tax positions and determining its provision for income taxes. In the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. As AutoMax operates in numerous taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not uncommon for tax authorities in different countries to have conflicting views. In addition, tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. For example, the work being carried out by the OECD on base erosion and profit shifting as a response to increasing globalization of trade could result in changes in tax treaties or the introduction of new legislation that could impose an additional tax on businesses. As a result of changes to laws or interpretations, AutoMax’s tax positions could be challenged, and its income tax expenses could increase in the future.

There can be no assurance that its effective tax rate for the year ended December 31, 2024 will not change over time as a result of changes in corporate income tax rates or other changes in the tax laws of the jurisdictions in which AutoMax operates. Any changes in tax laws could have an adverse impact on its financial results.

AutoMax’s business is subject to a variety of local and international laws regarding privacy and data protection obligations.

AutoMax collects, uses, maintains and otherwise processes certain data about clients, suppliers, candidates and employees. AutoMax’s ability to collect, use, maintain or otherwise process personal data has been, and could be further, restricted by existing and new laws and regulations relating to privacy and data collection and protection, including the Israeli Privacy Protection Law, 5741-1981, or the Privacy Law. AutoMax implements measures for the purpose of adapting the relevant aspects of its activity to the provisions applicable subject to the Privacy Protection Law and the regulations enacted by virtue thereof, and for this purpose it contracted with a company that manages its information security and privacy protection aspects.

AutoMax may not be able to satisfy its debt obligations upon the occurrence of a change in control under its debt instruments or to obtain additional financing based on existing debt.

AutoMax intends to continue making investments to support its business growth and will likely require additional funds to respond to business challenges and opportunities, including the need to purchase inventory of vehicles, improve AutoMax’s operating infrastructure to support volume growth or acquire complementary businesses and technologies. Accordingly, AutoMax may need to engage in equity or debt financing to secure additional funds if its existing sources of cash and any funds generated from operations do not provide it with sufficient capital. If AutoMax raises additional funds through future issuances of equity or convertible debt securities, its existing stockholders could suffer significant dilution, and any new equity securities AutoMax issues could have rights, preferences, and privileges superior to those of holders of its other classes of shares.

Any future debt financing that AutoMax may secure in the future could involve restrictive covenants relating to its capital raising activities and other financial and operational matters, which may make it more difficult for AutoMax to obtain additional capital and to pursue business opportunities, including potential acquisitions. AutoMax may not be able to obtain additional financing on terms favorable to it, if at all. If AutoMax is unable to obtain adequate financing or financing on terms satisfactory to it when it requires it, AutoMax’s ability to continue to support its business growth and to respond to business challenges and opportunities could be significantly impaired, and its business may be adversely affected.

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AutoMax’s collection, use, storage, disclosure, transfer and other processing of personal information, could give rise to significant costs, liabilities and other risks, including as a result of investigations, inquiries, litigation, fines, legislative and regulatory action and negative press about its privacy and data protection practices, which may harm AutoMax’s business, financial conditions, results of operations and prospects.

AutoMax’s operations are dependent on secure processing, transmission, storing on its computers and networks proprietary and confidential information. AutoMax uses various third-party storage platforms which could make it more vulnerable to such cyberattacks. Furthermore, AutoMax relies on digital technologies to process payments, both on its networks and third-party systems.

Privacy laws are ever changing and continue to create new individual privacy rights, including regulations regarding the manner in which such personal information should be handled. As part of its ongoing operations, AutoMax gathers certain personal information from customers, vendors, manufactures and others. AutoMax has invested in implementing security controls and adapting its systems, amongst others, by engaging Integrity Consulting and Risk Management (I.C.M.) Ltd., which manages information security and privacy protection within the company. However, any misuse of such information or storing it inappropriately and not adequately protecting it could lead to inquiries, litigation, fines, legislative and regulatory action against AutoMax.

In light of the stated, there is a certain dependence on the information security, backup and retrieval capabilities of those providers. In this aspect, AutoMax has a system of backups, designed to create a recovery mechanism from a situation where one backup environment cannot, for whatever reason, support the provision of services.

Provisions of Israeli law may make it easy for AutoMax’s shareholders to demand that AutoMax convenes a shareholders meeting, and/or allow shareholders to convene a shareholder meeting without the consent of AutoMax’s management, which may disrupt AutoMax’s management’s ability to run the company.

Israeli law may allow any one or more of AutoMax’s shareholders holding, in the aggregate, at least 5% of AutoMax’s voting rights to demand that AutoMax convenes a special shareholders meeting. Also, in the event that AutoMax chooses not to convene a special shareholders meeting pursuant to such a request, Sections 64-65 of the Companies Law provide, among others, that such shareholders may independently convene a special shareholders meeting within three months (or under court’s ruling) and require AutoMax to cover the costs, within reason, and as a result thereof, AutoMax’s directors might be required to repay such costs. If AutoMax’s shareholders decide to exercise these rights in a way inconsistent with AutoMax’s management’s strategic plans, AutoMax’s management’s ability to run the company may be disrupted, and this process may entail significant costs to AutoMax.

It may be difficult to enforce a judgment of a United States court against us and AutoMax’s officers and directors in Israel or the United States, to assert United States securities laws claims in Israel or to serve process on AutoMax’s officers and directors and these experts.

AutoMax is incorporated in Israel and the company’s corporate headquarters are located in Israel. All of AutoMax’s executive officers and directors are located in Israel. All of AutoMax’s assets and most of the assets of these persons are located in Israel. Service of process upon AutoMax or the non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against AutoMax or the non-U.S. directors and executive officers may be difficult to obtain within the United States. AutoMax has been informed by AutoMax’s legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted in Israel, or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against AutoMax or AutoMax’s non-U.S. officers and directors because Israel may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israeli courts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against AutoMax or AutoMax’s non-U.S. officers and directors.

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Moreover, an Israeli court will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases), if its enforcement is likely to prejudice the sovereignty or security of the State of Israel, if it was obtained by fraud or in the absence of due process, if it is at variance with another valid judgment that was given in the same matter between the same parties, or if a suit in the same matter between the same parties was pending before a court or tribunal in Israel at the time the foreign action was brought.

Risks Related to the Combined Company

The combined company’s success depends on the experience and expertise of its management team and board of directors.

We are a pharmaceutical company with limited experience outside of the drug development and healthcare industries, while AutoMax is engaged in the business of importing and distributing vehicles. These are distinct and unrelated businesses requiring different operational expertise, industry knowledge, and strategic approaches. Following the Merger, we will become the parent company of AutoMax, and the two companies will operate as the combined company. AutoMax is anticipated to continue to operate its current business with its own board of directors and management; however, the management team of the combined company will be the same as our existing management team, and the combined company’s board of directors will have a minority representation from AutoMax’s management. Mr. Amitay Weiss, who is our Chairman and AutoMax’s Chairman, will be the Chairman of the combined company after the Merger and has experience in both industries, which may help facilitate the oversight of AutoMax’s operations. While the combined company’s management team has experience in the pharmaceutical industry, its experience in the automotive sector is limited and may present challenges in effectively overseeing AutoMax’s operations following the Merger. Although AutoMax is expected to retain its current management team, which possesses automotive experience, the combined company’s overall unfamiliarity with the automotive industry may impact its ability to effectively oversee and support AutoMax’s operations, and achieve the full extent of the expected benefits of the Merger. This, in turn, could adversely affect the financial performance and successful operations of the combined company.

The combined company does not anticipate paying any cash dividends on the combined company’s ordinary shares in the foreseeable future.

Neither we nor AutoMax have ever declared or paid cash dividends on their respective ordinary shares. In accordance with the Trust Deed, until the Series B Bonds are repaid in full, AutoMax will not distribute or pay any cash dividends. According to the terms of the Series B Bonds and the Trust Deed, the Series B Bonds will be due for principal repayment in four (4) unequal annual installments, which will be paid annual as of February 28, 2023 until 2026, inclusive, such that the first payment that was made on February 28, 2023 constituted 10% of the aggregate principal amount of the Series B Bonds, the second payment, that was made on February 28, 2024, constituted 15% of the aggregate principal amount of the Series B Bonds, the third payment, that was made on February 28, 2025, will constitute 30% of the aggregate principal amount of the Series B Bonds, and the fourth and final payment, due on February 28, 2026, will constitute 45% of the aggregate principal amount of the Series B Bonds. Following the closing of the Merger, the Series B Bonds will remain outstanding and subject to repayment in accordance with the terms of the Trust Deed.

Neither we nor AutoMax anticipate paying any cash dividends on the combined company’s ordinary shares in the foreseeable future. It is anticipated that the combined company will retain all available funds and any future earnings to fund the development and growth of its business. As a result, capital appreciation, if any, of the combined company’s ordinary shares will be the combined company’s shareholders’ sole source of gain for the foreseeable future.

Maintaining and improving the combined company’s financial controls and the requirements of being a public company may strain the combined company’s resources, divert management’s attention and affect its ability to attract and retain qualified board members.

As a public company, the combined company will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and Nasdaq rules. The requirements of these rules and regulations will increase the combined company’s legal and financial compliance costs, make some activities more difficult, time-consuming or costly and place strain on its personnel, systems and resources. The Exchange Act requires, among other things, that the combined company file annual, quarterly and current reports with respect to its business and financial condition.

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The Sarbanes-Oxley Act requires, among other things, that the combined company maintain effective disclosure controls and procedures and internal control over financial reporting. Ensuring that the combined company will have adequate internal financial and accounting controls and procedures in place is a costly and time-consuming effort that needs to be re-evaluated frequently.

We and AutoMax do not expect that the combined company will have an internal audit group, and the combined company may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Implementing any appropriate changes to the combined company’s internal controls may require specific compliance training for the combined company’s directors, officers and employees, entail substantial costs, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of the combined company’s internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase the combined company’s operating costs and could materially impair its ability to operate its business. Moreover, effective internal controls are necessary for the combined company to produce reliable financial reports and are important to help prevent fraud.

In accordance with Nasdaq rules, the combined company will be required to maintain a majority independent board of directors. The various rules and regulations applicable to public companies make it more difficult and more expensive for the combined company to maintain directors’ and officers’ liability insurance, and the combined company may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. If the combined company is unable to maintain adequate directors’ and officers’ insurance, its ability to recruit and retain qualified officers and directors will be significantly curtailed.

We and AutoMax expect that the rules and regulations applicable to public companies will result in the combined company incurring substantial legal and financial compliance costs. These costs will decrease the combined company’s net income or increase its net loss and may require it to reduce costs in other areas of its business.

If securities or industry analysts do not publish research or publish unfavorable research about the combined company’s business, its share price and trading volume could decline.

The trading market for the combined company’s securities will depend in part on the research and reports that securities or industry analysts publish about the combined company. The combined company may never obtain sufficient research coverage by securities and industry analysts. If no sufficient securities or industry analysts commence coverage of the combined company, the trading price for the combined company’s shares could be negatively impacted. If the combined company obtains sufficient securities or industry analyst coverage and if one or more of the analysts who covers it downgrades the combined company’s shares or publishes inaccurate or unfavorable research about the combined company’s business, its share price would likely decline. If one or more of these analysts ceases coverage of the combined company or fails to publish reports regularly, demand for the combined company’s shares could decrease, which could cause its share price and trading volume to decline.

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on the combined company’s share price.

Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC require an annual management assessment of the effectiveness of its internal control over financial reporting. AutoMax maintains disclosure controls and procedures and internal control over financial reporting pursuant to the Israeli Securities Law in its Annual and Interim Filings, and has complied with applicable Israeli reporting requirements. To date, AutoMax has never conducted a review of internal controls over financial reporting for the purpose of providing the reports required by the Sarbanes-Oxley Act. During review and testing, AutoMax may identify deficiencies and be unable to remediate them on a timely basis.

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If the combined company fails to maintain the adequacy of its internal control over financial reporting as such standards are modified, supplemented or amended from time to time, it may not be able to ensure that it can conclude on an ongoing basis that it has effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC. If the combined company cannot in the future favorably assess the effectiveness of its internal control over financial reporting, investor confidence in the reliability of its financial reports may be adversely affected, which could have a material adverse effect on the combined company’s share price.

Sales of a substantial number of shares of the combined company in the public market by its existing shareholders could cause its share price to decline.

Sales of a substantial number of shares of the combined company in the public market or the perception that these sales might occur, could depress the market price of its securities and could impair its ability to raise capital through the sale of additional equity securities. Neither we nor AutoMax is able to predict the effect that sales may have on the prevailing market price of the combined company’s securities.

The combined company’s securities could be delisted from Nasdaq if it does not comply with Nasdaq’s listing standards.

Pursuant to Nasdaq rules, consummation of the Merger requires the combined company to submit listing of additional securities application and, at the time of the Merger, meet all of the criteria applicable to a company initially requesting listing. While we and AutoMax intend to obtain listing status for the combined company and maintain the same, no guarantees can be made about the combined company’s ability to do so.

If the combined company’s securities are delisted by Nasdaq, its securities may be eligible to trade on the OTC Bulletin Board or another over-the-counter market. Any such alternative would likely result in it being more difficult for the combined company to raise additional capital through the public or private sale of equity securities and for investors to dispose of or obtain accurate quotations as to the market value of, the combined company’s securities. In addition, there can be no assurance that the combined company’s securities would be eligible for trading on any such alternative exchange or markets.

Future sales and issuances of the combined company’s ordinary shares or rights to purchase ordinary shares by it, including pursuant to its equity incentive plans, could result in additional dilution of the percentage ownership of its shareholders and could cause its share price to decline.

The combined company will not be generally restricted from issuing additional ordinary shares, including any securities that are convertible into or exchangeable for, or that represent the right to receive, ordinary shares. The market price of the combined company’s ordinary shares could decline as a result of sales of shares or securities that are convertible into or exchangeable for, or that represent the right to receive, shares of the combined company or the perception that such sales could occur.

We and AutoMax expect that significant additional capital will be needed in the future to continue the combined company’s planned operations and costs associated with operating as a public company. To the extent the combined company raises additional capital by issuing equity or convertible securities, its existing shareholders may experience substantial dilution. The combined company may sell ordinary shares, convertible securities or other equity securities in one or more transactions at prices and in a manner determined from time to time by its board of directors. If the combined company sells ordinary shares, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to its existing shareholders, and new investors could gain rights superior to its existing shareholders.

In addition, the combined company may grant or provide for the grant of rights to purchase shares of its ordinary shares pursuant to the combined company’s equity incentive plans. Increases in the number of shares available for future grant or purchase pursuant to the combined company’s equity incentive plans may result in additional dilution, which could cause the combined company’s share price to decline.

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ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Our legal and commercial name is SciSparc Ltd. We were incorporated in the State of Israel on August 23, 2004, and are subject to the Companies Law. Our registered office and principal place of business is located at 20 Raul Wallenberg St., Tower A, 2nd Floor, Tel Aviv 6971916, Israel. Our telephone number in Israel is: +972-73-3447180.

Our website address is http://www.scisparc.com. The information contained on our website or available through our website is not incorporated by reference into and should not be considered a part of this Annual Report, and the reference to our website in this Annual Report is an inactive textual reference only. The SEC also maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our filings with the SEC will also be available to the public through the SEC’s website at www.sec.gov.

We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us from compliance with certain laws and regulations of the SEC, including the proxy rules and the short-swing profits recapture rules. In addition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies registered under the Exchange Act.

Our capital expenditures for 2024, 2023 and 2022 amounted to $8,000, $0 and $9,200, respectively. These expenditures were primarily for purchases of fixed assets. Our purchases of fixed assets primarily include, computers, and equipment used for the development of our products, and we financed these expenditures primarily from cash on hand.

B. Business Overview

Overview

We are a specialty clinical-stage pharmaceutical company. Our focus is creating and enhancing a portfolio of technologies and assets based on cannabinoid therapies. With this focus, we are currently engaged in the following development programs based on THC, and/or CBD and/or other CBR agonists: SCI-110 for the treatment of TS and for the treatment of Alzheimer’s disease and agitation; and SCI-210 for the treatment of ASD. We also have a 50.86% controlling stake in our subsidiary, SciSparc Nutraceuticals Inc., or SciSparc Nutraceuticals, whose business focuses on the sale of hemp seed oil-based products and others on Amazon Marketplace.

On August 13, 2024, we entered into the license agreement to outlicense our SCI-160 program, which was a novel pharmaceutical preparation containing a cannabinoid receptor type 2 agonist for the treatment of pain, to Polyrizon. Therefore, we are no longer engaged in development of this pharmaceutical product.

SCI-110 is a proprietary drug candidate based on two components: (1) THC, which is the major cannabinoid molecule in the cannabis plant, and (2) CannAmide™, a proprietary PEA, formulation. PEA is an endogenous fatty acid amide that belongs to the class of nuclear factor agonists, which are molecules that regulate the expression of genes. We believe that the combination of THC and PEA may induce a reaction known as the “sparing effect,” which has strong potential to treat various diseases of the central nervous system such as TS and Alzheimer’s disease and agitation.

SCI-210 is a proprietary drug candidate based on two components: (1) CBD, and (2) CannAmide™. We believe that the combination of CBD and PEA may also induce a sparing effect reaction, which has strong potential to treat various diseases such as ASD and SE.

Pursuant to the positive results obtained in a phase IIa TS study conducted at Yale School of Medicine, we developed a regulatory dossier that was submitted to the German Federal Institute for Drugs and Medical Devices, or BfArM, and the Israeli Ministry of Health, or MoH, and the FDA for our SCI-110 program for TS. We plan to submit this regulatory dossier to the FDA.

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In February 2021, we announced an agreement with The Israeli Medical Center for Alzheimer’s, to conduct a phase IIa clinical trial to evaluate the safety, tolerability and efficacy of SCI-110 in patients with Alzheimer’s disease and agitation using our proprietary cannabinoid-based technology. In December 2021, The Israeli Medical Center for Alzheimer’s recruited the first patient to participate in the phase IIa clinical trial. In June 2023, we announced positive topline results from our Phase IIa clinical trial of SCI-110 in patients with Alzheimer’s disease and agitation at the Israeli Medical Center for Alzheimer’s, suggesting that SCI-110 is safe and tolerable while significantly improving agitation symptoms over time in the elderly population with Alzheimer’s disease. This Phase IIa clinical trial was an open label study, which included 18 patients diagnosed with Alzheimer’s disease and agitation, to evaluate the safety, tolerability and efficacy trends of twice daily oral administration of SCI-110. Results showed that the clinical trial met its primary endpoints of the number of drop-out subjects due to poor tolerability and the number of clinical trial treatment-related adverse events, with no SCI-110 related safety issues observed and no dropouts from the clinical trial due to clinical trial medication. Specifically, SCI-110 did not cause delirium, oversedation, hypotension or falls. In addition, analysis of the clinical trial results showed that the clinical trial also met its secondary end point of change from baseline to end of treatment in agitation measured by the Cohen Mansfield Agitation Inventory where out of the fifteen patients treated with SCI-110 at least two consecutive times during the trial, thirteen of them at doses ranging between 7.5mg-12.5mg/day showed amelioration in agitation with no need to use rescue medication to control agitation. Although not significant, in the exploratory endpoints, eleven patients reduced food intake and showed feeding difficulties, as measured by the Edinburgh Feeding Evaluation in Dementia scale. There was not an effect observed resulting from the treatment on cognition and sleep quality, as measured by the Mini Mental State Examination and by the Sleep Order Inventory, respectively.

On August 8, 2022, we announced that we have received approval from the MoH and Ethics Committee of Soroka Medical Center to conduct our clinical trial for SCI-210 in patients suffering ASD. On January 9, 2023, we signed an agreement with Soroka Medical Center to conduct the clinical trial with pediatric patients suffering from ASD. Our regulatory request to carry out this clinical trial was granted by the Israeli Medical Cannabis Agency, or IMCA, on July 10, 2023. This randomized, double-blind placebo-controlled clinical trial to evaluate the potential efficacy, safety and tolerability of SCI-210 in treating patients with ASD was initiated in July 2023.

Our Pharmaceutical Drug Development Programs

SCI-110 - TS, Alzheimer’s disease and agitation

We believe that our pharmaceutical product candidate, SCI-110, offers a safe and potentially effective solution for a variety of medical concerns. Despite being in its early phases of clinical testing, the application of SCI-110 has extended into several treatments, including TS and Alzheimer’s disease and agitation.

TS

TS is a neuropsychiatric disorder, characterized by physical (motor) tics and vocal (phonic) tics. Motor tics generally precede the development of phonic tics in TS, and the onset of simple tics usually predates that of complex tics. TS ranges from mild symptoms to loud noises and forceful movements that can result in self-injury (e.g. punching oneself in the face, repeating other people’s words or involuntary swearing). Many with TS experience additional neurobehavioral problems and comorbidities including inattention, hyperactivity and impulsivity, anger control problems, sleep difficulties, and obsessive-compulsive symptoms. Pharmacotherapy is used when symptoms are more severe and interfere with the ability to function. Furthermore, according to the CDC, in most cases, the prevalence of tics decreases during adolescence and early adulthood, and sometimes disappears entirely; therefore, there are a limited number of adults with TS and it is usually manifested mainly through moderate to severe symptoms.

Market Size

Rising healthcare expenditure, favorable government initiatives, the increase in use of telemedicine and increasing aging population will drive the TS treatment market. North America was the largest region in the TS treatment market, accounting for 47.72% or $1.06 billion of the total in 2023. It was followed by Western Europe, Asia Pacific and then other regions. Going forward, the fastest-growing regions in the TS treatment market will be Asia-Pacific and Western Europe, where growth will be at compound annual growth rates, or CAGR, of 7.21% and 6.26%, respectively. These will be followed by North America and South America, where the markets are expected to grow at CAGRs of 5.96% and 5.14%, respectively.

The global TS treatment market size was approximately $2.23 billion in 2023 and is expected to reach $2.98 billion by 2028.

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According to the CDC, the prevalence of moderate to severe TS is reported to be 44%, indicating a significant portion of individuals experiencing notable symptoms of the condition. Interestingly, adolescents between the ages of 12 and 17 show a more than twofold likelihood of being diagnosed with TS compared to children aged 6 to 11. It highlights the impact of TS on various age groups. It emphasizes the substantial demand for effective treatments within the TS treatment market to address the diverse needs of individuals with the condition.

According to the CDC, 83% of children diagnosed with TS also have at least one additional mental, behavioral, or developmental disorder that serves as a driver for the TS treatment market.

Current Treatment

Pharmacological intervention is considered the first line of therapy for TS, but is reserved for more severe symptoms that interfere with the individual’s ability to function. Today, a full class of drugs that interact with dopamine and non-dopamine systems in the brain are used in the treatment of TS symptoms. Although as of the date of this Annual Report, the FDA has approved only two pharmacological treatments (for adult TS- haloperidol and pimozide – these treatments have a “black box warning”. Many drugs approved or off-label to treat TS are limited to the treatment of a narrow range of TS symptoms (mainly tics), and are associated with severe side effects, both of which limit their utility. Furthermore, several of these drugs have a black box warning on their label due to their potentially lethal effect. A black box warning is the strictest warning put in the labeling of prescription drugs or drug products by the FDA when there is reasonable evidence of an association of a serious hazard with the drug.

The medications commonly used to treat symptoms of TS can be divided into the following groups:

| ● | Antipsychotic medications: belong to a class of drugs primarily used to manage psychosis (including haloperidol, pimozide and fluphenazine), all of which are associated with severe side effects (including weight gain, sedation, akathisia (a state of agitation, distress, and restlessness), nausea and tardive dyskinesia (involuntary movements of the face and jaw), among others).

| ● | Alpha2 Adrenergic Agonists: belong to a class of drugs primarily used to manage hypertension and migraine headaches prevention (including clonidine and guanfacine), which have limited utility despite common application to children with Attention Deficit Hyperactivity Disorder, or ADHD. Similar to antipsychotic medications, these also are associated with several side effects, and some of them, such as clonidine, might even be lethal.

| ● | Benzodiazepines, an anticonvulsant or antiepileptic drug: belong to a class of drugs primarily used to manage seizures, panic disorder and movement disorders. Of these, Clonazepam is used off-label for the reduction of tics in TS patients, which also has associated negative side effects.

As the currently used medications are managing only a small number of disease symptoms with limited efficacy and questionable safety, there is a clear unmet medical need for the management of TS.

Our SCI-110 Solution for TS

Our SCI-110 platform is a drug candidate for the treatment of TS.

On April 4, 2018, we announced topline results of our Phase IIa investigator-initiated study at Yale University of SCI-110 for the treatment of TS. The study was a single-arm, open-label trial, in which each subject both received one daily treatment of SCI-110 via oral administration and was followed-up for a period of 12 weeks. 16 subjects participated in the study and received SCI-110 at the Yale University Child Study Center at Yale University. The primary endpoint of the study was to assess the performance of SCI-110 in the treatment of adult patients suffering from symptoms of TS, as measured by the Yale Global Tic Severity Scale Total Tic Score, or YGTSS-TTS, the customary index for assessing symptom severity. Treatment was given in a dose titration regimen with a maximum dose of SCI-110 consisting of 10mg dronabinol and 800mg CannAmide™.

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The topline results of the study showed that each of these 16 subjects with medication-refractory TS sustained a significant reduction of tic symptoms (paired t-test: YGTSS-TTS mean difference (mean +/- SD) =7.9+/-8.4, t= 3.7, df=15, p=0.002) from baseline (YGTSS-TTS: 38.4 +/- 8.3) to endpoint YGTSS-TTS: 30.5 +/- 10.9). This resulted in an average tic reduction of 21% across the entire sample of 16 TS subjects. Six of the 16 medication-refractory TS subjects experienced a response to treatment as defined by a reduction in YGTSS-TTS of greater than 25%. Improvement over time with treatment was also observed when generalized linear models were used to analyze repeated measures data on the YGTSS-TTS. In the study, SCI-110 demonstrated no significant effects on comorbid ADHD, anxiety, depression or obsessive-compulsive disorder, or OCD, symptoms. The medication was generally well-tolerated by the subjects with only two subjects stopping treatment early (one due to sedation and another due to lack of improvement in tic symptoms). 12 of the 16 subjects elected to proceed with a 24-week extension phase of the trial, which was also completed.

Following the Phase IIa study, we announced in June 2023 BfArM approval for a Phase IIb clinical trial for SCI-110 in subjects suffering from TS, with a view to such clinical trial being carried out in Germany at the Hannover Medical School. In August 2022, we received MoH approval to conduct the clinical trial in Isarael at Sourasky Medical Center. We also received Ethics Committee approvals in 2022 from Hannover Medical School and Sourasky Medical Center and Internal Review Board approval in 2023 at the Child Study Center at Yale School of Medicine.

In September 2023, we initiated the Phase IIb clinical trial at Sourasky Medical Center. The 86 patients in the clinical trial are randomized to either oral SCI-110 or placebo at a 1:1 ratio. The overall estimated clinical trial duration is 18-24 months from the time all clinical sites are up and running. We may also be required to conduct further preclinical studies in parallel to our clinical plans as part of registration process with the FDA and EMA. Following these clinical trials, if successful, we intend to conduct a Phase III, multinational, multicenter, randomized, double-blind, parallel-group, placebo controlled clinical trial to evaluate the safety, tolerability and efficacy of up to twice daily oral SCI-110 in treating TS.

In June 2016, we submitted a request for orphan drug designation to the FDA for SCI-110 for the treatment of TS. The request is still pending and we are in communication with FDA. Our last communication was in December 2020 when we received a letter from FDA raising a concern that it will be hard to limit the use of the pharmaceutical product to the subset of patients we are pursuing. There is no assurance that we will successfully obtain orphan drug designation for TS. However, in light of the fact that we disagree with this concern expressed by the FDA, we requested a clarification call. In the clarification call conducted on February 2, 2021, we agreed with the FDA concern about our ability to limit the use of the pharmaceutical product to the subset of patients in addition to a safety concern associated with THC treatment in pediatrics population so we suggested to amend our preliminary request and asked to include only adults in the treated population. An amendment letter was discussed and the FDA described what it would want to see in such an amendment. In March we sent our response to the FDA. In June 2021, we received a response from the FDA, explaining that they are unable to grant our request until new information becomes available to support our request for orphan drug designation. We will re-visit the application after we obtain clinical results from our phase IIb clinical trial in TS.

If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as anticipated, we may need to conduct additional clinical trials, provide additional data and information and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval, and complications and risks associated with FDA approval, would substantially increase. In a pre-IND meeting we had with FDA in February 2018, the FDA did not oppose our plans to submit an NDA via the 505(b)(2) pathway relying, in part, on clinical and nonclinical information from literature related to dronabinol and the FDA’s previous finding of safety and efficacy for the reference listed drug (Marinol).

In August 2024, we submitted an Investigational New Drug application with the FDA for our phase IIb clinical trial for SCI-110.

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Alzheimer’s disease and Agitation

Alzheimer’s disease is the most common type of dementia, accounting for over two-thirds of cases of dementia. Alzheimer’s disease is a neurodegenerative disease that causes progressive and disabling impairment of cognitive functions including memory, comprehension, language, attention, reasoning and judgment. Symptoms of Alzheimer’s disease depend on the stage of the disease. Neuropsychiatric symptoms like apathy, social withdrawal, disinhibition, agitation, psychosis, insomnia, poor appetite and wandering are also common in the mid to late stages.

Market Size

It is estimated that the global Alzheimer’s therapeutics market is projected to reach $10.4 billion by 2035 from $4.28 billion in 2023 with a CAGR of 9.23%. The demand for Alzheimer’s therapeutics is accelerating due to a wave of breakthrough drug approvals, increased investment in disease-modifying therapies, and advancements in precision medicine. Researchers are focusing on transforming treatments from symptom management to targeted interventions that slow disease progression. The integration of monoclonal antibodies, small-molecule inhibitors, and gene therapies is expected to reshape treatment efficacy and accessibility.

Current Treatment

The current pharmacological treatment of agitation in Alzheimer’s disease has an unsatisfactory benefit/risk ratio and often involves using off-label drugs. Antipsychotic drugs, which are the most frequently used drugs for this purpose, are only marginally better than placebo.

Our SCI-110 Solution for Alzheimer’s disease and Agitation

The drug product, SCI-110, is a unique proprietary combination of dronabinol (synthetic delta-9-tetrahydrocannabinol (Δ⁹-THC), and PEA.

In February 2021, we signed an agreement with The Israeli Medical Center for Alzheimer’s, to conduct a phase IIa clinical trial to evaluate the safety, tolerability and efficacy of SCI-110 in patients with Alzheimer’s disease and agitation using our proprietary cannabinoid-based technology. The study’s primary objective is the safety of SCI-110 and the secondary objective is the ability of the compound to ameliorate agitation and other behavioral disturbances in patients with Alzheimer’s disease.

This Phase IIa clinical trial was an open label clinical trial, which included 18 patients diagnosed with AD and agitation, to evaluate the safety, tolerability and efficacy trends of twice daily oral administration of SCI-110. Results showed that the clinical trial met its primary endpoints of the number of drop-out subjects due to poor tolerability and the number of clinical trial treatment-related adverse events, with no SCI-110 related safety issues observed and no dropouts from the clinical trial due to clinical trial medication. Specifically, SCI-110 did not cause delirium, oversedation, hypotension or falls. In addition, analysis of the clinical trial results showed that the clinical trial also met its secondary endpoint of change from baseline to end of treatment in agitation measured by the Cohen Mansfield Agitation Inventory, or CMAI, where out of 15 patients treated with SCI-110 at least two consecutive times during the clinical trial, thirteen of them at doses ranging between 7.5mf-12.5mg/day showed amelioration in agitation with no need to use rescue medication to control agitation. CMAI is a standard measure for measuring agitation in people with dementia. The clinical trial showed that these subjects had amelioration in agitation (paired t-test: CMAI mean difference (mean +/- SD) =10.6+/-14.88, t= 2.76, df=14, p=0.015) from baseline (CMAI: 45.87 +/- 15.17) to endpoint (CMAI: 35.27 +/- 11.09). This resulted in an average reduction of 23% across the entire sample.

In the exploratory endpoints, a decrease in eating and feeding difficulties was shown in 11 patients out of the 15 patients treated at least two consecutive times during the trial as measured by the Edinburgh Feeding Evaluation in Dementia Scale, although the increase was not significant. No effect from the treatment was observed on cognitive measurements and sleep quality, as measured by the Mini Mental State Exam and by the and the Sleep Disorder Inventory, respectively.

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SCI-210 - ASD and SE

We believe that our pharmaceutical product candidate, SCI-210, offers a safe and potentially effective solution for a variety of medical concerns. Despite being in its early phases of pre-clinical and clinical testing, the application of SCI-210 has extended into several treatments, including ASD and SE.

ASD

ASD is a neurodevelopmental disorder. The specific etiologies and neural bases of autism remain largely unknown; it has been proposed that alterations in multiple genes in combination with environmental factors constitute the cause for the development of the autism phenotype. ASD is characterized by early dysfunction in communication and social interactions, presenting with repetitive, restrictive, stereotyped patterns of behavior and loss of interest in diverse activities. Additionally, ASD is frequently accompanied by impairments in adaptive functioning, sensory processing disorder, aggression, or self-injury.

In August 2024, we announced the enrollment of the first five patients in the clinical trial of SCI-210 in children with ASD at Soroka Medical Center in Israel. In December 2024, we announced the renewal by the Israeli Medical Cannabis Agency of the clinical trial for SCI-210 in children with ASD.

Market Size

According to the World Health Organization, or WHO, fact sheet on epilepsy in 2024, around 50 million people have epilepsy, making it one of the most common neurological diseases globally. The risk of premature death in people with epilepsy is up to three times higher than for the general population.

Globally, an estimated 5 million people are diagnosed with epilepsy each year. In high-income countries, there are estimated to be 49 per 100 000 people diagnosed with epilepsy each year. In low- and middle-income countries, this figure can be as high as 139 per 100,000.

The epilepsy drugs market is forecast to experience significant growth, with estimations projecting the market to reach $11.85 billion by 2033, up from $7.92 billion in 2024. The growth is attributed to heightened global incidence of epilepsy, advancement in drug research and development, and a surge in public and healthcare recognition of the condition. Improved healthcare spending and increased accessibility to medical treatments further amplify market expansion.

Strategic initiatives taken by global health organizations and campaigns to raise awareness about epilepsy are significantly influencing the market dynamics. Governmental health bodies are reportedly fostering an environment conducive to the approval of new epilepsy treatments, which is propelling the market forward. These campaigns, coupled with the growing emphasis on National Epilepsy Awareness Month initiatives, improve the understanding of epilepsy and encourage an increase in the quality and reach of treatments available.

The pharmaceutical industry has seen a host of developments aimed at enhancing the treatment for epilepsy. Increased investment in research and development aspires to produce new and improved drugs, addressing not only medical needs but also economic considerations.

Current Treatment

No cure exists for ASD. The goal of treatment is to maximize patients’ ability to function by reducing ASD symptoms and supporting development and learning. Treatment options may include: (i) behavior and communication therapies - successful programs typically include a team of specialists and a variety of activities to improve social skills, communication and behavior; and (ii) medications - to date, no medication can improve the core signs of ASD, specific medications can help control comorbidity symptoms. The main symptoms to be treated in patients with ASD are: epilepsy, aggression, hyperactivity, irritability, attention deficit, sleep problems, obsessions and anxiety. Antipsychotic drugs are sometimes used to treat severe behavioral problems and antidepressants may be prescribed for anxiety. Among the main drugs used in the treatment of ASD are typical antipsychotics such as Haloperidol, Thioridazine, Chlorpromazine and the atypical risperidone, Olanzapine and Clozapine, whose use is more common. These are used with the objective to treat the child’s behavioral problems by blocking the D2 dopaminergic channels, causing a diminished reaction to stimuli known as “neuroleptic syndrome,” observed as calm and quiet behavior in the child. In turn, some atypical antipsychotics also exhibit an antagonism of type 2A receptors for serotonin, aside from their effect on the D2 channels. It is important to individualize the patient when these drugs are administered, since there are no pre-established criteria for dosing and such drugs could present extrapyramidal adverse effects such as tremors, sialorrhea, sedation, impaired liver function, etc. Serotonin reuptake inhibitors such as Fluoxetine, Paroxetine and Sertraline are given to children with autism because they have been found to increase 25% of serotonin levels in platelets and serum. This treatment is based on suppressing symptoms such as anxiety, depression, OCDs, and self-injurious behavior.

Unfortunately, about 40% of children with ASD and disruptive behavior do not respond well to standard behavioral and medical treatment. Consequently, an exceptionally high percentage of parents are seeking help through unproven methods, including the use of compounds made of the cannabis plant.

Our SCI-210 Solution for ASD

The drug product SCI-210 is a proprietary drug candidate based on two components: (1) CBD, and (2) CannAmide™.

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On August 8, 2022, we announced that we have received approval from the MoH and Ethics Committee of Soroka Medical Center to conduct our clinical trial for SCI-210 in patients suffering ASD. On January 9, 2023, we signed an agreement with Soroka Medical Center to conduct the clinical trial on pediatric patients suffering from ASD. Our regulatory request to carry out this clinical trial was granted by the IMCA on July 10, 2023. This randomized, double-blind placebo-controlled clinical trial to evaluate the potential efficacy, safety and tolerability of SCI-210 in treating patients with ASD was initiated in July 2023. We initiated patient enrollment for the clinical trial in January 2024. In February 2024, we announced that we had successfully completed the manufacturing of the SCI-210 treatment for the clinical trial. In March 2024, the first patient was enrolled in this clinical trial.

SE

SE is a common life-threatening medical emergency characterized by an acute, prolonged epileptic seizure. SE can represent either the exacerbation of a pre-existing seizure or the initial manifestation of epilepsy. In order to avoid neurological sequelae, a timely treatment should be started. When the continuous seizure does not respond to conventional drug treatment, SE can pose serious life-threatening risks.

In 2018, GW’s Epidiolex, a plant-based, pharmaceutical grade CBD extract was approved by the FDA for the treatment of seizures associated with two rare and severe forms of epilepsy. Our study for SCI-210 previously met its endpoint (efficacy) when comparing its effect to the effect of CBD alone in an in-vitro hepatocytes model of fat accumulation; the effect of CBD was enhanced by the addition of PEA, lowering the required effective concentration of CBD. In this study, we hope to meet the study endpoint (efficacy) when comparing treatment using our pharmaceutical product candidate compared to the effect of CBD alone on SE and its neurological cognitive sequelae.

Current Treatment

The first-line treatment for early SE mainly comprises the administration of benzodiazepines, the most frequently used of which include Diazepam, Lorazepam, and Midazolam. Seizures continue and progress to established SE in about 40% of patients with Convulsive Status Epilepticus (CSE) despite benzodiazepine administration as the first-line treatment. The second-line treatment for established SE consists of a loading dose of antiepileptic drugs. Frequently used antiepileptic drugs include Phenytoin or Fosphenytoin, Valproate, Levetiracetam, Phenobarbital, and Lacosamide. There is no clear evidence for the relative superiority of any of these drugs.

Our SCI-210 Solution for SE

The drug product SCI-210 is a proprietary drug candidate based on two components: (1) CBD, and (2) CannAmide™.

On December 7, 2022, we announced positive results from our pre-clinical study of SCI-210 on SE, conducted at The Sheba Fund for Health Services and Research at Chaim Sheba Medical Center, which reaffirms the potential of its proprietary combination products to have a positive effect while minimizing adverse side effects. Our SCI-210 platform combines PEA with CBD. The non-clinical trial objective was to study the potential therapeutic effects of SCI-210 on SE and on neuro-biochemical markers for neurological cognitive sequelae. A pilocarpine SE-induced mice (C57BL/6 male) model to study SCI-210’s effects on seizure severity and mortality was used. After calibration, four groups of animals were studied: an effective-high dose CBD group, a sub-effective dose CBD group, a SCI-210 group (a combination of sub-effective CBD dose and PEA) and a non-treated control group. The results indicated differences in mortality rate as well as seizure rates over time. In the low-CBD group, a higher mortality rate (although not significant) was found and therefore it is reasonable to believe that no significant impact on neuronal protection was achieved. In the high-CBD group, higher, although not significant, levels of neuronal protection were found together with a decreased mortality rate when compared to control. The level of neuronal protection in the SCI-210 treatment was significantly higher compared to the control group and no mortality was found in this group. It was concluded that SCI-210 treatment may potentially be more effective than a CBD monotherapy. Moreover, since the concentrations used in the combo treatment are significantly lower than those recommended for CBD monotherapy, this treatment also has the potential to be safer.

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Other Programs

Our CannAmide™ Anti-Inflammatory and Chronic Pain Solution

CannAmide™ is a cannabimimetic compound that regulates endocannabinoid levels by enhancing receptor sensitivity and inhibiting their metabolism, and is particularly attractive therapeutically as it appears to have a very high safety profile with low or no abuse liability. Although numerous clinical trials have shown the favorable effect of PEA as an analgesic agent it has low solubility.

In July 2019, we announced the issuance of a product license for our proprietary PEA oral tablet CannAmide™ by Health Canada’s Natural and NNHPD, for the recommended use as an anti-inflammatory and to help relieve chronic pain. This license was issued by the NNHPD under the authority of the NHPR. Dosage form of the described natural health product is tablets composed of 400mg PEA with a recommended dose of one tablet three times a day. Chronic pain is estimated to affect 38% of people worldwide, and according to an analysis by the World Health Organization, half of the most prevalent conditions responsible for living with disability is characterized by the presence of different kinds of pain. With the NNHPD license, we are able to offer safe and beneficial non-opiate pain management products. CannAmide™’s active compound PEA is a cannabimimetic compound that regulates endocannabinoid levels by enhancing receptor sensitivity and inhibiting their metabolism, and is particularly attractive therapeutically as it appears to have a very high safety profile with low or to no possibility for abuse. On February 10, 2021, we announced that we had entered into an agreement with Procaps, a leader in contract development and manufacturing services in softgel advanced technologies for the global pharmaceutical and nutraceutical industries, to develop and commercially manufacture both of our drug candidates, SCI-110 and our proprietary PEA oral tablets CannAmide™, in softgel capsule form.

Cannabinoids have great therapeutic potential and have been used for years for medicinal purposes. For example, cannabis and cannabinoids are being used to improve the quality of life of patients with numerous and diverse indications (oncological patients, chronic pain conditions, etc.). We believe that the novel approaches and unique mechanism of action of our proprietary technology platforms, including our drug delivery systems and unique combination and specific dosages, may be expanded to treat additional diseases and unmet medical needs.

In the future, we may consider expanding our pipeline to include these additional indications.

Collaboration with Clearmind

On March 7, 2022, we entered into a cooperation agreement, or the Cooperation Agreement, with Clearmind. The Cooperation Agreement includes, among others, examination of the benefit of integrating the core technologies of each company to explore the development of psychedelic-centric drug candidates and targeting mental health-related diseases. Pursuant to the terms of the Cooperation Agreement, we conducted a joint pre-clinical study with Clearmind. Under the Cooperation Agreement, we aim to pursue, develop and commercialize psychedelic-centric drug candidates. Our collaboration with Clearmind has resulted as of the date of this Annual Report, in the filing of thirteen patent applications. All patent applications refer to the combination of SciSparc’s CannAmide™ with Clearmind’s 5-Methoxy-2-aminoindane, or MEAI, an innovative proprietary psychedelic treatment for addictions and others.

In May 2022, we announced that our collaboration with Clearmind resulted in the filing of a provisional patent application related to a psychedelic combination therapy treating numerous binge behaviors. The patent application referred to the combination of our CannAmide™ with Clearmind’s MEAI. The patent application followed successful pre-clinical studies that showed a significant dose dependent effect for MEAI treatment in reducing alcohol consumption of treated animals, with additional significant effect for the CannAmide™ treatment at the lower sub-effective MEAI dose. Additionally, in May 2022, we announced positive safety profile results from our joint pre-clinical trial with Clearmind. The clinical trial tested the proprietary combination of our CannAmide™ with Clearmind’s psychedelic molecule, MEAI, for alcohol consumption. A histopathology assessment was conducted on several organs (heart, lungs, liver, kidneys, brain, pancreas, spleen, and thyroid gland) from all experiment groups (n=3-5 per group) to determine the safety of the proprietary combination of MEAI and CannAmide™ versus control (mice) that were not exposed to alcohol). The severity of changes was scored by a 5-point scale by a qualified blinded toxicologist (Schafer et al., Toxicol Pathol 2018, 46:256-265). The results indicated a high safety profile of the combination treatment with no treatment-related changes observed.

In June 2022, we announced that our collaboration with Clearmind resulted in the filing of a provisional patent application related to treating cocaine addiction. The patent application refers to the proprietary combination of our CannAmide™ with Clearmind’s MEAI, for treating cocaine addiction.

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In August 2022, we announced additional positive pre-clinical results of our psychedelic-based pharma collaboration for treatment for cocaine addiction using MEAI. These pre-clinical study results added to our announcements regarding our collaboration with Clearmind for their combination treatment based on our CannAmide™ compound and Clearmind’s MEAI for various addictions, including pre-clinical studies results, the filing of two provisional patent applications related to compositions comprised of MEAI and n-acylethanolamines and uses thereof and treating cocaine addiction. The pre-clinical trial was led by Professor Gal Yadid and his team from the Gonda Multidisciplinary Brain Research Center located at Bar Ilan University (Ramat Gan, Israel) and was designed to evaluate the possible reward-like effects of MEAI with connection to cocaine and its ability to abolish cocaine-induced conditioned place preference. In the pre-clinical trial, the self-administration paradigm was utilized, which is the gold-standard model for examining drug addiction and is based on operant conditioning. Rats were catheterized and trained to self-administer cocaine. The results identified a statistically significant sub-group within the study, in a non-biased manner and high integrity, which dramatically responded to the treatment, significantly decreasing the craving for cocaine as compared to non-treated control group. This sub-group, representing 60% of animals, showed a very high response within the group.

In September 2022, we announced that Clearmind filed a provisional patent application related to metabolic syndromes including obesity, regarding our collaboration with Clearmind. The patent application is the third of the collaboration, each referring to the proprietary combination of our PEA and Clearmind’s MEAI.

In February 2023, we announced that announced that Clearmind filed three provisional patent applications were filed by Clearmind with the USPTO as a part of our ongoing collaboration. The patent applications refer to novel proprietary combinations of lysergic acid diethylamide, psilocybin, and N,N-dimethyltryptamine and our PEA. Additionally, in February 2023, we announced that as part of our ongoing collaboration with Clearmind, Clearmind filed three provisional patent applications with the USPTO, for unique combinations of future psychedelic-based compounds. The patent applications refer to novel proprietary combinations of 3,4 Methylenedioxymethamphetamine, Ibogaine and Ketamine each with our PEA.

In June 2023, we announced that we and Clearmind were to conduct a study evaluating our combination treatment for obesity and metabolic syndrome.

In August 2023, Clearmind filed a patent application for the treatment of dyskinesia, a combination of the pyschadelic molecule 3-Methylmethcathinone and PEA.

In November 2023, successful results were announced from a pre-clinical trial on rodents, testing the efficacy of the combination treatment of PEA and MEAI on obesity, performed by Joseph Tam from the Hebrew University of Jerusalem. The results indicated that there was an increase in the metabolic process and fat burn, a reduction in appetite and meal sizes, and reductions in ambulation with affecting voluntary activity.

In February 2024, we and Clearmind filed three patent applications under the PCT referring to novel proprietary combinations of lysergic acid diethylamide, psilocybin, N,N-dimethyltryptamine, and PEA.

In February 2024, we and Clearmind filed three patent applications under the PCT referring to novel proprietary compositions of MDMA, ibogaine, and ketamine, all combined with PEA.

In March 2024, we and Clearmind filed a patent application under the PCT referring to the composition of Clearmind’s MEAI compound and PEA.

In July 2024, we and Clearmind filed a patent application under the USPTO for PEA combined with MEAI for treating metabolic syndrome and obesity.

In August 2024, we announced that an article was published by Saja Baraghithy et al. on the promising results from a recent study on MEAI for combating obesity. The study was conducted by a team of experts lead by Prof. Joseph Tam from the Hebrew University of Jerusalem. The study demonstrated that the treatment significantly induced weight loss and beneficial changes in body composition in diet-induced obese mice, without altering food intake, by decreasing fat mass while preserving lean mass. There was a significant improvement in glucose metabolism, increased energy expenditure and fat utilization, while maintaining a similar food consumption and increased activity-specific energy expenditure (without overstimulation), providing support for its potential to impact energy balance. Furthermore, there was a decrease in fatty liver, as evidenced by lower liver triglyceride and cholesterol levels, mainly through inhibiting new lipid synthesis and reducing fat accumulation. These results further show that the treatment was well tolerated and led to increased oxygen consumption and carbon dioxide emission, coupled with elevated energy expenditure and fat oxidation which in turn indicates increases in the metabolic process and fat burn.

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In another study, evaluating the acute effect of numerous doses of MEAI on metabolic and behavioral parameters in mice, in combination with PEA, the administered drugs exhibited a remarkable degree of tolerance, leaving the animals’ viability unaffected across all experimental groups. The most favorable outcomes of the combination treatment were notably pronounced at the MEAI 20 mg/kg dose and PEA 25 mg/kg, observed as increased energy expenditure, enhanced fat oxidation, and decreased meal sizes. These findings underscore the potential of MEAI and PEA in modulating various aspects of metabolism, locomotor activity, and feeding behavior, warranting further investigation of their roles in the regulation of energy homeostasis.

In August 2024, we and Clearmind announced the publication of its patent application under the PCT for innovative combinations of ketamine and N-acylethanolamines.

In September 2024, we and Clearmind announced the publication international patent application under the PCT for MDMA combined with N-acylethanolamines.

In September 2024, we and Clearmind announced the publication of a PCT patent application for ibogaine combined with N-acylethanolamines.

In January 2025, we announced the publication of a European patent application submitted by Clearmind under the European Patent Office for innovative combination therapy of MEAI and N-Acylethanolamines, to binge behavior including alcohol consumption, eating, tobacco consumption, shopping and sexual conduct. Under this collaboration, we and Clearmind are researching innovative combination therapies that integrate psychedelic molecules with the N-acylethanolamines family, including Palmitoylethanolamide.

In February 2025, we announced the publication of a patent application in Mexico for MDMA with N-acylethanolamines. The patent refers to our innovative combination therapy of N-Acylethanolamines and Clearmind’s MEAI, addressing binge behavior, including alcohol consumption, eating, tobacco consumption, shopping and sexual conduct. Under our collaboration with Clearmind, the two companies are researching innovative combination therapies that integrate psychedelic molecules with the N-acylethanolamines family, including (PEA).

In April 2025, we announced the filing of a new international patent application for a proprietary treatment targeting anorexia, bulimia, and other eating disorders. The patent application covers the use of 3-Methylmethcathinone in combination with PEA.

Polyrizon

On May 31, 2022, we entered into a collaboration agreement with Polyrizon, a biotech company focused on the development of innovative medical device hydrogels delivered in the form of nasal sprays, or the Polyrizon Collaboration Agreement. As part of this collaboration, we worked together to develop a unique technology for the treatment of pain, based on our SCI-160 platform and Polyrizon’s Trap and TargetTM intranasal drug delivery technology to target the central nervous system. We have agreed to pay development fees to Polyrizon up to a total of $2,550,000 upon the completion of certain milestones, as well as royalties in the low single digits upon sales of products under the agreement and additional royalties for sales under any sublicense by us. On August 13, 2024, SciSparc entered into a termination agreement with Polyrizon to terminate the Polyrizon Collaboration Agreement.

On August 13, 2024, we entered into the Polyrizon License. Pursuant to this agreement, we granted Polyrizon a royalty-bearing, exclusive, sub-licensable right and license to the SCI-160 platform and received 320,000 ordinary shares of Polyrizon, pre-funded warrants to purchase 364,931 ordinary shares of Polyrizon, and common warrants to purchase 2,054,793 ordinary shares of Polyrizon, at an exercise price of $4.38 per share. In addition, in consideration for the license, we will receive royalties from sales related to the SCI-160 platform and income generated from it.

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On December 30, 2024, pursuant to a share transfer agreement, or the Polyrizon Share Transfer Agreement, we sold all of the Polyrizon ordinary shares and pre-funded warrants held by us, as well as an aggregate of 1,541,096 Polyrizon common warrants to third parties, for aggregate consideration of $770,548.

On April 1, 2025, we entered into a securities purchase agreement with Polyrizon pursuant to which we participated in a private placement of Polyrizon, and invested $100,000 (out of an aggregate investment of approximately $17 million), in exchange for ordinary shares and Series A warrants to purchase ordinary shares, of Polyrizon. In addition, we entered into an exchange agreement with Polyrizon, pursuant to which we exchanged existing ordinary share warrants of Polyrizon held by us for Series A warrants to purchase ordinary shares of Polyrizon.

Acquisition of Wellution™

On September 14, 2022, we entered into the Wellution Acquisition Agreement with Merhavit M.R.M Holding and Management Ltd., or M.R.M, and the other parties named therein, to acquire from M.R.M its rights to purchase, the Wellution™ brand. In connection therewith, we incorporated a new wholly owned subsidiary, SciSparc Nutraceuticals, to hold the new assets of the Brand. The Brand sells hemp-based products, including hemp gummies, hemp oil capsules, hemp gel, hemp cream, detox pills, height pills, antibacterial creams, and anti-aging creams, among other beauty and hair treatment products that are all manufactured in the United States.

In accordance with the closing of the Wellution Acquisition Agreement for the Brand which took place on September 30, 2022, we paid $4.59 million for the Brand and issued to M.R.M $15 million worth of warrants to purchase up to an aggregate amount of 82,418 of our Ordinary Shares, or the M.R.M Warrants. The M.R.M Warrants had an exercise price of $182 per share and an exercise period of five years from the closing, until September 30, 2027.The M.R.M Warrants were exercisable during the exercise period upon the earlier of (i) an achievement of $100 million of gross sales by the Brand in the aggregate or (ii) if the price of our Ordinary Shares closes at $10.00 or above. On March 26, 2024, M.R.M. agreed with us to waive all its rights under the M.R.M. Warrants and have the M.R.M. warrants cancelled for no consideration.

Restructuring Plan

NewCo

On January 25, 2023, we announced that our board of directors resolved to pursue a Restructuring Plan which may involve transferring our pharmaceutical activities to NewCo. As part of or independent to the Restructuring Plan, we intend to examine the possibility of listing NewCo on a leading stock exchange, while maintaining our controlling interest in NewCo such that we will continue to control our current business activities. We also intend to explore other potential new opportunities, activities and investments in a variety of sectors.

Any restructuring and possible listing of NewCo on a stock exchange may be subject to, among other things, market conditions, tax or other business analyses, regulatory approvals, receipt of any necessary consents, final approvals from our board of directors and satisfaction of any closing conditions to effectuate such corporate restructuring and listing of NewCo. There can be no assurance regarding the ultimate timing of the intended restructuring and listing of NewCo or that they will be completed at all.

Strategic Transaction Opportunity Engagement

In September 2023, we engaged Rosario Capital Ltd. to identify potential opportunities for a strategic transaction.

Proposed Acquisition of AutoMax

On November 22, 2023, we announced the signing of a non-binding letter of intent, to acquire AutoMax, with certain new negotiated terms as announced on December 7, 2023.

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Pursuant to the Restructuring Plan, on June 25, 2023, we entered into a securities purchase agreement with AutoMax, pursuant to which, at the closing and upon the terms and conditions set forth in the AutoMax SPA SciSparc invested NIS 2,500,000 (approximately $690,000) in cash, in exchange for ordinary shares of AutoMax based on a price per share of NIS 0.5. Following the closing, we held approximately 5.6% of the issued and outstanding share capital of AutoMax.

On April 10, 2024, we and AutoMax entered into a Merger Agreement, as amended on August 14, 2024, pursuant to which SciSparc Merger Sub Ltd., an Israeli limited company and our wholly-owned subsidiary will merge with and into AutoMax, with AutoMax surviving as our wholly-owned subsidiary. Our Ordinary Shares, as well as pre-funded warrants exercisable into ordinary shares, will be issued to AutoMax’s shareholders at the effective time of the Merger, pursuant to the Exchange Ratio. Under the Exchange Ratio formula, immediately following the Merger, AutoMax’s shareholders and M.R.M are expected to own approximately 49.99% of our share capital, on a fully-diluted basis, subject to certain exceptions, and as further defined in the Merger Agreement, and our shareholders are expected to own approximately 50.01% of our share capital, on a fully-diluted basis, subject to certain exceptions. The Merger has been unanimously approved by the boards of directors of both companies and will be presented for approval by the shareholders of AutoMax. On August 14, 2024, the parties entered into the Merger Agreement Addendum, pursuant to which the right to terminate the Merger Agreement if the Merger was not consummated by August 30, 2024, was deferred to November 30, 2024. On November 26, 2024, the parties entered into the Merger Agreement Second Addendum, pursuant to which the right to terminate the Merger Agreement, if the Merger was not consummated by November 30, 2024, was deferred to March 31, 2025. On March 27, 2025, the parties entered into the Merger Agreement Third Addendum, pursuant to which the right to terminate the Merger Agreement, if the Merger was not consummated by March 31, 2025, was deferred to September 30, 2025, and the definition of “Exchange Ratio” was revised to remove the rounding to four decimal places of the Exchange Ratio. The Merger is expected to close in the second quarter of 2025, subject to the approval of our shareholders, approval of the AutoMax shareholders, including a separate approval by AutoMax shareholders who are not controlling shareholders of AutoMax or us, and court approval, as well as other customary conditions.

Loans to AutoMax

On January 14, 2024, we entered into, as lender, a bridge loan agreement with AutoMax, pursuant to which AutoMax received the Bridge Loan, further to the previously-announced non-binding letter of intent for us to acquire AutoMax. On April 10, 2024, we signed the Merger Agreement with AutoMax. On August 14, 2024, on November 26, 2024, and March 27, 2025, we and AutoMax entered into the Merger Agreement Addendum, the Merger Agreement Second Addendum, and Merger Agreement Third Addendum, respectively. On June 9, 2024, we entered, as lender, into the Amended Bridge Loan, pursuant to which AutoMax received an additional loan in the amount of $1.0 million, for an aggregate amount of $2.4 million. On September 5, 2024, we entered into the Second Amendment, pursuant to which we extended an additional Loan amount to AutoMax. During the month of September 2024, we provided AutoMax with the loan amounts due under the Second Amendment to the Bridge Loan, and offset any interest due until November 30, 2024 from the principal amount, such that on the closing date of the Merger, we will be entitled to be paid the due interest at a rate of 7% per annum (or 9% per annum if the Merger is not consummated), of the Loan Amount, accruing from the period beginning on December 1, 2024 and ending on the effective date of the Merger.

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The Merger Agreement contemplates that at closing, we shall deliver to AutoMax the closing financing amount. In light of the Bridge Loan and amendments thereto, no closing financing amount will be transferred. In consideration for the Loan Amount, AutoMax established a first ranking fixed charge security interest on AutoMax’s shares of its wholly-owned subsidiary AutoMax Direct Import in favor of us. The Bridge Loan amount, together with any accrued interest, may be repaid in part or in whole prior to the repayment date, contingent on whether the closing of the Merger Agreement occurs. The repayment date shall be at the earlier date of: (a) the Closing, in which the owed amount shall be deemed set-off against the closing financing amount; or (b) if the Merger Agreement is terminated in accordance with its terms, within three months from such termination date.

On February 27, 2025, we announced that we had entered into the Additional Loan Agreement with AutoMax where a $2 million loan was provided. The loan bears an 8% annual interest rate and will be repaid in equal monthly installments of $50,000 and interest, with AutoMax retaining the option to make early repayment without penalties. The interest on the loan will be cancelled as of the consummation of the Merger Agreement and AutoMax will continue to make monthly payments towards the principal amount of the loan. As collateral, AutoMax pledged a first-ranking fixed charge on its subsidiary’s shares, in accordance with a fixed charge debenture.

AutoMax

AutoMax is a company in the field of importing and marketing a variety of vehicles for personal use (including trade-in), this includes an array of vehicle sizes such as: small; family sized; crossover, sedans, SUVs, as well as luxury vehicles and buses.

Initially AutoMax, under its then corporate name Matomi Media Group Ltd., and its subsidiaries provided a variety of programmatic data-driven platforms, which focused on two main activities of domain monetization and mobile digital advertising. These services were mainly for U.S. and Europe based advertising agencies, app developers and domain owners.

In February 2018, AutoMax completed a public offering of series A convertible loans, in the aggregate amount of NIS 103 million (approximately $24.5 million). Beginning in the second half of 2017 through December 2019, AutoMax sold all its activities related to digital marketing. On January 8, 2020, following a unanimous approval of the bondholders, AutoMax repaid the full debt, approximately NIS 101 million (approximately $27.9 million).

On November 9, 2020, AutoMax entered into a share exchange agreement with Global AutoMax and M.R.M, or the Share Exchange Agreement. Upon the closing, on March 24, 2021, AutoMax issued to the shareholders of Global AutoMax 120,279,312 ordinary shares representing, upon issuance, approximately 52.53% of the issued and outstanding shares of AutoMax, with additional issuances subject to fulfilling certain milestones, as detailed in the Share Exchange Agreement. In exchange, Global AutoMax shareholders transferred all their shares to AutoMax. On March 28, 2023, following successful completion of such milestones, AutoMax issued an additional 168,105,258 ordinary shares to its controlling shareholders, which constituted approximately 41% of its issued and outstanding share capital following the issuance. Following the closing of the Share Exchange Agreement, Global AutoMax became a wholly owned subsidiary of AutoMax. In addition, some of the key officers in Global AutoMax, who were appointed as officers in AutoMax, were issued options to purchase up to 11,851,420 ordinary shares of AutoMax (adjusted to reflect the 5 to 1 reverse share split), subject to the terms of the company employee share incentive plan. On March 23, 2025, the said options expired. As of the date of this Annual Report, the controlling shareholders of the AutoMax collectively hold approximately 55.65% of AutoMax's issued and outstanding share capital.

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On June 19, 2022, AutoMax entered into a joint venture agreement, or the Agreement, with Dalhom Motors Ltd., or Dalhom, pursuant to which, AutoMax and Dalhom formed a jointly-owned subsidiary, Dalhom AutoMax, a special purpose company established for the purpose of importing and marketing of Temsa Skoda Sabancı Ulaşım Araçları A.Ş,, or Temsa, buses in Israel. In addition, prior to the closing, Dalhom AutoMax entered into a franchise agreement with Temsa for a period of three years, pursuant to which Dalhom AutoMax will serve as a direct importer of Temsa buses in Israel. Furthermore, Dalhom AutoMax entered into a service and warranty agreement for a term of three years, pursuant to which it will provide maintenance and warranty services for Temsa buses, as agreed upon in the agreement.

In November 2024, AutoMax Direct Import finalized entering into agreements with JAC, a manufacturer of private and commercial vehicles, for the direct import, distribution and service of vehicles and spare parts manufactured by JAC in Israel, or the JAC Agreements. On December 27, 2024, AutoMax Direct Import received its first shipment of vehicles manufactured by JAC, following regulatory approvals for direct importation. According to the JAC Agreements, AutoMax Direct Import serves as a direct importer of JAC brand in Israel, and the JAC will provide AutoMax Direct Import with vehicles and spare parts for the vehicles for marketing and sale in Israel, in accordance with annual business plans as agreed between the parties. The JAC Agreement includes, among others, customary provisions regarding warranty for the vehicles by JAC, the supply of spare parts, the duty to notify about malfunctions (recall) and compliance with other requirements required by law.

AutoMax Direct Import will adapt its existing showrooms for the purpose of selling JAC vehicles in the standards agreed in the agreement. The JAC Agreements are for a period of three years, subject to AutoMax Direct Import’s compliance with sales and service network expansion goals determined in the agreements, and will enter into force only when the appropriate European regulatory approvals are received for JAC vehicles. In addition, JAC is entitled to terminate the agreement upon the occurrence of certain events provided in the JAC Agreements, as is customary in such agreements, such as: (a) if AutoMax Direct Import substantially violates its obligations under the JAC Agreements or encounters special circumstances that give justifiable reasons for early termination (including AutoMax Direct Import’s failure to meet its sales goals, service network expansion goals or market share goals); (b) in the event of change of control in AutoMax Direct Import; and (c) in the event of bankruptcy, moratorium, receivership, liquidation, or any other similar circumstances.

As of the date of this Annual Report, AutoMax engages in importing and marketing of vehicles in Israel (including trade-in). Within this segment, the AutoMax engages in direct and parallel import of private vehicles and their marketing in Israel, and through joint ventures, in the direct import buses to Israel of buses manufactured by Temsa, as well as in the purchase and sale of used vehicles (trade-in). AutoMax holds direct and parallel importer licenses from the Ministry of Transportation, as defined in the Vehicle Services Licensing Law, for 37 vehicle brands of various models. As of the date of this Annual Report, AutoMax operates through ten sales branches located in Acre, Haifa, Afula, Netanya, Ra'anana, Rishon LeZion, Ashdod, Jerusalem, Beer Sheva and Hedera. It additionally operates a storage system and a system for preparing vehicles for sale. AutoMax has an international network of suppliers and manufacturers, located in Europe and North America and China, that supply it with vehicles of different brands and models, tailored to order. AutoMax further has an import system that consists of procurement, transportation and handling the procedure for releasing vehicles from customs, as well as vehicle storage facilities in Israel.

AutoMax is authorized by the Ministry of Transportation, to perform licensing inspections for the purpose of the initial registration of vehicles imported by it. Additionally, AutoMax has been authorized by the Ministry of Transportation to import spare parts and to carry out various forms of installations that involve changing the vehicle structure (such as installing towing hooks).

AutoMax was formed under the laws of the state of Israel in February 2006, as a private company, under the name Cubeeffect Ltd. In November 2009, Cubeeffect Ltd. changed its name to Adsmarket G.M. Ltd, and in July 2011 changed to Matomy Media Group Ltd. On April 18, 2021, the company changed its name to AutoMax Motors Ltd. AutoMax’s ordinary shares were initially listed on the London Stock Exchange in July 2014 and in February 2016 on the TASE. From November 2020 onwards, AutoMax ordinary shares have been traded solely on TASE.

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Intellectual Property

Our intellectual property portfolio is comprised of six granted U.S. patents, and pending patent applications in eight families, all of which are in the national phase of examination. Of this portfolio, we have exclusively licensed one patent family from Yissum. Our intellectual property portfolio also includes.an application to register the trademark CannAmide™ pending in the United States.SciSparc has also been granted a trademark registration for Wellution® in Class 003 in the United States.

SciSparc has also been granted a trademark registration for Wellution® in Class 005 in the United States

Internally Developed Patent Applications

In March 2013, we filed a provisional application with the USPTO for the technology of proprietary sequences of anti-CD3 antibody and the utilization of the latter in various autoimmune diseases, as well as in hepato-pathologies. The provisional application has been converted to a PCT and then entered a National Status in December 2014 in the U.S., with the European Patent Office, or EPO, and in China and Canada. In the U.S. it received a grant status in June 2018.

In April 2015, we filed a provisional application with the USPTO for combinations of cannabinoids, n-acylethanolamines, and inhibitors of n-acylethanolamine degradation, which, in April 2016 was converted into an international PCT application that subsequently entered national phase in the following state entities: U.S., EPO, Israel, Australia, Canada, China and Japan. The technology is directed to utilizing the potentiating effect of n-acylethanolamines on cannabinoids for any cannabinoid amenable indication, including but not limited to analgesia and TS. The 20-year term of any patent issuing from this application would expire in April 2036. In August and September 2021, the patent was granted in Australia and Japan, respectively, and a further patent was granted in Australia in November of 2023. A patent was granted in Israel in August of 2022, and three patents have been issued in the U.S., two in December 2021 and one in February 2022. In December 2022, we were granted a patent from the EPO. A patent was issued in Canada in April 2024.

In May 2015, we filed a provisional application with the USPTO for combinations of opioids, n-acylethanolamines, and inhibitors of n-acylethanolamines degradation, which, in May 2016 was converted into an international PCT application that subsequently entered national phase in the following state entities: U.S., EPO, Israel, Australia, Canada, China and Japan. The technology is directed to potentiating effect of N-acylethanolamines on opioids for opioid amenable indications. The 20-year term of any patent issuing from this application would expire in May 2036. In July 2021, the first patent was granted in Australia and a second was granted in November 2023. A patent was issued in Japan in March 2023, and the EPO granted a patent in November 2023. A patent was issued in Canada in April 2024.

In July 2016, we filed a provisional application with the USPTO for the use of cannabinoids for potentiating the efficacy of antibiotics, which in July 2017 was converted into an international PCT application that subsequently entered national phase in the following state entities: U.S., EPO, Canada and China. The 20-year term of any patent issuing from this application would expire in July 2037. In November 2022, the USPTO issued this patent called “Compositions and Methods of Potentiating Antimicrobials”. A patent was issued in Europe in May of 2024.

In January 2018, we filed a provisional application with the USPTO directed to methods of treating OSA, which in January 2019 was converted into an international PCT application that subsequently entered national phase in the following state entities: U.S., EPO, Canada and Australia. The 20-year term of any patent issuing from this application would expire in January 2039. A patent was issued in Australia in February of 2025.

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In April 2019, we filed a provisional application with the USPTO directed to compositions and methods for potentiating derivatives of 4-aminophenols, which in April 2020 was converted into an international PCT application. The PCT application subsequently entered the national phase in Australia, Canada, China, EPO, Israel, India, Japan, Mexico, Russia, and the U.S. The 20-year term of any patent issuing from this application would expire in April 2040.

In August 2020, we filed a provisional application with the USPTO directed to methods for maintaining microvascular integrity, which in August 2021 was converted into an international PCT application. The PCT application subsequently entered the national phase in Australia, Canada, China, EPO, Israel, India, Japan, and the U.S. The 20-year term of any patent issuing from this application would expire in August 2041.

In-Licensed Patents and Patent Applications

On July 29, 2018, we entered into an exclusive, worldwide, sublicensable, royalty-bearing license agreement with Yissum for a license to make commercial use of the licensed technology, in order to develop, obtain regulatory approvals, manufacture, market, distribute or sell products, or the Yissum License Agreement. According to the Yissum License Agreement, we were required to pay Yissum an initial payment of $133,000, and shall pay Yissum royalties at the rates of 3% of net sales, subject to the royalty reductions as described in the Yissum License Agreement. All right, title and interest in and to the Yissum License Agreement shall vest solely in Yissum, and we shall hold and make use of the rights granted. All rights in the development results shall be solely owned by us, except to the extent that an employee of the Yissum, including the researcher, is considered an inventor of a patentable invention arising from the development results, in which case such invention and all patent applications and/or patents claiming such invention shall be owned jointly by us and Yissum, as appropriate, and Yissum’s share in such joint patents shall be automatically included in the Yissum License Agreements.

Other Intellectual Property Protection

In addition to patent and trademark protection, we intend to use other means to protect our proprietary rights, including pursuing marketing or data exclusivity periods, orphan drug status, and similar rights that are available under regulatory provisions in certain countries, including but not limited to the United States, Europe, Canada, Japan, and China.

We also rely on trade secrets, know-how, and continuing innovation to develop and maintain our competitive position. We cannot be certain that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents granted to us in the future will be commercially useful in protecting our technology.

We also seek regulatory approval for our products for indications with high unmet medical need, great market potential, and where we have a proprietary position through patents covering various aspects of our products, including but not limited to: composition, dosage, formulation, use, and manufacturing process. Our success depends, in part, on an intellectual property portfolio that supports future revenue streams and erects barriers to our competitors. We are maintaining and building our patent portfolio through filing new patent applications, prosecuting existing applications, and licensing and acquiring new patents and patent applications.

Despite these measures, any of our intellectual property and proprietary rights could be challenged, invalidated, circumvented, infringed or misappropriated. Intellectual property and proprietary rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive one. For more information, see Item 3D “Risk Factors-Risks Related to our Intellectual Property.”

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The following table summarizes our portfolio of patents:

Country |  | Status |  | Filing Date |  | Title |  | Estimated Expiration Date |  | Product Covered
Australia |  | Granted |  | 19-Apr-2016 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-110 THX-210
Australia |  | Granted |  | 19-Jul-2021 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-110 THX-210
Australia |  | Pending |  | 17-Oct-2023 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-110 THX-210
Canada |  | Granted |  | 19-Apr-2016 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-110 THX-210
United States of America |  | Granted |  | 19-Apr-2016 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  | THX-110
United States of America |  | Abandoned |  | 01-Oct-2019 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  |
United States of America |  | Granted |  | 10-Oct-2019 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-210
United States of America |  | Granted |  | 30-Aug-2019 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-210
United States of America |  | Published |  | 27-Aug-2021 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-110

Country |  | Status |  | Filing Date |  | Title |  | Estimated Expiration Date |  | Product Covered
United States of America |  | Published |  | 27-Aug-2021 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-210
United States of America |  | Abandoned |  | 12-Nov-2021 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  |
Israel |  | Granted |  | 19-Apr-2016 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-110 THX-210
Israel |  | Pending |  | 31-Mar-2022 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-210
China (People’s Republic) |  | Abandoned |  | 19-Apr-2016 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  |
China |  | Published |  | 08-Jun-2023 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-110 THX-210
European Patent Convention(1) |  | Granted |  | 19-Apr-2016 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-110
European Patent Convention(1) |  | Published |  | 19-Apr-2016 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-110
Japan |  | Granted |  | 19-Apr-2016 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-110 THX-210
Japan |  | Abandoned |  | 30-Mar-2021 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  |  |  |
Hong Kong |  | Published |  | 16-Jun-2023 |  | COMBINATIONS OF CANNABINOIDS AND N-ACYLETHANOLAMINES |  | April 2036 |  | THX-110 THX-210

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Country |  | Status |  | Filing Date |  | Title |  | Estimated Expiration Date |  | Product Covered
Australia |  | Granted |  | 17-May-2016 |  | COMBINATIONS OF OPIOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
Australia |  | Granted |  | 19-Jun-2021 |  | COMBINATIONS OF OPIOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
Australia |  | Pending |  | 19-Oct-2023 |  | COMBINATIONS OF OPIOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
Israel |  | Abandoned |  | 17-May-2016 |  | COMBINATIONS OF OPIOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
Israel |  | Pending |  | 28-Aug-2023 |  | COMBINATIONS OF OPIOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
China (People’s Republic) |  | Abandoned |  | 17-May-2016 |  | COMBINATIONS OF OPIOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
China |  | Published |  | 03-Apr-2023 |  | COMBINATIONS OF OPIODS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
Japan |  | Granted |  | 17-May-2016 |  | COMBINATIONS OF OPIOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
Japan |  | Abandoned |  | 30-Apr-2021 |  | COMBINATIONS OF OPIOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
Hong Kong |  | Published |  | 20-Nov-2023 |  | COMBINATIONS OF OPIOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
European Patent Convention(1) |  | Granted |  | 17-May-2016 |  | COMBINATIONS OF OPIOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
United States of America |  | Abandoned |  | 17-May-2016 |  | COMBINATIONS OF OPIOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
United States of America |  | Published |  | 27-Nov-2020 |  | COMBINATIONS OF OPIOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
Canada |  | Allowed |  | 17-May-2016 |  | COMBINATIONS OF OPIOIDS AND N-ACYLETHANOLAMINES |  | May 2036 |  |
United States of America |  | Abandoned |  | 25-Jan-2019 |  | COMPOSITIONS AND METHODS FOR TREATING OBSTRUCTIVE SLEEP APNEA |  | January 2039 |  | THX-110
European Patent Convention(1) |  | Published |  | 25-Jan-2019 |  | COMPOSITIONS AND METHODS FOR TREATING OBSTRUCTIVE SLEEP APNEA |  | January 2039 |  | THX-110
Australia |  | Allowed |  | 25-Jan-2019 |  | COMPOSITIONS AND METHODS FOR TREATING OBSTRUCTIVE SLEEP APNEA |  | January 2039 |  | THX-110
Australia |  | Pending |  | 31-Jan-2025 |  | COMPOSITIONS AND METHODS FOR TREATING OBSTRUCTIVE SLEEP APNEA |  | January 2039 |  | THX-210

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Country |  | Status |  | Filing Date |  | Title |  | Estimated Expiration Date |  | Product Covered
Hong Kong |  | Published |  | 24-Aug-2020 |  | COMPOSITIONS AND METHODS FOR TREATING OBSTRUCTIVE SLEEP APNEA |  | January 2039 |  | THX-110
Canada |  | Pending |  | 25-Jan-2019 |  | COMPOSITIONS AND METHODS FOR TREATING OBSTRUCTIVE SLEEP APNEA |  | January 2039 |  | THX-110
Australia |  | Pending |  | 22-Apr-2020 |  | COMPOSITIONS AND METHODS FOR POTENTIATING DERIVATIVES OF 4-AMINOPHENOLS |  | April 2040 |  |
Canada |  | Pending |  | 22-Apr-2020 |  | COMPOSITIONS AND METHODS FOR POTENTIATING DERIVATIVES OF 4-AMINOPHENOLS |  | April 2040 |  |
China |  | Published |  | 22-Apr-2020 |  | COMPOSITIONS AND METHODS FOR POTENTIATING DERIVATIVES OF 4-AMINOPHENOLS |  | April 2040 |  |
European Patent Convention(1) |  | Published |  | 22-Apr-2020 |  | COMPOSITIONS AND METHODS FOR POTENTIATING DERIVATIVES OF 4-AMINOPHENOLS |  | April 2040 |  |
Hong Kong |  | Published |  | 18-Mar-2022 |  | COMPOSITIONS AND METHODS FOR POTENTIATING DERIVATIVES OF 4-AMINOPHENOLS |  | April 2040 |  |
Israel |  | Pending |  | 22-Apr-2020 |  | COMPOSITIONS AND METHODS FOR POTENTIATING DERIVATIVES OF 4-AMINOPHENOLS |  | April 2040 |  |
India |  | To be Ababdoned |  | 22-Apr-2020 |  | COMPOSITIONS AND METHODS FOR POTENTIATING DERIVATIVES OF 4-AMINOPHENOLS |  | April 2040 |  |
Japan |  | Published |  | 22-Apr-2020 |  | COMPOSITIONS AND METHODS FOR POTENTIATING DERIVATIVES OF 4-AMINOPHENOLS |  | April 2040 |  |
Mexico |  | Pending |  | 22-Apr-2020 |  | COMPOSITIONS AND METHODS FOR POTENTIATING DERIVATIVES OF 4-AMINOPHENOLS |  | April 2040 |  |

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Country |  | Status |  | Filing Date |  | Title |  | Estimated Expiration Date |  | Product Covered
Russia |  | Published |  | 22-Apr-2020 |  | COMPOSITIONS AND METHODS FOR POTENTIATING DERIVATIVES OF 4-AMINOPHENOLS |  | April 2040 |  |
Hong Kong |  | Published |  | 20-Mar-2022 |  | COMPOSITIONS AND METHODS FOR POTENTIATING DERIVATIVES OF 4-AMINOPHENOLS |  | April 2040 |  |
United States of America |  | Published |  | 22-Apr-2020 |  | COMPOSITIONS AND METHODS FOR POTENTIATING DERIVATIVES OF 4-AMINOPHENOLS |  | April 2040 |  |
Canada |  | Expired |  | 12-Mar-2013 |  | HUMANIZED ANTIBODIES TO CLUSTER OF DIFFERENTIATION 3 (CD3) |  | March 2033 |  |
China |  | Pending |  | 12-Mar-2013 |  | HUMANIZED ANTIBODIES TO CLUSTER OF DIFFERENTIATION 3 (CD3) |  | March 2033 |  |
United Kingdom |  | Pending |  | 12-Mar-2013 |  | HUMANIZED ANTIBODIES TO CLUSTER OF DIFFERENTIATION 3 (CD3) |  | March 2033 |  |
Germany |  | Pending |  | 12-Mar-2013 |  | HUMANIZED ANTIBODIES TO CLUSTER OF DIFFERENTIATION 3 (CD3) |  | March 2033 |  |
France |  | Pending |  | 12-Mar-2013 |  | HUMANIZED ANTIBODIES TO CLUSTER OF DIFFERENTIATION 3 (CD3) |  | March 2033 |  |
United States of America |  | Granted |  | 12-Mar-2013 |  | HUMANIZED ANTIBODIES TO CLUSTER OF DIFFERENTIATION 3 (CD3) |  | March 2033 |  |
United States of America |  | Abandoned |  | 14-May-2018 |  | HUMANIZED ANTIBODIES TO CLUSTERS OF DIFFERENTIATION 3 (CD3) |  | March 2033 |  |
United States of America |  | Granted |  | 09-Jun-2020 |  | COMPOSITIONS AND METHODS OF POTENTIATING ANTIMICROBIALS |  | July 2037 |  |
United States of America |  | Abandoned |  | 11-Jan-2019 |  | COMPOSITIONS AND METHODS OF POTENTIATING ANTIMICROBIALS |  | July 2037 |  |
United States of America |  | Published |  | 29-Sep-2022 |  | COMPOSITIONS AND METHODS OF POTENTIATING ANTIMICROBIALS |  | July 2037 |  |
European Patent Convention(1) |  | Allowed |  | 11-Jan-2019 |  | COMPOSITIONS AND METHODS OF POTENTIATING ANTIMICROBIALS |  | July 2037 |  |

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Country |  | Status |  | Filing Date |  | Title |  | Estimated Expiration Date |  | Product Covered
China |  | Published |  | 11-Jan-2019 |  | COMPOSITIONS AND METHODS OF POTENTIATING ANTIMICROBIALS |  | July 2037 |  |
China |  | Pending |  | 21-Oct-2024 |  | COMPOSITIONS AND METHODS OF POTENTIATING ANTIMICROBIALS |  | July 2037 |  |
China |  | Pending |  | 21-Oct-2024 |  | COMPOSITIONS AND METHODS OF POTENTIATING ANTIMICROBIALS |  | July 2037 |  |
Canada |  | Abandoned |  | 13-Jul-2017 |  | COMPOSITIONS AND METHODS OF POTENTIATING ANTIMICROBIALS |  | July 2037 |  |
United States of America |  | Granted |  |  |  | * Compositions comprising CB receptor agonists, uses thereof and methods for their preparation |  | October 2029 |  | THX-160
United Kingdom |  | Granted |  |  |  | * Composition comprising cb receptor agonists and uses thereof |  | October 2029 |  | THX-160
Germany |  | Granted |  |  |  | * Composition comprising cb receptor agonists and uses thereof |  | October 2029 |  | THX-160
France |  | Granted |  |  |  | * Composition comprising cb receptor agonists and uses thereof |  | October 2029 |  | THX-160
Australia |  | Pending |  | 2-Aug-21 |  | METHODS FOR MAINTAINING MICROVASCULAR INTEGRITY |  | August 2041 |  |
Canada |  | Pending |  | 2-Aug-2021 |  | METHODS FOR MAINTAINING MICROVASCULAR INTEGRITY |  | August 2041 |  |
China |  | Published |  | 2-Aug-21 |  | METHODS FOR MAINTAINING MICROVASCULAR INTEGRITY |  | August 2041 |  |
European Patent Convention(1) |  | Published |  | 2-Aug-21 |  | METHODS FOR MAINTAINING MICROVASCULAR INTEGRITY |  | August 2041 |  |
Israel |  | Pending |  | 2-Aug-21 |  | METHODS FOR MAINTAINING MICROVASCULAR INTEGRITY |  | August 2041 |  |
India |  | Abandoned |  | 2-Aug-21 |  | METHODS FOR MAINTAINING MICROVASCULAR INTEGRITY |  | August 2041 |  |
Japan |  | Published |  | 2-Aug-21 |  | METHODS FOR MAINTAINING MICROVASCULAR INTEGRITY |  | August 2041 |  |
United States of America |  | Published |  | 2-Aug-21 |  | METHODS FOR MAINTAINING MICROVASCULAR INTEGRITY |  | August 2041 |  |
Hong Kong |  | Published |  | 7-Jun-2023 |  | METHODS FOR MAINTAINING MICROVASCULAR INTEGRITY |  | August 2041 |  |

We have an application to register the trademark CannAmide™ pending in the United States.

We have also been granted trademarks for Wellution® in Class 003 and Class 005 in the United States.

| (1) | Validation states are not listed separately.

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Sales and Transfer of Intellectual Property Assets

Transaction with Former Subsidiary

In June 2016, we entered into a share transfer agreement with our former subsidiary, Orimmune Bio Ltd., or Orimmune, and Karma Link Ltd., or Karma Link. According to the agreement, we agreed to sell our interests in Orimmune to Karma Link, and also use our best efforts to transfer to and assign Orimmune our rights in the Anti-CD3 technology.

On December 13, 2018, an additional amendment to the transfer agreement was signed, or the Additional Amendment, between us, Karma Link and Orimmune, under which it was agreed that Orimmune (and Karma Link) will be assigned certain rights in IP related to the licensed technology owned by us, subject to certain conditions precedent. In 2021, we received the approval of the IIA to complete the assignment and we are now seeking to complete the transaction. As of the date of this Annual Report on Form 20-F, the conditions precedent have not yet been completed and the assignment of the intellectual property rights related to the licensed technology owned by us has not yet been transferred.

MitoCareX

On March 10, 2022, we entered into a Founders and Investment Agreement with Dr. Alon Silberman, or the MitoCareX Agreement. Pursuant to the MitoCareX Agreement, we invested an initial amount of $700,000 in MitoCareX and agreed to invest over the next two years an additional $1,000,000, subject to the achievement of certain pre-determined milestones as agreed upon in the MitoCareX Agreement, for up to a 50.01% ownership in MitoCareX. MitoCareX is focused on the discovery and development of potential drugs for cancers and other life-threatening conditions. The MitoCareX Agreement also contains customary representations, warranties, covenants and indemnification provisions and on March 31, 2022, the closing conditions were met.

On February 17, 2023, we announced that MitoCareX has achieved its first milestone pursuant to the MitoCareX Agreement. The first milestone refers to the establishment of MitoCareX’s cloud-based computing infrastructure that is expected to allow its future expansion into machine learning system. The system is harnessed to investigating mitochondrial carriers that are crucial for cell viability. As a result of MitoCareX meeting this milestone, we invested an additional $400,000 in MitoCareX and increased our share ownership holdings in MitoCareX Bio from 31.48% to 41.92%.

On May 8, 2023, we announced that MitoCareX successfully developed its core algorithm for allowing the generation of reliable 3D comparative models of human SLC25A mitochondrial carrier proteins.

On November 27, 2023, we announced that MitoCareX achieved positive results with the development of its laboratory capabilities by establishing a variety of small-molecule screening platforms. With this development, MitoCareX achieved its second milestone pursuant to the MitoCareX Agreement and as a result, on March 11, 2024 we invested an additional $600,000 and increased our share ownership holdings in MitoCareX Bio from 41.92% to 52.73%.

On September 26, 2024, we signed a non-binding letter of intent relating to the sale of our entire ownership interest in MitoCareX to a publicly-traded company in the United States.

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On February 25, 2025, we entered into a securities purchase and exchange agreement, or the MitoCareX SPEA, together with MitoCareX, Dr. Alon Silberman and Prof. Ciro Leonardo Pierri, as the Sellers, pursuant to which the Sellers will sell their stakes in MitoCareX to the Purchaser, N2OFF, Inc., a Nevada corporation, or N2OFF, thereby resulting in MitoCareX becoming a wholly-owned subsidiary of N2OFF. The MitoCareX SPEA contains customary representations, warranties and covenants by each of the parties. The closing of the MitoCareX SPEA is contingent upon, among other customary obligations, obtaining approval of N2OFF’s stockholders by the requisite majority.

On the closing date of the transactions contemplated under the MitoCareX SPEA, we will transfer and sell our stake in MitoCareX to N2OFF in consideration for a cash payment of $700,000 and shares of N2OFF common stock, par value $0.0001 per share, or the N2OFF Common Stock, representing 16.75% of N2OFF on a fully-diluted basis. The sale of our stake in MitoCareX is contingent upon the transfer of the other Sellers’ stakes to N2OFF in exchange for agreed to amounts of N2OFF Common Stock. Either party may terminate the MitoCareX SPEA if the closing date has not occurred within ninety days of February 25, 2025.

Following the closing date of the MitoCareX SPEA, the Sellers may receive such number of additional shares of N2OFF Common Stock, for no additional consideration, that reflects an aggregate amount of up to 25% of the issued and outstanding capital stock of N2OFF on a fully-diluted basis, or the Additional N2OFF Stock, which Additional N2OFF Stock, if the respective milestones are achieved as defined in the MitoCareX SPEA, will be duly issued in installments based on the achievement of each milestone, as set forth in the MitoCareX SPEA, and will be allocated amongst the Sellers as follows: 50% to us, 33.33% to Mr. Silberman and 16.67% to Mr. Pierri. The Sellers’ eligibility to receive Additional N2OFF Stock will terminate on December 31, 2028, such that if a specific milestone is not achieved and therefore the right to receive the respective number of shares of Additional N2OFF Stock issuable upon the achievement of such milestone is not earned by December 31, 2028, the right to receive the number of shares of Additional N2OFF Stock attributable to any such non-achieved milestone pursuant to the MitoCareX SPEA will terminate.

Commercialization

Although we started early commercialization of our proprietary PEA oral tablets CannAmide™, we intend to build a global commercial infrastructure to effectively support the commercialization of our main pharmaceutical product candidates, if and when we believe regulatory approval of a pharmaceutical product candidate in a particular geographic market appears imminent.

To develop the appropriate commercial infrastructure, we will likely have to invest significant amounts of financial and management resources, some of which we expect to commit prior to completing the regulatory process for our pharmaceutical product candidates. Where appropriate, we may elect in the future to utilize strategic partners, distributors, or contract sales forces to assist in the commercialization of our pharmaceutical products. In certain instances we may consider building our own commercial infrastructure.

In June 2023, we entered into a license and distribution agreement with SciSparc Nutraceuticals pursuant to which we granted SciSparc Nutraceuticals an exclusive license to sell and market its PEA oral tablets, CannAmide™ on Amazon Marketplace in Canada. Effective as of June 7, 2024, SciSparc Nutraceuticals and we entered into an amendment to the license and distribution agreement to amend the term of the license and distribution agreement to an indefinite term, unless terminated by either party upon 30 days advanced notice.

Competition

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our scientific knowledge, technology and development experience provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.

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The first THC-based pharmaceutical, a pill sold under the commercial name of Marinol (scientific name: dronabinol), was developed by a company called Unimed Pharmaceuticals, with funding provided by the National Cancer Institute. In 1985, Marinol received FDA approval as a treatment for chemotherapy-related nausea and vomiting. Today, Marinol is marketed by AbbVie, Inc. Since the introduction of Marinol into the market, other pharmaceuticals containing THC have also been developed. These include generic oral capsules of dronabinol, such as those marketed by SVC Pharma LP and Akorn Inc., Meda AB’s Cesamet (nabilone), a synthetic derivative of THC, and Sativex (nabiximols), a whole cannabis extract administered as an oral spray. Furthermore, to the best of our knowledge, there are multiple companies that are working in the cannabis therapeutic area and are pursuing regulatory approval for their product candidates. For example, GW, which markets Sativex, a botanical cannabinoid oral mucosal for the treatment of spasticity due to multiple sclerosis, received FDA approval in the United States in June 2018 for Epidiolex, a liquid formulation of highly purified cannabidiol extract, as a treatment for Dravet’s Syndrome, Lennox Gastaut Syndrome, and various childhood epilepsy syndromes. In addition, GW is developing, among others, CBDV based therapy for ASD and therapy for neonatal hypoxic-ischemic encephalopathy and schizophrenia. Zynerba is developing a transdermal formulation of cannabidiol for Fragile X and certain refractory epilepsies and ASD. Skye is focused on developing proprietary, synthetic cannabinoid-derived molecules to treat glaucoma and other diseases with significant unmet need. Corbus Pharmaceuticals Holdings is seeking FDA approval for their synthetic cannabinoid for systemic sclerosis, cystic fibrosis, dermatomyositis and systemic lupus erythematosus and metabolism and solid tumors. RespireRx is developing dronabinol for OSA treatment. Synendos is a developer of endocannabinoid modulators for the treatment of CNS disorders. It has developed pharmaceutical products to restore the natural function of the brain and treat neuropsychiatric disorders. Synendos is developing small molecules as selective endocannabinoid reuptake inhibitors that increase the levels of endogenous cannabinoids to treat CNS disorders caused by cannabinoid deficiency. Inversago Pharma (formerly GIcare Pharma) is focused on developing peripheral cannabinoid (CB1) receptor antagonist/inverse agonist for the treatment of metabolic diseases such as obesity, insulin resistance, and liver fibrosis. Its drug INV-101 (Inverse agonist of peripheral CB1) under phase-1.

Our competitors, either alone or through their strategic partners, might have substantially greater name recognition and financial, technical, manufacturing, marketing and human resources than we do and significantly greater experience and infrastructure in researching and developing pharmaceutical products, obtaining FDA and other regulatory approvals of those products and commercializing those products around the world. They may also have intellectual property portfolios that provide them with significant competitive advantages or create substantial barriers in our target markets.

Manufacturing

We currently contract with third parties for the manufacturing and testing of our product candidates for preclinical trials and clinical trials and also intend to do so in the future. We do not own or operate manufacturing facilities for the production of clinical quantities of our product candidates. The use of contracted manufacturing and reliance on collaboration partners is relatively cost-efficient and may eliminate the need to directly invest in manufacturing facilities and additional staff.

To date, our third-party manufacturers have met our manufacturing requirements. We expect third-party manufacturers to be capable of providing sufficient quantities of our product candidates to meet anticipated full scale commercial demands. To meet our projected needs for commercial manufacturing, third parties with whom we currently work might need to increase their scale of production, or we will need to secure alternate suppliers. We believe that there are alternate sources of supply that can satisfy our clinical and commercial requirements, although we cannot be certain that identifying and establishing relationships with such sources, if necessary, would not result in significant delay or material additional costs.

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Government Regulation

FDA Approval Process

In the United States, pharmaceutical product candidates are subject to extensive regulation by the FDA. The FDC Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion, marketing, distribution, post-approval monitoring, reporting, sampling, and import and export of pharmaceutical drug product candidates. Failure to comply with applicable U.S. rules and regulations may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending NDAs, warning letters, product candidate recalls, product candidate seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.

Pharmaceutical drug product candidate development in the United States typically involves pre-clinical laboratory and animal testing, the submission to the FDA of an IND Application, which must become effective before clinical testing may commence, and adequate, well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product candidate or disease.

Nonclinical tests include laboratory evaluation of an API or drug substance and drug product’s candidate chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product candidate. The conduct of the nonclinical toxicology studies must comply with federal regulations and requirements, including GLP. The results of nonclinical testing are submitted to the FDA as part of an IND along with other information, including information about product candidate chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long term nonclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.

A 30-day waiting period after the submission of an original IND is required prior to the commencement of clinical testing in humans. If the FDA has not imposed a clinical hold on the IND or otherwise commented or questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin. In practice, a submitting party should contact the division after this 30 day period to ensure that the FDA has reviewed the IND to the extent that they can assure there will be no hold placed on the IND if the FDA has not responded to the Company within this period.

Clinical trials involve the administration of the investigational product to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations, (ii) in compliance with GCP, an international standard meant to protect the rights and health of patients to ensure the quality of the trial and to define the roles of clinical trial sponsors, administrators and monitors. Clinical protocols and details of the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol and any amendment involving testing of U.S. study subjects within the United States and subsequent protocol amendments must be submitted to the FDA as part of the IND.

The FDA may order the temporary hold of a clinical trial at any time or impose other sanctions if the FDA believes that the clinical trial either is not being conducted in accordance with FDA requirements, regulations or presents a potentially unacceptable risk to the clinical trial subjects. The trial protocol and informed consent information for subjects in clinical trials must also be submitted to an IRB for approval. An IRB may impose other conditions for the protocol and may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements.

505(b)(2) Regulatory Approval Process

Section 505(b)(2) of the FDC Act, or 505(b)(2), provides a regulatory pathway to FDA approval for new or improved formulations or new uses of previously approved drug products. Specifically, 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference, or use from the person by or for whom the investigations were conducted. The applicant may rely upon the FDA’s prior findings of safety and efficacy for an approved product that acts as the reference listed drug for purposes of a 505(b)(2) NDA. The FDA may also require 505(b)(2) applicants to perform additional studies or measurements to support any changes from the reference listed drug. The FDA may then approve the new product candidate for all or some of the labeled indications for which the referenced product has been approved, as well as for any new indication sought by the 505(b)(2) applicant.

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Orange Book Listing

Section 505 of the FDC Act describes three types of marketing applications that may be submitted to the FDA to request marketing authorization for a new drug. A Section 505(b)(1) NDA is an application that contains full reports of investigations of safety and efficacy. A Section 505(b)(2) NDA is an application that contains full reports of investigations of safety and efficacy, but where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. This regulatory pathway enables the applicant to rely, in part, on the FDA’s prior findings of safety and efficacy for an existing product, or published literature, in support of its application.

In seeking approval for a drug through an NDA, including a 505(b)(2) NDA, applicants are required to list with the FDA patents whose claims cover the applicant’s product. Upon approval of an NDA, each of the patents listed in the application for the drug is then published in Approved Drug Products with Therapeutic Equivalence Evaluations, also known as the Orange Book. These products may be cited by potential competitors in support of approval of a 505(b)(2) NDA.

Any applicant who submits a 505(b)(2) NDA referencing a drug listed in the Orange Book must certify to the FDA that (1) no patent information on the drug product that is the subject of the application has been submitted to the FDA; (2) such patent has expired; (3) the date on which such patent expires; or (4) such patent is invalid or will not be infringed upon by the manufacture, use or sale of the drug product for which the application is submitted. This last certification is known as a Paragraph IV certification. Generally, 505(b)(2) NDA cannot be approved until all listed patents have expired, except where 505(b)(2) NDA applicant challenges a listed patent through a Paragraph IV certification. If the applicant does not challenge the listed patents or does not indicate that it is not seeking approval of a patented method of use, the 505(b)(2) NDA application will not be approved until all of the listed patents claiming the referenced product have expired.

Although some of our product candidates are based on repurposed drugs, there are at present no patents or other exclusivities listed in the Orange Book pertaining to a product containing the active ingredient dronabinol.

Exclusivity

Three-year exclusivity is available to the holder of an NDA, including a 505(b)(2) NDA, for a particular condition of approval, or change to a marketed product, such as a new formulation for a previously approved product, if one or more new clinical trials, other than bioavailability or bioequivalence trials, was essential to the approval of the application and was conducted or sponsored by the applicant. This three-year exclusivity period protects against FDA approval of 505(b)(2) NDAs for the condition of the new drug’s approval. As a general matter, three-year exclusivity does not prohibit the FDA from approving 505(b)(2) NDAs for generic versions of the original, unmodified drug product. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and efficacy.

NDA Submission and Review by the FDA

Assuming successful completion of the required clinical and nonclinical testing, among other items, the results of product development, including chemistry, manufacture and controls, nonclinical studies and clinical trials are submitted to the FDA, along with proposed labeling, as part of an NDA. The submission of an NDA requires payment of a substantial user fee to the FDA. These user fees must be paid at the time of the first submission of the application, even if the application is being submitted on a rolling basis. Fee waivers or reductions are available in some circumstances. One basis for a waiver of the application user fee is if the applicant employs fewer than 500 employees, including employees of affiliates, the applicant does not have an approved marketing application for a product that has been introduced or delivered for introduction into interstate commerce, and the applicant, including its affiliates, is submitting its first marketing application.

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The cost of preparing and submitting an NDA is substantial, mainly due to the non-clinical and clinical trial costs. Under federal law, the submission of most NDAs is additionally subject to a substantial application user fee; the fee in the financial year 2024 was $4,048,695.

The FDA has 60 or 74 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of NDAs. Most such applications for standard review drug product candidates are reviewed within 10 to 12 months, while most applications for priority review drugs are reviewed within six months. Priority review can be applied to drugs that the FDA determines offer major advances in treatment or provide a treatment where no adequate therapy exists. The review process for both standard and priority review may be extended by FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.

The FDA may also refer applications for novel drug product candidates, or drug product candidates that present difficult questions of safety or efficacy, to an advisory committee, which is typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA may inspect the facility or the facilities at which the drug substance and drug product are manufactured. The FDA will not approve the drug product candidate unless compliance with cGMP is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.

After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of requested information.

An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a REMS plan to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for health care professionals, and ETASU. An ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product candidate approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product candidate approvals may be withdrawn if compliance with regulatory standards is not maintained related to the manufacture, safety or effectiveness or problems are identified following initial marketing.

Disclosure of Clinical Trial Information

Sponsors of clinical trials of certain FDA-regulated product candidates, including prescription drugs, are required to register and disclose certain clinical trial information on a public website (clinicaltrials.gov) which is maintained by the U.S. National Institutes of Health. Information related to the product candidate, patient population, phase of investigation, study sites and investigator, and other aspects of the clinical trial is made public as part of the registration. Sponsors are also obligated to disclose the results of these trials after completion. Disclosure of the results of these trials can be delayed until the product candidate drug product or new indication being studied has been approved. Competitors may use this publicly available information to gain knowledge regarding the design and progress of our development programs.

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Fast Track Designation and Accelerated Approval

The FDA has programs to facilitate the development, and thus expedite the review, of drugs that are intended for the treatment of a serious or life-threatening disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. These therapies for serious conditions are approved and available to patients as soon as it can be concluded that the therapies’ benefits outweigh their risk. Under the Fast Track Program, the sponsor of a new drug candidate may request that FDA designate the drug candidate for a specific indication as a Fast Track drug concurrent with, or after, the filing of the IND for the drug candidate. FDA must determine if the drug candidate qualifies for Fast Track designation within 60 days of receipt of the sponsor’s request.

Under the FDA’s accelerated approval regulations, FDA may approve a drug for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit. Accelerated approval may also be based on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, considering the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments.

In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A drug product that is approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of confirmatory or post-approval clinical trial(s) or registries to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, will allow FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated approval regulations are subject to prior review by FDA.

In addition to other benefits such as the ability to use surrogate endpoints and engage in more frequent interactions with FDA, FDA may initiate review of sections of a Fast Track drug’s NDA before the application is complete. This rolling review is available if the applicant provides, and FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, FDA’s time period goal for reviewing an application does not begin until the last section of the NDA is submitted. Additionally, the Fast Track designation may be withdrawn by FDA if FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

Patent Term Extension

After NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension. The allowable patent term extension is calculated as half of the drug’s testing phase, the time between IND submission and NDA submission, and all of the review phase-the time between NDA submission and approval up to a maximum of five years. The time can be shortened if FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years.

For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the USPTO must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.

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Advertising and Promotion

Once an NDA is approved, a drug product will be subject to certain post-approval requirements. Products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including manufacturing, periodic reporting, product sampling and distribution, advertising, promotion, drug shortage reporting, compliance with any post-approval requirements imposed as a conditional of approval such as Phase 4 clinical trials, REMS and surveillance, recordkeeping and reporting requirements, including adverse experiences. For instance, FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet.

Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application. The FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.

Adverse Event Reporting and GMP Compliance

Adverse event reporting and submission of periodic reports are required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS and surveillance to monitor the effects of an approved product candidate, or the FDA may place conditions on an approval that could restrict the distribution or use of the drug product. In addition, quality-control, drug manufacture, packaging, and labeling procedures must continue to conform with cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the FDA inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMPs. Regulatory authorities may withdraw product candidate approvals or request product candidate recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing or if previously unrecognized problems are subsequently discovered.

Pediatric Exclusivity and Pediatric Use

The Best Pharmaceuticals for Children Act, or BPCA, provides NDA holders a six-month extension of any exclusivity-patent or non-patent-for a drug if certain conditions are met. Conditions for exclusivity include a determination by the FDA that information relating to the use of a new drug in the pediatric population may produce health benefits in that population; a written request by the FDA for pediatric studies; and agreement by the applicant to perform the requested studies and the submission to the FDA; and the acceptance by the FDA, of the reports of the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications.

In addition, under the Pediatric Research Equity Act, or PREA, NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective, unless the sponsor has received a deferral or waiver from the FDA. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted with the exception of certain oncological indications. The required pediatric assessment must assess the safety and effectiveness of the product candidate for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product candidate is safe and effective. The sponsor or FDA may request a deferral of pediatric studies for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric studies are complete or that additional safety or effectiveness data need to be collected before the pediatric studies begin. Under PREA, the FDA must send a non-compliance letter requesting a response with 45 days to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.

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Orphan Drugs

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition-generally a disease or condition with a prevalence of fewer than 200,000 individuals in the United States. Orphan drug designation must be requested and granted before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with an FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the United States for that drug product candidate for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product candidate with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee. In addition to the potential seven years of market exclusivity after approval, orphan drug designation status qualifies sponsors for tax credits for qualified clinical trials and exemption from user fees.

Special Protocol Assessment

A company may reach an agreement with the FDA under the Special Protocol Assessment, or SPA, process as to the required design and size of clinical trials intended to form the primary basis of an efficacy claim. According to its performance goals, the FDA is supposed to evaluate the protocol within 45 days of the request to assess whether the proposed trial is adequate, and that evaluation may result in discussions and a request for additional information. An SPA request must be made, and all open issues must be resolved before the clinical trial begins. If a written agreement is reached, it will be documented and made part of the administrative record. Under the FDC Act and FDA guidance implementing the statutory requirement, an SPA is generally binding upon the FDA except in limited circumstances, such as if the FDA identifies a substantial scientific issue essential to determining safety or efficacy after the study begins, public health concerns emerge that were unrecognized at the time of the protocol assessment, the sponsor and FDA agree to the change in writing, or if the study sponsor fails to follow the protocol that was agreed upon with the FDA.

Controlled Substances

The CSA and its implementing regulations establish a “closed system” of regulations for controlled substances. The CSA imposes registration, security, recordkeeping and reporting, storage, manufacturing, distribution, importation and other requirements under the oversight of the DEA. The DEA is the federal agency responsible for regulating controlled substances, and requires those individuals or entities that manufacture, import, export, distribute, research, or dispense controlled substances to comply with the regulatory requirements in order to prevent the diversion of controlled substances to illicit channels of commerce.

The DEA categorizes controlled substances into one of five schedules-Schedule I, II, III, IV or V-with varying qualifications for listing in each schedule. Schedule I substances by definition have a high potential for abuse, have no currently accepted medical use in treatment in the United States and lack accepted safety for use under medical supervision. Schedule I substances may be used only in federally approved research programs and may not be marketed or sold for dispensing to patients in the United States. Pharmaceutical product candidates having a currently accepted medical use that are otherwise approved for marketing may be listed as Schedule II, III, IV or V substances, with Schedule II substances presenting the highest potential for abuse and physical or psychological dependence, and Schedule V substances presenting the lowest relative potential for abuse and dependence. The regulatory requirements are more restrictive for Schedule II substances than Schedule III substances. For example, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist in most situations and cannot be refilled.

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Following NDA approval of a drug containing a Schedule I controlled substance, that substance must be rescheduled as a Schedule II, III, IV or V substance before it can be marketed. In 2015, the Improving Regulatory Transparency for New Medical Therapies Act, removed uncertainty associated with timing of the DEA rescheduling process after NDA approval. Specifically, it requires DEA to issue an “interim final rule,” pursuant to which a manufacturer may market its product candidate within 90 days of FDA approval. The new law also preserves the period of orphan marketing exclusivity for the full seven years such that this period only begins after DEA scheduling. This contrasts with the previous situation whereby the orphan “clock” began to tick upon FDA approval, even though the product candidate could not be marketed until DEA scheduling was complete.

Facilities that manufacture, distribute, import or export any controlled substance must register annually with the DEA. The DEA registration is specific to the particular location, activity(ies) and controlled substance schedule(s). For example, separate registrations are required for importation and manufacturing activities, and each registration authorizes which schedules of controlled substances the registrant may handle. However, certain coincident activities are permitted without obtaining a separate DEA registration, such as distribution of controlled substances by the manufacturer that produces them.

The DEA inspects all manufacturing facilities to review security, recordkeeping, reporting and handling prior to issuing a controlled substance registration. The specific security requirements vary by the type of business activity and the schedule and quantity of controlled substances handled. The most stringent requirements apply to manufacturers of Schedule I and Schedule II substances. Required security measures commonly include background checks on all employees and physical control of controlled substances through storage in approved vaults, safes and cages, and through use of alarm systems and surveillance cameras. An application for a manufacturing registration as a bulk manufacturer (not a dosage form manufacturer or a repacker/relabeler) for a Schedule I or II substance must be published in the Federal Register, and the application is open for 30 days to permit interested persons to submit comments, objections or requests for a hearing. A copy of the notice of the Federal Register publication is forwarded by DEA to all those registered, or applicants for registration, as bulk manufacturers of that substance. Once registered, manufacturing facilities must maintain records documenting the manufacture, receipt and distribution of all controlled substances. Manufacturers must submit periodic reports to the DEA of the distribution of Schedule I and II controlled substances, Schedule III narcotic substances, and other designated substances. Registrants must also report any controlled substance thefts or significant losses, and must obtain authorization to destroy or dispose of controlled substances. As with applications for registration as a bulk manufacturer, an application for an importer registration for a Schedule I or II substance must also be published in the Federal Register, which remains open for 30 days for comments. Imports of Schedule I and II controlled substances for commercial purposes are generally restricted to substances not already available from domestic supplier or where there is not adequate competition among domestic suppliers. In addition to an importer or exporter registration, importers and exporters must obtain a permit for every import or export of a Schedule I and II substance or Schedule III, IV and V narcotic, and submit import or export declarations for Schedule III, IV and V non-narcotics. In some cases, Schedule III non-narcotic substances may be subject to the import/export permit requirement, if it is necessary to ensure that the United States complies with its obligations under international drug control treaties.

For drugs manufactured in the United States, the DEA establishes annually an aggregate quota for the amount of substances within Schedules I and II that may be manufactured or produced in the United States based on the DEA’s estimate of the quantity needed to meet legitimate medical, scientific, research and industrial needs. This limited aggregate amount of cannabis that the DEA allows to be produced in the United States each year is allocated among individual companies, which, in turn, must annually apply to the DEA for individual manufacturing and procurement quotas. The quotas apply equally to the manufacturing of the API/drug substance and production of dosage forms. The DEA may adjust aggregate production quotas a few times per year, and individual manufacturing or procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments for individual companies.

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Individual states may also maintain separate controlled substance laws and regulations, including licensing, recordkeeping, security, distribution, and dispensing requirements. State Authorities, including Boards of Pharmacy, regulate use of controlled substances in each state. Failure to maintain compliance with applicable requirements, particularly as manifested in the loss or diversion of controlled substances, can result in enforcement action that could have a material adverse effect on our business, operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal prosecution.

Europe/Rest of World Government Regulation

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products to the extent we choose to develop or sell any products outside of the United States. The approval process varies from country to country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

Regardless of whether we obtain FDA approval for a product candidate, we must obtain the requisite approvals from regulatory authorities in non-U.S. countries prior to the commencement of clinical trials or marketing of the product candidate in those countries. Certain countries outside of the United States have a process that requires the submission of a Clinical Trial Application, or CTA, much like an IND prior to the commencement of human clinical trials. In Europe, for example, a CTA must be submitted to the competent national health authority and to independent ethics committees in each country in which a company intends to conduct clinical trials pursuant to European Clinical Trials Regulation regulations. Once the CTA is approved in accordance with a country’s requirements, clinical trial development may proceed in that country.

The requirements and process governing the conduct of clinical trials, product candidate licensing, pricing and reimbursement vary from country to country, even though there is already some degree of legal harmonization in the European Union member states resulting from the national implementation of underlying European Union legislation. In all cases, the clinical trials are conducted in accordance with GCP and other applicable regulatory requirements.

To obtain regulatory approval of an investigational drug under the European Union. regulatory systems, we must submit a MAA. This application is similar to the NDA in the United States, with the exception of, among other things, country-specific document requirements. Drugs can be authorized in the European Union by using (i) the centralized authorization procedure, (ii) the Mutual Recognition Procedure, or MRP, (iii) the decentralized procedure or (iv) national authorization procedures. The initial Sativex approvals were a consequence of an application under the de-centralized procedure to the European Union member state of Spain acting as reference member state.

The European Commission implemented the centralized procedure for the approval of human drugs to facilitate marketing authorizations that are valid throughout the European Economic Area, or EEA. This procedure results in a single marketing authorization granted by the European Commission that is valid across the European Union, as well as in Iceland, Liechtenstein and Norway (forming together the EEA). The centralized procedure is compulsory for human drugs that are: (i) derived from biotechnology processes, such as genetic engineering, (ii) contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative diseases, autoimmune and other immune dysfunctions and viral diseases, (iii) officially designated “orphan drugs” (drugs used for rare human diseases) and (iv) advanced-therapy medicines, such as gene- therapy, somatic cell-therapy or tissue-engineered medicines. The centralized procedure may at the request of the applicant also be used for human drugs which do not fall within the above mentioned categories if the human drug (a) contains a new active substance which, on the date of entry into force of this Regulation, was not authorized in the Community; or (b) the applicant shows that the medicinal product candidate constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization in the centralized procedure is in the interests of patients or animal health at the European Community level.

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Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of a MAA by the EMA is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the Committee for Medicinal Products for Human Use, or CHMP, with adoption of the actual marketing authorization by the European Commission thereafter. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product candidate is expected to be of a major public health interest from the point of view of therapeutic innovation, defined by three cumulative criteria: (1) the seriousness of the disease to be treated; (2) the absence of an appropriate alternative therapeutic approach, and (3) anticipation of exceptional high therapeutic benefit. In this circumstance, EMA ensures that the evaluation for the opinion of the CHMP is completed within 150 days and the opinion issued thereafter.

Should any Member State refuse to recognize the marketing authorization by the reference member state in a decentralized procedure, on the grounds of potential serious risk to public health, the issue will be referred to the Committee for the Mutual Recognition and Decentralized Procedures human. Within a timeframe of 60 days, member states shall, within the coordination group, make all efforts to reach a consensus. If this fails, the procedure is submitted to the CHMP for arbitration. The opinion of the CHMP is then forwarded to the Commission, for the start of the decision making process. As in the centralized procedure, this process entails consulting various European Commission Directorates General and the Standing Committee on Human Medicinal Product candidates or Veterinary Medicinal Product candidates, as appropriate. Since the initial approvals of Sativex in the United Kingdom and Spain, there have been three “waves” of additional approvals under three separate MRPs. Each of these procedures have been completed without any referral, and therefore without any delay.

For other countries outside of the European Union, the requirements governing the conduct of clinical trials, product candidate licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCP and the other applicable regulatory requirements.

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension of clinical trials, suspension or withdrawal of regulatory approvals, product candidate recalls, seizure of product candidates, operating restrictions and criminal prosecution.

In addition, most countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control of narcotic substances, including cannabis extracts. Countries may interpret and implement their treaty obligations in a way that creates a legal obstacle to our obtaining marketing approval for Sativex and our other product candidates in those countries. These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit Sativex or our other product candidates to be marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time. In that case, we would be unable to market our product candidates in those countries in the near future or perhaps at all.

Expanded Access to Investigational Drugs in the U.S.

An investigational drug may be eligible for clinical use outside the context of a manufacturer’s clinical trial of the drug. “Expanded access” refers to the use of an investigational drug where the primary purpose is to diagnose, monitor, or treat a patient’s disease or condition rather than to collect information about the safety or effectiveness of a drug. Expanded access INDs are typically sponsored by individual physicians to treat patients who fall into one of three FDA-recognized categories of expanded access: expanded access for individual patients, including for emergency use; expanded access for intermediate-size patient populations; and expanded access for large patient populations under a treatment IND or treatment protocol. For all types of expanded access, the FDA must determine prior to authorizing expanded access that: (1) the patient or patients to be treated have a serious or life threatening disease or condition and there is no comparable or satisfactory alternative therapy; (2) the potential patient benefit justifies the potential risks of use and that the potential risks are not unreasonable in the context of the disease or condition to be treated; and (3) granting the expanded access will not interfere with the initiation, conduct, or completion of clinical studies in support of the drug’s approval. In addition, the sponsor of an expanded access IND must submit IND safety reports and, in the cases of protocols continuing for one year or longer, annual reports to the FDA. Expanded access programs are not intended to yield information relevant to evaluating a drug’s effectiveness for regulatory purposes. If a patient enrolled in one of our clinical trials is not eligible or able to continue enrollment, we may be required to continue to provide our product candidate to such patient through expanded access.

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Pricing and Reimbursement in the U.S.

Sales of pharmaceutical product candidates in the United States will depend, in part, on the extent to which the costs of the product candidates will be covered by third-party payors, such as government health programs, commercial insurance and managed health care organizations. These third-party payors are increasingly challenging the prices charged for medical product candidates and services. Additionally, the containment of health care costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The United States government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic product candidates. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. If these third-party payors do not consider our product candidates to be cost-effective compared to other available therapies, they may not cover our product candidates after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our product candidates on a profitable basis.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries and included a major expansion of the prescription drug benefit under Medicare Part D. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for product candidates for which we receive marketing approval. However, any negotiated prices for our product candidates covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payers.

The ACA was enacted in March 2010. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the law. The ACA may be modified, amended or repealed at any time and may or may not be replaced with a different law or health care payment system. The ACA is expected to continue to have a significant impact on the health care industry. With regard to pharmaceutical product candidates, among other things, the ACA may expand and increase industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare Part D program. Since the enactment of the ACA, numerous regulations have been issued providing further guidance on its requirements. The ACA continues to be implemented through regulation and government activity but is subject to possible amendment, additional implementing regulations and interpretive guidelines. Several states have decided not to expand their Medicaid programs and are seeking alternative reimbursement models to provide care to the uninsured. The manner in which these issues are resolved could materially affect the extent to which and the amount at which pharmaceuticals are reimbursed by government programs such as Medicare, Medicaid and Tricare. We are unable to predict the full impact of any potential modification, amendment, or repeal of the ACA.

Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and adequate reimbursement for our products, once approved, and related treatments will be available from third-party payors, such as government health administration authorities, private health insurers and managed care organizations. Third-party payors determine which medications they will cover and separately establish reimbursement levels. Even if we obtain coverage for a given product by a third-party payor, the third-party payor’s reimbursement rates may not be adequate to make the product affordable to patients or profitable to us, or the third-party payors may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided, and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available.

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Government authorities and other third-party payors are developing increasingly sophisticated methods of controlling healthcare costs, such as by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices as a condition of coverage, are using restrictive formularies and preferred drug lists to leverage greater discounts in competitive classes and are challenging the prices charged for medical products. Further, no uniform policy for determining coverage and reimbursement for drug products exists among third-party payors in the United States. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

We cannot be sure that coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, that the level of reimbursement will be adequate. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If coverage and reimbursement are not available, or if reimbursement is available only to limited levels, we may not successfully commercialize any product candidate for which we obtain marketing approval.

As a condition of receiving Medicaid coverage for prescription drugs, the Medicaid Drug Rebate Program requires manufacturers to calculate and report to CMS their AMP, which is used to determine rebate payments shared between the states and the federal government and, for some multiple source drugs, Medicaid payment rates for the drug, and for drugs paid under Medicare Part B, to also calculate and report their average sales price, which is used to determine the Medicare Part B payment rate for the drug. In January 2016, CMS issued a final rule regarding the Medicaid Drug Rebate Program, effective April 1, 2016, that, among other things, revised the manner in which the AMP is calculated by manufacturers participating in the program and implemented certain amendments to the Medicaid rebate statute created under the ACA. Drugs that are approved under an NDA, including a 505(b)(2) NDA, are subject to an additional requirement to calculate and report the manufacturer’s best price for the drug and inflation penalties which can substantially increase rebate payments. On December 21, 2020, CMS issued a final rule that made changes to the Medicaid Drug Rebate Program regulations in several areas, including some changes to the treatment of value-based purchasing arrangements and price reporting for patient benefit programs sponsored by pharmaceutical manufacturers.

For NDA drugs, the Veterans Health Care Act of 1992 requires manufacturers to calculate and report to the Department of Veterans Affairs a different price called the Non-Federal AMP, offer the drugs for sale on the Federal Supply Schedule, and charge the government no more than a statutory price referred to as the Federal Ceiling Price, which includes an inflation penalty. A separate law requires manufacturers to pay rebates on these drugs when paid by the Department of Defense under its TRICARE Retail Pharmacy Program. Knowingly submitting false pricing information to the government creates potential federal False Claims Act liability.

Further, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted legislation at the federal and state levels designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program reimbursement methodologies for drugs. We expect that the pharmaceutical industry will continue to experience pricing pressures due to the trend toward managed healthcare, particularly towards specialty pharmacy, the increasing influence of managed care organizations, and additional legislative proposals. For example, CMS issued an interim final rule on November 27, 2020 designed to test whether a Most-Favored-Nation model will help control growth in spending for Medicare Part B drugs without adversely affecting quality of care. This followed an Executive Order issued in September 2020 that directed the Secretary of DHHS to implement new payment models under the Medicare Part B and Part D programs to curb “unfair” and high drug prices in the United States. Implementation of this interim final rule was blocked by a temporary restraining order and preliminary injunctions through various court actions and CMS published a final rule on December 27, 2021 that rescinded the interim final rule. Nonetheless, we expect that there will continue to be a number of U.S. federal and state proposals to implement governmental pricing controls and limit the growth of healthcare costs, including the cost of prescription drugs. It is unknown what form any such changes or any law would take, and how or whether it may affect the biopharmaceutical industry as a whole or our business in the future. We expect that changes or additions to the ACA, the Medicare and Medicaid programs, such as changes allowing the federal government to directly negotiate drug prices, and changes stemming from other healthcare reform measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a material adverse effect on the health care industry in the United States.

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At the state level, legislatures have been increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, drug price increases, and, in some cases, designed to encourage importation from other countries and bulk purchasing. On the federal level, the Trump Administration issued a final rule in 2020 for the safe importation of drugs from Canada and other countries. Per this rule, the FDA authorized its first section 804 importation program, or SIP, a program allowing the State of Florida to import certain prescription products from Canada. Section 804 (21 U.S.C. § 384) of the Federal Food, Drug, and Cosmetic Act provides a pathway for U.S. states and Indian tribes to allow importation of certain prescription drugs from Canada. Programs under this pathway must significantly reduce the cost of these drugs to the American consumer without imposing additional risk to public health and safety. As the first program of its kind, we have yet to see how this Program will be implemented and what specific products will be imported. There is much opposition from the biopharmaceutical industry regarding this Program, but if Florida can execute it as planned, it may signal a trend in the U.S. The practical implications of SIPs, and their implications for the biopharmaceutical industry as a whole or our business in particular remain to be determined.

In July 2021, the Biden administration issued an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at increasing competition for prescription drugs. The DHHS has released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and potential legislative policies that Congress could pursue to advance these principles. While no legislation or administrative actions have been finalized to implement these principles, Congress is considering legislation that, if passed, could have significant impact on prices of prescription drugs covered by Medicare, including limitations on drug price increases and allowing Medicare to negotiate pricing for certain covered drug products. The impact of these legislative, executive, and administrative actions and any future healthcare measures and agency rules implemented by the Biden administration on us and the pharmaceutical industry as a whole is unclear. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize any of the product candidates for which we receive approval.

The passage of the Inflation Reduction Act, or the IRA, of 2022 further affects Medicare reimbursement. The IRA has three key elements reforming Medicare drug-pricing policy. The implementation of certain elements of the IRA are still forthcoming, as outlined below, so the specific implications for biopharmaceutical pricing and reimbursement are yet to be determined. Likewise, we are unable to predict potential modification, amendment, or repeal of the IRA, though some predict that challenges may be made as different provisions are enacted.

As the first key element, the IRA created a program for Medicare drug-price negotiation, enabling the Secretary of DHHS to negotiate the prices of certain costly, single-source drugs or biologics within the Medicare program. Certain drugs and biologics are excluded from this negotiation process, such as drugs that are less than 9 years, and biologics less than 13 years, from their FDA-approval or licensure date, and drugs with an orphan designation as their only FDA-approved indication. The first set of these negotiated prices will not take effect until 2026.

Second, the IRA requires drug manufacturers to pay rebates to the federal government for price increases above the rate of inflation for single-source drugs or biologics covered under Medicare Part B and most drugs under Medicare Part D, which already occurs under the Medicaid program. This inflation-rebate provision for Medicare Part B took effect at the start of 2023, and such provision for Medicare Part D took effect in 2022 as the starting point for measuring drug-price increases, with rebate payments required as of the beginning of 2023. DHHS will start to send rebate invoices to drug manufacturers in 2025.

Third, the IRA restructures the Medicare Part D benefit to limit patients’ out-of-pocket costs and rebalance the bearing of risk for Part D plans and manufacturers. As of 2024, Medicare Part D plan buyers will no longer have to pay out-of-pocket costs for covered drugs once they reach the catastrophic coverage level (when the policyholder’s out-of-pocket spending reaches $7,400). Other aspects of this provision will take effect in 2025.

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The bipartisan Drug-Price Transparency for Consumers Act was introduced to Senate on April 20, 2023, and the House of Representatives on October 13, 2023 (S.1250 and H.R.5958, respectively). The Act is currently in committee. This Act would require that direct-to-consumer advertisements for drugs and biologics include a disclosure of pricing information. The Act would apply to drugs and biologicals reimbursable under Medicare or Medicaid and for which direct-to-consumer advertisements are required to include information relating to side effects, contraindications, and effectiveness in accordance with section 202.1(e)(1) of title 21, Code of Federal Regulations. If passed, this Act would amend the Social Security Act to allow the Secretary of DHHS to require such advertisements to disclose the wholesale acquisition cost, or WAC, for a 30-day supply or typical course of treatment and clearly and conspicuously present such price information. If enacted, the Act contemplates that implementing regulations would include the visual and audio components required to communicate the WAC appropriately for the medium of the advertisement, the reasonable amount of time to update the advertisement to reflect any changes to WAC, and the way the manufacturer may include a statement explaining that certain consumers may pay a different amount depending on their insurance coverage. The Act would also subject advertisers to a penalty of up to $100,000 per violation.

The full implications of changes such as those discussed above, and their practical impact on biopharmaceutical pricing and reimbursement, as well as advertising requirements and related costs, on the biopharmaceutical industry as a whole and our business in particular cannot yet be determined.

As noted above, the marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and other third-party payers fail to provide adequate coverage and reimbursement. We expect that an increasing emphasis on cost containment measures in the U.S. will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Pricing and Reimbursement in Foreign Countries

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, a member state of the European Union may approve a specific price for the medicinal product candidate. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical product candidates will allow favorable reimbursement and pricing arrangements for any of our product candidates. Historically, product candidates launched in the European Union do not follow price structures of the United States and generally tend to be significantly lower.

As another example, in Canada, for patented drugs, the Patented Medicines Prices Review Board (PMPRB) uses the median international publicly available ex-factory list price (using prices in 11 pre-determined countries) as the maximum price the company is allowed to charge. The PMPRB is a quasi-judicial body with a regulatory mandate to prevent pharmaceutical patentees from charging consumers excessive prices during the market exclusivity period. This agency then monitors the prices charged by patentees for patented drugs on an ongoing basis. Under the Canadian Patent Act, patentees are required to file price and sales information about their patented drug products at introduction and twice a year thereafter for each strength of each dosage form of each patented drug product sold in Canada.

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Other Health Care Laws and Compliance Requirements

In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the CMS, other divisions of the DHHS (e.g., the Office of Inspector General), the U.S. Department of Justice and individual U.S. Attorney offices within the Department of Justice, and state and local governments.

The federal AKS prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, the referral of an individual for, or purchasing, leasing, ordering, or arranging for the purchase, lease or order of, any good, facility, item or service reimbursable, in whole or in part, by Medicare, Medicaid or other federal healthcare programs. The term remuneration has been interpreted broadly to include anything of value, including unlawful financial inducements paid to prescribers and beneficiaries, as well as impermissible promotional practices. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, but the exceptions and safe harbors are drawn narrowly. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal AKS. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Additionally, the ACA amended the intent requirement of the federal AKS so that a person or entity no longer needs to have actual knowledge of the federal AKS, or specific intent to violate it, to have violated the statute. The ACA also provided that a violation of the federal AKS is grounds for the government or whistleblower to assert that a claim for payment of items or services resulting from such violation constitutes a false or fraudulent claim for purposes of the civil False Claims Act.

In addition, in November 2020, DHHS finalized a regulation aimed at lowering prescription drug prices and out-of-pocket spending for prescription drugs by excluding rebates on prescription drugs paid by manufacturers to or purchased by Medicare Part D plan sponsors or PBMs acting under contract with Medicare Part D plan sponsors from the existing discount safe harbor under the federal AKS. The regulation reflects the first change to the AKS discount safe harbor since the Medicare Part D program was established. In addition to the rebate exclusions, two new safe harbors were added. One of these new safe harbors protects point-of-sale reductions in price from a manufacturer to a plan sponsor under Medicare Part D or a MCO for a prescription drug payable, in whole or in part, by a plan sponsor under Medicare Part D or a MCO, provided certain conditions are met. The other protects certain fixed-fee services arrangements between manufacturers and PBMs.

The federal civil and criminal false claims laws, including the federal False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to, or for approval by, the federal government, including the Medicare and Medicaid programs, or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government.

The civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

HIPAA created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including public and private payors, or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of whether the payor is public or private, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. The ACA amended the federal health care fraud criminal statute implemented under HIPAA so that a person or entity no longer needs to have actual knowledge of the statute, or the specific intent to violate it, to have violated the statute.

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Additionally, the federal Open Payments program pursuant to the Physician Payments Sunshine Act, created under Section 6002 of the ACA and its implementing regulations, require some manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with specified exceptions) to report annually information related to specified payments or other transfers of value provided to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually specified ownership and investment interests held by physicians and their immediate family members. The SUPPORT Act, signed into law on October 24, 2018, expanded Sunshine Act reporting to include data for physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and certified nurse midwifes. The amendment applies to reports submitted to CMS on or after January 1, 2022.

In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business or target consumers. HIPAA, as amended by HITECH, and their implementing regulations, impose requirements relating to the privacy, security and transmission of individually identifiable health information on HIPAA covered entities and their business associates, including mandatory contractual terms and the implementation of certain safeguards of such information. Among other things, HITECH makes HIPAA’s security standards directly applicable to business associates, independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways, may not have the same effect and may not be preempted by HIPAA, thus complicating compliance efforts. Most recently, fourteen states including California have adopted laws that regulate the privacy and security of consumer personal information, and apply in instances where HIPAA and clinical trial laws do not. In addition, other states such as Washington, have adopted laws that regulate the privacy and security of consumer health data which, again, apply in instances where HIPAA and clinical trial laws do not.

Many states have also adopted laws similar to each of the above federal laws, which may be broader in scope and apply to items or services reimbursed by any payor, including commercial insurers. We may also be subject to state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, and/or state laws that require drug manufacturers to report information related to marketing expenditures or payments and other transfers of value to physicians and other healthcare providers.

Enforcement actions can be brought by federal or state governments or, in some cases, as “qui tam” actions brought by individual whistleblowers in the name of the government. Depending on the circumstances, failure to comply with these laws can result in penalties, including criminal, civil and/or administrative criminal penalties, damages, fines, disgorgement, debarment from government contracts, individual imprisonment, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, exclusion from government programs, refusal to allow us to enter into supply contracts, including government contracts, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our business.

In order to distribute product candidates commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of pharmaceutical product candidates in a state, including, in certain states, manufacturers and distributors who ship product candidates into the state, even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product candidate in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product candidate as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities or register their sales representatives. Other legislation has been enacted in certain states prohibiting pharmacies and other health care entities from providing certain physician prescribing data to pharmaceutical companies for use in sales and marketing, and prohibiting certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.

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The Foreign Corrupt Practices Act

The FCPA regulates part of our business activities. The FCPA has two main provisions applicable to us: (a) the antibribery provisions, which prohibit individuals and businesses from bribing foreign government officials in order to obtain or retain business; and (b) the accounting provisions, which impose certain record keeping and internal control requirements on issuers, and prohibit individuals and companies from knowingly falsifying an issuer’s books and records or circumventing or failing to implement an issuer’s system of internal controls. Violations of the FCPA can lead to civil and criminal penalties, sanctions, and remedies, including fines, disgorgement, and/or imprisonment.

The antibribery provisions of the FCPA prohibits the paying, offering, promising, or authorizing payment or offering money or of anything of value, directly or indirectly, to any foreign official, political party, or candidate for the purpose of influencing any act or decision of such foreign official, political party, or candidate in his or her official capacity or to secure any improper advantage in obtaining or retaining business. Under the statute, a company is liable when its directors, officers, employees, or agents, acting within the scope of their employment, commit FCPA violations intended, at least in part, to benefit the Company.

The accounting provisions of the FCPA consist of two primary components. First, under the “books and records” provision, issuers must make and keep books, records, and accounts that, in reasonable detail, accurately and fairly reflect an issuer’s transactions and dispositions of an issuer’s assets. Second, under the “internal controls” provision, issuers must devise and maintain a system of internal accounting controls sufficient to assure management’s control, authority, and responsibility over the Company’s assets. The accounting provisions do not apply only to bribery-related violations. Rather, the accounting provisions require that all public companies account for all of their assets and liabilities accurately and in reasonable detail.

The Company, its affiliates, and its and their operations around the world are subject to the FCPA because the Company is an ‘issuer’ as defined in the statute. The U.S. Department of Justice aggressively enforces the FCPA and has, at times, focused its enforcement attention to the pharmaceutical sector.

Grants from the IIA

Our research and development efforts mainly with respect to our past activities (with respect to immunotherapy programs such as the Anti-CD3) were financed in part through royalty-bearing grants from the IIA. As of December 31, 2024, we received the aggregate amount of approximately $1.1 million from the IIA for the development of our abovementioned technologies. With respect to such grants, we are committed to pay royalties of up to an aggregate amount of approximately $1.1 million relating only to technologies in our possession and excluding any royalties for technologies that we sold to third parties. We are further required to comply with the requirements of the Innovation Law, with respect to those past grants. In addition, any change of control and any change of ownership of our securities that would make a non-Israel citizen or resident an “interested party” as defined in the Israeli Securities Law, 5728 – 1968 requires a written notice to the IIA. Non-Israeli citizens and residents are required to execute an undertaking in favor of the IIA, in the form prescribed by the IIA. When a company develops know-how, technology or products using IIA grants, the terms of these grants and the Innovation Law and regulations thereunder restrict the transfer or licensing of such know-how inside or outside of Israel, and the transfer or licensing outside of Israel of manufacturing or manufacturing rights of such products, technologies or know-how, without the prior approval of the IIA. None of our current projects in the field of cannabinoid therapeutics are supported by the IIA, yet if eligible, we might apply for such support in the future.

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Current Regulatory Status of SciSparc’s Pharmaceutical Products

United States

The active ingredient in our pharmaceutical product candidate SCI-110 is a Schedule I controlled substance. Other drug candidates in our portfolio are either not controlled or as yet to be scheduled.

Our drug candidate SCI-110 is being developed, among others, for the treatment of TS. TS may be considered a serious condition with a potentially disabling nature. Thus, it may be eligible for a fast-tracked submission. However, a request for eligibility may be filed by us later in the development of this molecule. In June 2016, we submitted a request for orphan drug designation to the FDA for SCI-110 for the treatment of TS. In a letter dated September 29, 2016, the FDA informed us that our request could not be granted at such time and is being held in abeyance until and subject to us providing additional information pertaining to the overall prevalence of TS in both children and adults, and further clinical data to support our scientific rationale for our request for orphan drug designation within 12 months. In September 2017, we responded to such FDA letter within the designated time frame and provided the FDA with our articulated and reasoned responses including documentation and clinical data that supports it. On December 26, 2017, we received the FDA’s response to our response. The FDA accepted that there is adequate scientific rationale for the treatment of TS with SCI-110 mainly through the preliminary results of ongoing clinical trials, suggesting that SCI-110 may provide benefit in treating TS. However, the FDA stated that it was unable to grant our request and indicated that we did not provide adequate prevalence estimates, and any evidence to support our statement that only moderate to severe TS patients would require pharmacological treatment. We further responded in January 2018 by providing the requested information. On January 23, 2020, following additional correspondence with the FDA, the FDA still did not grant us our request due to fact that we have not yet provided adequate prevalence estimates. However, the FDA did agree with our position that we could potentially qualify for orphan drug designation with respect to the moderate-to-severe TS sub-group population only rather than the entire population. After we had provided additional prevalence estimates, the FDA raised a concern in its letter, dated December 7, 2020, about our ability to limit the use of the pharmaceutical product to the subset of patients we are pursuing. Due to the fact that we disagree with this concern, we requested a clarification call. In the clarification call conducted on February 2, 2021, we agreed with the FDA concern about our ability to limit the use of the pharmaceutical product to the subset of patients in addition to a safety concern associated with THC treatment in pediatrics population so we suggested to amend our preliminary request and asked to include only adults in the treated population. An amendment letter was discussed and the FDA described what it would want to see in such an amendment. In March 2021, we sent our response to the FDA. In June 2021, we received a response from the FDA explaining that they are unable to grant our request until new information becomes available to support our request for orphan drug designation. We will re-visit the application after we obtain clinical results from our phase IIb clinical study in TS.

Canada

NNHPD Approval

Pursuant to a non-traditional class III Product License Application, CannAmide™, or TheraPEA, received Health Canada approval (NPN 80093504) from the NNHPD on July 23, 2019. In the approval letter, the NNHPD confirmed that the application was in compliance with section 7 of the NHPR. The dosage of 1 x 400 mg tablet 3 times daily was approved for the following use: “Studies show that PEA may be used as an anti-inflammatory to help relieve chronic pain”.

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Any labels used in the marketing of TheraPEA must reflect the information outlined on the product license and must comply with the labelling requirements as per Part 5 of the NHPR. In addition, natural health products, such as TheraPEA, must be manufactured, packaged, labelled, imported, distributed and stored in accordance with GMP as required by NHPR or in accordance with equivalent requirements if the natural health product is imported. Furthermore, in accordance with Section 44 of the NHPR, each product for sale in Canada must comply with the finished product specifications submitted to Health Canada.

Pursuant to the NHPR, companies are required to provide the NNHPD with the Canadian site information prior to commencing the importation and/or sale of the natural health products in Canada.

Changes made in respect of a licensed product require the submission of an amendment, notification or a new product license application as per sections 11, 12 and 13 of the NHPR.

C. Organizational Structure

SciSparc Nutraceuticals Inc. is our majority-owned subsidiary, in which we have a 50.86% controlling stake and is focused on e-commerce operations of Wellution™, a top- seller account of Amazon Marketplace, which sells hemp-based products. Brain Bright Ltd. is an inactive wholly-owned subsidiary. We also own 100% of the issued and outstanding share capital of Evero Health Ltd., a company focused on the development and commercialization of SCI-110 sleep technology.

On November 17, 2022, we invested $1.5 million in Clearmind in connection with its initial public offering on the Nasdaq Capital Market, in exchange for 230,769 ordinary shares of Clearmind, representing 9.33% of the outstanding share capital of Clearmind. As of April 23, 2025, following a reverse stock split of Clearmind’s outstanding shares, we hold 7,692 ordinary shares of Clearmind, representing less than 0.2% of the outstanding share capital of Clearmind.

As of April 23, 2025, we also hold 52.73% of MitoCareX Bio Ltd., an Israeli private company. See Item 4.B. Business Overview for more information.

We hold a minority interest in AutoMax of approximately 4.82% and a minority interest of approximately 1.14% of Jeffs’ Brands.

D. Property, Plants and Equipment

Our offices are located at 20 Raul Wallenberg Street, Tower A, 2nd Floor, Tel Aviv 6971916, Israel, where we currently occupy approximately 120 square meters, under a joint lease with a third-party for a total of 240 square meters. The lease ends on June 30, 2025. Our current monthly rent payment is NIS 10,200 (approximately $3,300).

We consider that our current office space is sufficient to meet our anticipated needs for the foreseeable future and is suitable for the conduct of our business. However, we are currently assessing our future needs and have not renewed our lease as of the date hereof.

E. Litigation

In connection with a joint venture transaction, entered on May 15, 2020, by and between us, Capital Point and Evero Health Ltd., one of our subsidiaries, we issued a warrant to Capital Point to purchase $340,000 of our ordinary shares, or the Warrant Shares, with an exercise price per ordinary share equal to the closing price of our ordinary shares on the trading day on which the notice of exercise is actually received by us. Such warrant was exercisable for 12 months starting from May 15, 2021.

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On November 4, 2021, we received from Capital Point a notice of exercise with respect to the Warrant Shares, which was rejected by the Company. On May 2, 2023, Capital Point filed a lawsuit in the Tel Aviv-Jaffa District Court against us as the sole defendant in connection with the Warrant Shares. The lawsuit includes allegations of breaches of contract under the Israeli Contracts Law (General Part), 1973, unjust enrichment under the Israeli Unjust Enrichment Law, 1979 and breaches under the Israeli Torts Ordinance (New Version), 1968. The lawsuit claims damages in the amount of NIS 10,000,000 (approximately $2.75 million), which accounts for, as of the date of the filing of the lawsuit, liquidated damages according to the provisions set forth in the warrant, and seeks as well for the court to order a mandatory injunction order for us to issue a warrant to Capital Point to purchase $340,000 of our ordinary shares to Capital Point, the return of any unlawful profits received by us and punitive damages.

As of April 23, 2025, in connection with the aforementioned litigation, the shares of Evero Health Ltd. held by Capital Point are dormant and were forfeited by Evero Health Ltd. As of the date of this Annual Report, we cannot predict the likelihood of our success in the lawsuit.

In February 2025, we signed a settlement agreement regarding a lawsuit we filed in February 2022 with the Economic Division of the Tel Aviv-Jaffa District Court against six of our former directors, or the Defendants. The lawsuit included allegations of breaches of fiduciary duties under the Israeli Companies Law, 1999, relating to a prior acquisition of a pain clinic network through a subsidiary of ours. As part of the settlement agreement, we will be entitled to a $411,000 cash payment from the Defendants in exchange for our full dismissal of the lawsuit. The settlement agreement includes the termination, effective as of February 5, 2024, of a disputed licensing agreement with Dekel. As part of the Settlement, Dekel clarified, to our full satisfaction, that we will retain its exclusive global rights to our extensive IP portfolio, patents, know-how and technologies and is released from all alleged commitments, claims and royalties related or arising out of the license agreement from May 2015 with Dekel, including those related to claimed core technologies. Dekel will assume full and exclusive ownership of the patent application for compositions and methods for treating inflammatory disorders and all such underlying intellectual property, which are not related whatsoever to the Company’s pipeline and development program.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this Annual Report. This discussion and other parts of this Annual Report contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Item 3.D. “Risk Factors” and elsewhere in this Annual Report. We report financial information under IFRS as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accounting principles in the United States. Our discussion and analysis for the year ended December 31, 2022 can be found in our Annual Report for the fiscal year ended December 31, 2023, filed with the SEC on April 1, 2024 (File No. 001-38041).

The following financial data in this narrative are expressed in thousands, except for share and per share data or as otherwise noted.

A. Operating Results

During the year ended December 31, 2024, we have generated revenues through our subsidiary SciSparc Nutraceuticals, which owns the Wellution™ brand. Total revenues recognized in the year ended December 31, 2024, amounted to $1,306 thousand.

To date, we have not generated revenue from our drug development business from the sale of any pharmaceutical product candidates, and we do not expect to generate significant revenue in this business within the next year at least. As of December 31, 2024, we had an accumulated deficit of approximately $75 million. Our operating activities are described below under “Operating Expenses.”

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Revenues

In the year ended December 31, 2024, we have generated revenues in the amount of $1,306 thousand.

Cost of goods sold

The cost of goods sold comprises mainly purchase of products and transportation costs to our warehouse for the SciSparc Nutraceuticals business. In the year ended December 31, 2024, the cost of goods sold amounted to $800 thousand.

Operating Expenses

Our current operating expenses consist of five components - research and development expenses, sales and marketing expenses, impairment of intangible assets, general and administrative expenses, and other income.

Research and Development Expenses

Our research and development expenses consist primarily of salaries and related personnel expenses, research and preclinical studies, chemistry and formulations, regulatory, professional and other related research and development expenses.

The following table discloses the breakdown of research and development expenses for the periods presented:

|  | December 31, |
|  | 2024 |  |  | 2023 |
USD in thousands |  |  |  |  |  |
Wages and related expenses |  | $ | 390 |  |  | $ | 392 |
Share-based payments |  |  | 45 |  |  |  | 34 |
Regulatory, professional and other expenses |  |  | 681 |  |  |  | 719 |
Research and preclinical studies |  |  | 211 |  |  |  | 101 |
Clinical studies |  |  | 276 |  |  |  | 254 |
Chemistry and formulations |  |  | 104 |  |  |  | 141 |
Total |  | $ | 1,707 |  |  | $ | 1,641 |

We expect that our research and development expenses will materially increase as we plan to continue clinical trials and develop new products.

Sales and Marketing Expenses

Our sales and marketing expenses consist primarily of Amazon fees, advertising costs, depreciation costs, storage and shipping costs, and management fees.

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The following table discloses the breakdown of sales and marketing expenses for the periods presented:

|  | December 31, |
|  | 2024 |  |  | 2023 |
USD in thousands |  |  |  |  |  |
Advertising |  | $ | 367 |  |  | $ | 576 |
Amazon fees |  |  | 495 |  |  |  | 1,042 |
Depreciation |  |  | 366 |  |  |  | 486 |
Storage and shipping |  |  | 167 |  |  |  | 145 |
Management fees |  |  | 120 |  |  |  | 235 |
Total |  | $ | 1,515 |  |  | $ | 2,484 |

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, professional service fees for accounting, legal, bookkeeping, investor relations, regulatory expenses and other general and administrative expenses.

The following table discloses the breakdown of general and administrative expenses for the periods presented:

|  | December 31, |
|  | 2024 |  |  | 2023 |
USD in thousands |  |  |  |  |  |
Wages and related expenses |  | $ | 507 |  |  | $ | 415 |
Share-based payment |  |  | 419 |  |  |  | 68 |
Professional and directors’ fees |  |  | 3,009 |  |  |  | 2,594 |
Business development expenses |  |  | 108 |  |  |  | 86 |
Regulatory expenses |  |  | 158 |  |  |  | 202 |
Office maintenance, rent and other expenses |  |  | 128 |  |  |  | 110 |
Investor relations and business expenses |  |  | 197 |  |  |  | 369 |
Total |  | $ | 4,526 |  |  | $ | 3,844 |

Comparison of the year ended December 31, 2024 to the year ended December 31, 2023

Results of Operations

|  | December 31, |
|  | 2024 |  |  | 2023 |
USD in thousands |  |  |  |  |  |
Revenues |  | $ | 1,306 |  |  | $ | 2,879 |
Cost of goods sold |  |  | 800 |  |  |  | 683 |
Gross profit |  |  | 506 |  |  |  | 2,196 |
Research and development expenses |  |  | 1,707 |  |  |  | 1,641 |
Sales and marketing |  |  | 1,515 |  |  |  | 2,484 |
Impairment of intangible asset |  |  | 1,344 |  |  |  | 1,042 |
General and administrative expenses |  |  | 4,526 |  |  |  | 3,844 |
Other income |  |  | 1,270 |  |  |  | - |
Operating loss |  |  | 7,316 |  |  |  | 6,815 |
Equity losses from the investment in MitoCareX |  |  | 429 |  |  |  | 210 |
Financial income, net |  |  | 259 |  |  |  | 1,164 |
Comprehensive loss |  |  | 7,472 |  |  |  | 5,883 |
Net loss attributable to holders of Ordinary Shares |  |  | 6,284 |  |  |  | 5,122 |

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Revenues

Our revenues for the year ended December 31, 2024 decreased by $1,573 thousand, or 55%, to $1,306 thousand, compared to $2,879 thousand for the year ended December 31, 2023. The decrease is primarily due to operational difficulties which caused the WelllutionTM brand to be temporarily put offline from the Amazon Marketplace.

Cost of Goods Sold

Our cost of goods sold for the year ended December 31, 2024 increased by $117 thousand, or 17%, to $800, compared to $683 thousand for the year ended December 31, 2023. This increase resulted primarily from losses resulting from the revaluation of inventory.

Gross Profit

Our gross profit for the year ended December 31, 2024 decreased by $1,690 thousand, or 77%, to $506 thousand, compared to $2,196 thousand for the year ended December 31, 2023. This decrease resulted primarily from the decrease in revenues.

Research and Development Expenses

Our research and development expenses for the year ended December 31, 2024, amounted to $1,707 thousand, representing an increase of $66 thousand, or 4%, compared to $1,641 thousand for the year ended December 31, 2023. The increase resulted primarily from an increase in expenses related to research and preclinical studies which amounted to $211 thousand for the year ended December 31, 2024, compared to $101 thousand for the year ended December 31, 2023.

General and Administrative Expenses

Our general and administrative expenses totaled $4,526 thousand for the year ended December 31, 2024, representing an increase of $682 thousand, or 18%, compared to $3,844 thousand for the year ended December 31, 2023. The increase resulted primarily from an increase in share-based expenses and professional and director fees that amounted to $419 thousand and $3,009 thousand, respectively, for the year ended December 31, 2024, compared to $68 thousand and $2,594 thousand, respectively, for the year ended December 31, 2023.

Sales and marketing expenses

Our sales and marketing expenses totaled $1,515 thousand for the year ended December 31, 2024, representing a decrease of $969 thousand, or 39% compared to $2,484 thousand for the year ended December 31, 2023. All sales and marketing expenses are generated by SciSparc Nutraceuticals, which owns the Wellution™ brand. The decrease resulted mainly from a decrease in Amazon fees, which were a result of the decrease in sales of goods by SciSparc Nutraceuticals in 2024 compared to 2023. Other reasons for the decrease in sales and marketing expenses include the decrease in management fees, advertising and depreciation costs.

Other income

Other income in the year ended December 31, 2024, amounted to $1,270 thousand, through the sale of: (i) 320,000 ordinary shares of Polyrizon, (ii) pre-funded warrants to purchase 364,931 ordinary shares of Polyrizon, and (iii) common warrants to purchase 1,541,096 ordinary shares of Polyrizon to third parties, for aggregate consideration of $771 thousand. Also, we recorded a gain in the amount of $517 thousand from the remeasurement of our remaining investment in such Polyrizon warrants.

Impairment of intangible asset

Our impairment of intangible asset totaled $1,344 thousand for the year ended December 31, 2024, representing an increase of $302 thousand compared to $1,042 for the year ended December 31, 2023. The impairment in the year ended December 31, 2024 resulted from continued losses in the Wellution™ brand, similar to the loss on impairment recognized in the year ended December 31, 2023.

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Operating Loss

Our operating loss for the year ended December 31, 2024, was $7,316 thousand, representing an increase of $501, or 7%, as compared to an operating loss of $6,815 thousand for the year ended December 31, 2023. The increase resulted primarily from the decrease in revenues and the increase in general and administrative expenses.

Financial Expense and Income

Financial expenses and income consist of remeasurement of instruments measured at fair value, exchange rate differences, bank fees, loans interest and other transactional costs.

We recognized financial income in the amount of $612 thousand for the year ended December 31, 2024, as compared to financial income of $2,219 thousand for the year ended December 31, 2023. The decrease in financial income for the year ended December 31, 2024 resulted mainly due to a decrease in financial income from the remeasurement of a warrant liability.

We recognized financial expenses for the year ended December 31, 2024, of $353 thousand, as compared to financial expense of $1,055 thousand for the year ended December 31, 2023. The decrease of financial expenses for the year ended December 31, 2024 resulted mainly due to a decrease in losses related to changes in the fair value of securities.

Total Comprehensive Loss

Our total comprehensive loss for the year ended December 31, 2024, was $7,472 thousand, representing an increase of $1,589 thousand, or 27%, as compared to $5,883 thousand for the year ended December 31, 2023. The increase resulted primarily from the increase in operating loss and a decrease in financial income, net.

B. Liquidity and Capital Resources

Overview

Since our inception in 2004, and through December 31, 2024, we have funded our operations principally with $76 million from the issuance of our securities in public offerings and private placements. As of December 31, 2024, we had $1.5 million in cash, $10 thousand in trade receivables, $1,079 thousand in other accounts receivable, $113 thousand in inventory, $517 thousand in short-term financial assets, and an additional amount of 20 thousand in short-term bank deposits. In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition would be adversely affected, and there is substantial doubt about our ability to continue as a going concern.

The table below presents our cash flows for the periods indicated:

|  | December 31, |
|  | 2024 |  |  | 2023 |
USD in thousands |  |  |  |  |  |
Operating activities |  | $ | (5,104 | ) |  | $ | (5,887 | )
Investing activities |  | $ | (1,625 | ) |  | $ | (4,094 | )
Financing activities |  | $ | 6,193 |  |  |  | 8,483 |
Net increase in cash |  | $ | (536 | ) |  | $ | (1,498 | )

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Operating Activities

Net cash used in operating activities was $5,104 thousand during 2024 in comparison to $5,887 thousand during 2023. The decrease resulted primarily from a decrease in finance income related to gains from the remeasurement of a warrant liability, and a decrease in inventory related to a revaluation of inventory, offset in part by a decrease in losses from the remeasurement of investments in financial assets. Another reason for the decrease in cash used in operating activities is the increase in the loss on impairment of intangible assets, which is a non-cash adjustment, as well as the increase in share-based compensation costs, which are a non-cash adjustment.

Investing Activities

Net cash used in investing activities was $1,625 thousand during 2024 in comparison to net cash used in investing activities of $4,094 thousand during 2023. Net cash used by investing activities during 2024 resulted mainly from a loan granted to a related party in the amount of $4,078, and an investment in a company accounted for using the equity method in the amount of $600 thousand, offset in part by a divestment in short-term bank deposits in the amount of $3,000 thousand.

Net cash used in investing activities during 2023 resulted mainly from the investment in short-term bank deposits in the amount of $3,000 thousand, investment in financial assets in the amount of $689 thousand, and an investment in a company accounted for at equity in the amount of $400 thousand.

Financing Activities

Net cash provided by financing activities of $6,193 thousand in the year ended December 31, 2024, primarily consisted of proceeds from the issuance of share capital in the amount of $6,225 thousand.

Net cash provided by financing activities of $8,483 thousand in the year ended December 31, 2023, primarily consisted of $5,552 thousand of net proceeds from the issuance of share capital, pre-funded warrants and warrants, and by cash generated from the sale of a minority interest in the Wellution brand in the amount of $2,985 thousand.

Wellution Acquisition Agreement

On September 14, 2022, we entered into the Wellution Acquisition Agreement, pursuant to which we acquired the Wellution™ brand, or the Brand. We established SciSparc Nutraceuticals, a wholly owned subsidiary, to hold the new assets, which is also a party to the Wellution Acquisition Agreement. On September 30, 2022, we closed the acquisition of the Brand and paid $4.59 million for the Brand. In addition, at the closing we issued the M.R.M Warrant to M.R.M (each as defined below), to purchase up to 82,418 of our Ordinary Shares. On March 26, 2024, M.R.M. agreed with us to waive all its rights under the M.R.M. Warrants and have the M.R.M. warrants cancelled for no consideration.

Wellution Sales Agreement

On February 23, 2023, we entered into the Wellution Sale Agreement with Jeffs’ Holdings and Jeffs’ Brands, pursuant to which, at the closing, which occurred on March 28, 2023, Jeffs’ Holdings acquired from us 57 shares of common stock of SciSparc Nutraceuticals, which equals approximately a 49% interest in our wholly owned subsidiary, SciSparc Nutraceuticals, which owns the WellutionTM brand, for a consideration of $2.5 million in cash, and additional deferred cash payments of approximately $489 thousand.

In connection with the closing, we and Jeffs’ Brands undertook a mutual share exchange in the amount of approximately $288 thousand of ordinary shares from each of us and Jeffs’ Brands. The number of shares in the share exchange was calculated based on the average closing price of the relevant company’s shares for 30 consecutive trading days ending on the third trading day immediately prior to the closing. Accordingly, we acquired 35,345 ordinary shares of Jeffs’ Brands and Jeffs’ Brands acquired 13,858 ordinary shares from us having an aggregate value of $288,238.

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Following the closing of the transaction, which included an equity conversion of the financing amounts of approximately $700 thousand previously provided by the Company to SciSparc Nutraceuticals for working capital, into shares of common stock at the price per share of the Wellution Sale Agreement, we hold approximately 51% of SciSparc Nutraceuticals.

In connection with the Wellution Sale Agreement, at the closing, Jeffs’ Brands and SciSparc Nutraceuticals entered into the Wellution Management Agreement for management services of the WellutionTM brand by Jeffs’ Brands, for a monthly fee of $20 thousand, which was reduced to $10 thousand in 2024. Jeffs’ Brands also received a one-time signing bonus in the amount of $51 thousand.

At-The-Market Issuance Sales Agreement

On May 16, 2023, we entered into an At-the-Market Issuance Sales Agreement with Aegis Capital Corp., or the ATM Agreement, pursuant to which we may offer and sell up to $1,729,964 of our ordinary shares. Between May 16, 2023 and August, 9, 2023, we sold approximately $4,779 of ordinary shares. On August 9, 2023, the ATM Agreement was terminated.

Underwritten Public Offering

On August 14, 2023, we closed an underwritten public offering, or the Public Offering, of 212,500 ordinary shares, at a purchase price of $5.20 per ordinary share and pre-funded warrants to purchase up to 37,500 ordinary shares at a purchase price of $5.174 per pre-funded warrant, for aggregate gross proceeds of approximately $1.3 million, pursuant to an underwriting agreement between us and Aegis, or the Underwriter, on August 10, 2023. Pursuant to the terms of the Underwriting Agreement, we also granted the Underwriter a 45-day option to purchase up to an additional 37,500 ordinary shares solely to cover over-allotments, if any, at the Public Offering share price less underwriting discounts and commissions.

The pre-funded warrants were exercisable immediately upon issuance and had an exercise price of $0.026 per share. Following the Public Offering and as of April 23, 2025, the Company issued 25,000 ordinary shares in respect of the exercise of 25,000 pre-funded warrants.

October 2023 Private Placement

On October 13, 2023, we closed a private placement transaction, or the 2023 Private Placement, pursuant to a securities purchase agreement and a registration rights agreement with an institutional investor for aggregate gross proceeds of approximately $5 million (representing a 30% original issue discount to the aggregate purchase price of $7,180,000), before deducting fees to Aegis, the placement agent and other expenses payable by the Company in connection with the transaction. We sold units to the investors at a purchase price of $3.72 per unit, consisting of 1,930,108 pre-funded Ordinary Share purchase warrants to purchase up to 1,930,108 Ordinary Shares, and an additional accompanying pre-funded warrant to purchase up to 1,930,108 Ordinary Shares.

The pre-funded warrants were exercisable immediately upon issuance and have an exercise price of $0.001 per share. Following the transaction and as of April 23, 2025, we have issued 1,078,991 Ordinary Shares in respect of the exercise of 1,078,991 pre-funded warrants.

AutoMax

On January 14, 2024, we entered into, as lender, a bridge loan agreement with AutoMax, pursuant to which AutoMax received the Bridge Loan, further to the previously-announced non-binding letter of intent for us to acquire AutoMax. On April 10, 2024, we signed the Merger Agreement with AutoMax. On August 14, 2024, on November 26, 2024, and March 27, 2025, we and AutoMax entered into the Merger Agreement Addendum, the Merger Agreement Second Addendum, and Merger Agreement Third Addendum, respectively. On June 9, 2024, we entered, as lender, into the Amended Bridge Loan, pursuant to which AutoMax received an additional loan in the amount of $1.0 million, for an aggregate amount of $2.4 million. On September 5, 2024, we entered into the Second Amendment, pursuant to which we extended an additional Loan amount to AutoMax. During the month of September 2024, we provided AutoMax with the loan amounts due under the Second Amendment to the Bridge Loan, and offset any interest due until November 30, 2024 from the principal amount, such that on the closing date of the Merger, we will be entitled to be paid the due interest at a rate of 7% per annum (or 9% per annum if the Merger is not consummated), of the Loan Amount, accruing from the period beginning on December 1, 2024 and ending on the effective date of the Merger.

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The Merger Agreement contemplates that at closing, we shall deliver to AutoMax the closing financing amount. In light of the Bridge Loan and amendments thereto, no closing financing amount will be transferred. In consideration for the Loan Amount, AutoMax established a first ranking fixed charge security interest on AutoMax’s shares of its wholly-owned subsidiary AutoMax Direct Import in favor of us. The Bridge Loan amount, together with any accrued interest, may be repaid in part or in whole prior to the repayment date, contingent on whether the closing of the Merger Agreement occurs. The repayment date shall be at the earlier date of: (a) the Closing, in which the owed amount shall be deemed set-off against the closing financing amount; or (b) if the Merger Agreement is terminated in accordance with its terms, within three months from such termination date.

On February 27, 2025, we announced that we had entered into the Additional Loan Agreement with AutoMax where a $2 million loan was provided. The loan bears an 8% annual interest rate and will be repaid in equal monthly installments of $50,000 and interest, with AutoMax retaining the option to make early repayment without penalties. The interest on the loan will be cancelled as of the consummation of the Merger Agreement and AutoMax will continue to make monthly payments towards the principal amount of the loan. As collateral, AutoMax pledged a first-ranking fixed charge on its subsidiary’s shares, in accordance with a fixed charge debenture.

January 2024 Standby Equity Purchase Agreement

On January 21, 2024, we entered into a SEPA with YA, as amended on February 26, 2024. Pursuant to the SEPA, we will be able to sell up to $20.0 million Ordinary Shares, at our sole option, any time during the three-year period following the execution date of the SEPA. Of the $20.0 million eligible to be sold pursuant to the SEPA, as of April 23, 2025 we have sold 925,159 Ordinary Shares to YA pursuant to the SEPA. Pursuant to the terms of the SEPA, any Ordinary Shares sold to YA will be priced at 97% of the market price, which is defined as the lowest daily volume weighted average price of the Ordinary Shares during the three consecutive trading days commencing on the trading day immediately following our delivery of an advance notice to YA. Any sale of Ordinary Shares pursuant to the SEPA is subject to certain limitations, including that YA is not permitted to purchase any shares that would result in it owning more than 9.99% Ordinary Shares. We are not permitted to utilize the SEPA pursuant to the February 2025 Securities Purchase Agreements, as defined below, until all of the convertible debentures have been paid off.

February 2025 Securities Purchase Agreements

On February 25, 2025, we entered into securities purchase agreements, or the February 2025 Securities Purchase Agreements, with certain investors, pursuant to which we sold and issued to the investors convertible debentures, or Debentures, in the aggregate principal amount of $4.2 million, or the Subscription Amount, which are convertible into Ordinary Shares at a purchase price equal to 95% of the Subscription Amount. The Debentures, having been issued, will mature on the one-year anniversary of the issuance date of the Debentures. Further, interest will accrue on the outstanding principal balance of the Debentures at an annual rate of 8%, which will increase to an annual rate of 18% upon an event of default for so long as such Event of Default remains uncured. The investors will have the right to convert the Debentures into Ordinary Shares at the lower of (i) 110% of volume weighted average price of the Ordinary Shares the trading day immediately preceding the closing or (ii) 95% of the lowest daily volume weighted average price of the Ordinary Shares during the 20 consecutive trading days immediately preceding the conversion date or other date of determination, or the Market Price; provided that the Market Price may not be lower than the floor price, which will be equal to 20% of the volume weighted average price of the Ordinary Shares on the day prior to the closing. At the closing of the transaction, we issued to the investors 3,615,656 warrants which are exercisable into a number of Ordinary Shares equal to the Subscription Amount applicable to the investors divided by a price equal to 130% of the volume weighted average price of the Ordinary Shares immediately prior to the closing date, or $0.5532 per warrant. The warrants are exercisable for a term of five years from the issuance date.

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We entered into a global guaranty agreement, or the Global Guaranty Agreement, with one of the investors through certain of our subsidiaries, pursuant to which such subsidiaries will guaranty its obligations under the Debenture with the lead debenture investor and other instruments, agreements or other items executed or delivered pursuant to the Global Guaranty Agreement.

We also entered into a registration rights agreement with the lead debenture investor, pursuant to which we have agreed to provide to the lead debenture investor registration rights under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, and applicable state securities laws.

In connection with the securities purchase agreements with the investors, on February 25, 2025, we entered into a deed, or Deed, with AutoMax and three investors. Pursuant to the Deed, SciSparc assigned part of the Subscription Amount in the amount of $2 million to AutoMax in lieu of making the payment under the Additional Loan Agreement.

Current Outlook

We have financed our operations to date primarily through proceeds from sales of our securities as well as exercises of warrants and options to purchase Ordinary Shares or ADSs, as the case may be. We have incurred losses and generated negative cash flows from operations since August 2004. Since August 2004, we have not generated any revenue from the sale of pharmaceutical product candidates and we do not expect to generate revenues from sale of our pharmaceutical product candidates in the next few years.

As of December 31, 2024, our cash, including short-term bank deposits, was $1,560 thousand.

Our cash and cash equivalents position is not sufficient to fund our planned operations for at least a year beyond the date of the filing date of this Annual Report. The ability to continue as a going concern is dependent upon our obtaining the necessary financing to meet our obligations and repay liabilities arising from normal business operations when they become due. While we have successfully raised funds in the past, there is no guarantee that we will be able to do so in the future. The inability to borrow or raise sufficient funds on commercially reasonable terms would have serious consequences on our financial condition and results of operations. In addition, we started to recognize revenues from sales. However, our pharmaceutical operations are dependent on our ability to raise additional funds from existing and/or new investors. This dependency will continue until we are able to finance our operations through generating revenue from our products. These factors raise substantial doubt about our ability to continue as a going concern.

In September 2022, we purchased Wellution™, a business and brand which sells hemp-based products on Amazon Marketplace.

On January 25, 2023, we announced that our board of directors resolved to pursue a Restructuring Plan which may involve transferring our pharmaceutical activities to NewCo. As part or independent of the Restructuring Plan, we intend to examine the possibility of listing NewCo on a leading stock exchange, while maintaining our controlling interest in NewCo such that we will continue to control our current business activities. We also intend to explore other potential new opportunities, activities and investments in a variety of sectors.

Any Restructuring Plan and possible listing of NewCo on a stock exchange may be subject to, among other things, market conditions, tax or other business analyses, regulatory approvals, receipt of any necessary consents, final approvals from our board of directors and shareholders and satisfaction of any closing conditions to effectuate such corporate Restructuring Plan and listing of NewCo. There can be no assurance regarding the ultimate timing of the Restructuring Plan and listing of NewCo or that they will be completed at all.

On April 10, 2024, we signed the Merger Agreement with AutoMax. On August 14, 2024, November 26, 2024 and March 27, 2025, we and AutoMax entered into the Merger Agreement Addendum, the Merger Agreement Second Addendum and the Merger Agreement Third Addendum, respectively. For more information, see Item 3D “Risk Factors-Risks Related to the Merger between SciSparc and AutoMax.”

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In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional financing sooner than planned. Our efforts to commercialize our proprietary PEA oral tablets CannAmide™ may not lead to any revenue or revenue at the level at which we are expecting. Our future capital requirements will depend on many factors, including:

| ● | the progress and costs of our research and development activities;

| ● | the costs of manufacturing our product candidates;

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

| ● | the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and

| ● | the magnitude of our general and administrative expenses.

Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt and/or equity financings. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. This raises substantial doubts about our ability to continue as a going concern. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our product candidates.

C. Research and development, patents and licenses, etc.

For a description of our research and development programs and the amounts that we have incurred over the last two years pursuant to those programs, please see “Item 5. Operating and Financial Review and Prospects-A. Operating Results-Operating Expenses-Research and Development Expenses, net” and “Item 5. Operating and Financial Review and Prospects-A. Operating Results-Comparison of the year ended December 31, 2024 to the year ended December 31, 2023-Research and Development Expenses.”

D. Trend information

The trends impacting us are described elsewhere in this Annual Report on Form 20-F, including in “Item 3.D. Risk Factors”, “Item 4.B. Business Overview”, “Item 5.A. Operating Results”, “Item 5.B. Liquidity and Capital Resources”, and “Item 10.C. Material Contracts”.

In addition, the anticipated merger between us and AutoMax, if completed, is expected to significantly impact our future operational and financial profile. If the Merger is consummated, we anticipate that our current business operations will continue while AutoMax’s current business activities will continue to be carried out by AutoMax as a wholly-owned subsidiary of SciSparc. In the short term, we expect to incur transaction-related expenses, including legal, advisory, and regulatory costs associated with the Merger. These expenses may continue to affect our financial results until the closing or termination of the Merger. In the longer term, we expect the consummation of the Merger to occur on or before September 30, 2025.

E. Critical Accounting Estimates

We describe our significant accounting policies more fully in Note 2 and the significant accounting judgments, estimates and assumptions used in the preparation of the financial statements in Note 3 to our financial statements for the year ended December 31, 2024. We believe that the accounting policies below are critical in order to fully understand and evaluate our financial condition and results of operations.

We prepare our financial statements in accordance with IFRS. At the time of the preparation of the financial statements, our management is required to use estimates, evaluations, and assumptions which affect the application of the accounting policy and the amounts reported for assets, obligations, income, and expenses. Any estimates and assumptions are continually reviewed. The changes to the accounting estimates are credited during the period in which the change to the estimate is made.

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Going Concern

As of December 31, 2024, our cash and cash equivalents totaled $1.5 million. In the period ended December 31, 2024, we had an operating loss of $7.3 million and negative cash flows from operating activities of $5.1 million. Our current cash and cash equivalents position is not sufficient to fund our planned operations for at least a year beyond the date of the filing date of the financial statements. The ability to continue as a going concern is dependent upon our obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. While we have successfully raised funds in the past, there is no guarantee that we will be able to do so in the future. The inability to borrow or raise sufficient funds on commercially reasonable terms, would have serious consequences on our financial condition and results of operations. In addition, we have started recognizing revenues from sales. However, our pharmaceutical operations are dependent on our ability to raise additional funds from existing and/or new investors. This dependency will continue until we are able to completely finance our operations by generating revenue from our products. These above-mentioned factors raise substantial doubt about our ability to continue as a going concern.

Intangible Assets

Separately acquired intangible assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Expenditures relating to internally generated intangible assets, excluding capitalized development costs, are recognized in profit or loss when incurred.

Intangible assets with a finite useful life are amortized over their useful life and reviewed for impairment whenever there is an indication that the asset may be impaired. The amortization period and the amortization method for an intangible asset are reviewed at least at each year end.

In the year ended December 31, 2024, we have reviewed indications of decline to our intangible assets, and have determined that there are signs of decline in the value of the intangible assets and recognized a loss as a result of impairment in the amount of $1,344 thousand (as of December 31, 2023, it was $1,042 thousand).

Contingent Liabilities

The evaluations of provisions and contingent liabilities are based on best professional judgment, taking into consideration the stage of the proceedings, as well as cumulative legal experience in the various topics. Whereas the results of the lawsuits shall be determined by the courts, these results may differ from these evaluations.

Share-Based Compensation

Our employees and other service providers are entitled to benefits by way of share-based compensation settled with company options to shares. The cost of transactions with employees settled with capital instruments is measured based on the fair value of the capital instruments on the granting date. The fair value is determined using an accepted options pricing model. The model is based on share price, grant date and on assumptions regarding expected volatility, expected lifespan, expected dividend, and a no risk interest rate.

The cost of the transactions settled with capital instruments is recognized in profit or loss together with a corresponding increase in the equity over the period in which the performance and/or service takes place, and ending on the date on which the relevant employees are entitled to the benefits, or the Vesting Period. The aggregate expense recognized for transactions settled with capital instruments at the end of each reporting date and until the Vesting Period reflects the degree to which the Vesting Period has expired and our best estimate regarding the number of options that have ultimately vested. The expense or income in profit or loss reflects the change of the aggregate expense recognized as of the end of the reported period.

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We selected the Black-Scholes option-pricing model as a fair value method for our options awards. The option-pricing model requires a number of assumptions:

Expected dividend yield - The expected dividend yield assumption is based on our historical experience and expectation of no future dividend payouts. We have historically not paid cash dividends and have no foreseeable plans to pay cash dividends in the future.

Volatility - The expected volatility is based on fluctuations in the price of our Ordinary Share prices on Nasdaq.

Risk free interest rate - The risk free interest rate is based on the U.S. Treasury yield curve, in accordance with the option’s contractual term.

Fair value of loan to AutoMax (a related party)

We entered into the Bridge Loan with AutoMax, which is considered a related party, which amounted to $4.25 million as of December 31, 2024. The Bridge Loan was extended in the context of an agreement for our acquisition of AutoMax, serving as an advance payment toward the transaction. The repayment terms of the Bridge Loan are contingent on the completion of the Merger, with provisions for set-off against the closing financing amount upon consummation of the transaction.

Evaluating the fair value of the Bridge Loan was complex and required considerable judgment due to the significant estimates in management’s assumptions, particularly regarding the involvement of a related party. The assessment of the recoverability of the Bridge Loan is complex and subjective.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following table sets forth information regarding our executive officers, key employees and directors as of April 23, 2025:

Name |  | Age |  | Position
Itschak Shrem |  | 77 |  | President and Director
Amitay Weiss |  | 63 |  | Chairman of the Board of Directors
Oz Adler |  | 38 |  | Chief Executive Officer and Chief Financial Officer
Dr. Adi Zuloff-Shani |  | 56 |  | Chief Technologies Officer
Amnon Ben Shay(1)(2)(3) |  | 62 |  | Director
Alon Dayan(1)(2)(3) |  | 49 |  | Director
Moshe Revach(3) |  | 49 |  | Director
Liat Sidi(3) |  | 50 |  | Director
Lior Vider(1)(2)(3) |  | 48 |  | Director

(1) | Member of the Compensation Committee

(2) | Member of the Audit Committee

(3) | Independent Director (as determined by our Board of Directors, pursuant to the definition prescribed to such term under Nasdaq Stock Market rules)

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Mr. Itschak Shrem was appointed to serve as our President in January 2022, prior to which he served as our Chairman from August 2020 to January 2022. Mr. Shrem has more than 40 years of experience in financial markets and venture capital. In 1991, Mr. Shrem founded Dovrat Shrem Ltd., an investment banking, management and technology company. Prior to that, he spent 15 years at Clal Israel Ltd., where he served in various capacities, including chief operating officer, and was responsible for capital markets and insurance businesses. In 1993, Mr. Shrem founded Pitango Venture Capital Fund (formerly, Polaris) and served as a partner of Pitango Funds I, II and III. He has been the Managing Director of Yaad Consulting 1995 Ltd. since 1995. Previously, Mr. Shrem served on the board of Tel-Aviv Sourasky Medical Center, the Weizman Institute Eden Spring Ltd., Rail Vision Ltd., Nano Dimension Ltd., Ormat Industries Ltd., Retalix Ltd. and as chairman of Sphera Funds Management Ltd. Mr. Shrem holds a B.A. in Economics and Accounting from Bar-Ilan University and an M.B.A. from Tel-Aviv University.

Mr. Amitay Weiss has served on our Board of Directors since August 2020 and as our Chairman since January 2022. Mr. Weiss served as our Chief Executive Officer from August 2020 to January 2022. Mr. Weiss currently serves as chairman of the board of directors of Automax Motors Ltd. (TASE: AMX.TA), as a director of Jeffs’ Brands Ltd (Nasdaq: JFBR) and as an external director of Cofix Group Ltd. (TASE: CFCS). Mr. Weiss also chairs and serves as director on the board of director of several public and private companies, including, Clearmind (Nasdaq: CMND), Maris Tech Ltd. (Nasdaq: MTEK) and N2 OFF, INC.. (Nasdaq: NITO). In 2016, Mr. Weiss founded Amitay Weiss Management Ltd. and now serves as its chief executive officer. From 2001 until 2015, Mr. Weiss served as vice president of business marketing & development and in various other positions at Bank Poalei Agudat Israel Ltd. from the First International Bank of Israel group. Mr. Weiss holds a B.A. in economics from New England College, an M.B.A. in business administration from Ono Academic College in Israel, an Israeli branch of University of Manchester and an LL.B. from the Ono Academic College.

Mr. Oz Adler, CPA, was appointed to serve as our Chief Executive Officer in January 2022 and has served as our Chief Financial Officer since April 2018 and previously held served as our VP Finance from March 2018 until April 2018 and as our Controller from September 2017 to March 2018. Mr. Adler has experience in a wide variety of managerial, financial, tax and accounting roles. Mr. Adler currently serves on the board of directors of numerous private, such as Polyrizon Ltd., and public companies, including Jeffs’ Brands Ltd (Nasdaq: JFBR), Rail Vision Ltd. (Nasdaq: RVSN) and Clearmind (Nasdaq: CMND), (FSE: CWY), and previously served as the chief financial officer of XYLO Technologies Ltd. (Nasdaq: XYLO) from December 2020 to April 2021. From 2012 until 2017, Mr. Adler was employed as a certified public accountant at Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global. Mr. Adler holds a B.A. in Accounting and Business management from The College of Management, Israel.

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Dr. Adi Zuloff-Shani, PhD, has served as our Chief Technologies Officer since February 2016. Dr. Zuloff-Shani has more than 20 years of experience as a research and development executive. Prior to joining us, and from 2012 to 2016, Dr. Zuloff-Shani served as a vice president development at Macrocure Ltd. (Nasdaq: MCUR) where besides leading all research and development activities, she interacted and was involved with the activities of all departments including clinical, operations, quality assurance, quality control, finance, and regulatory affairs. Dr. Zuloff-Shani currently serves as the Chief Executive Officer of Clearmind (Nasdaq: CMND), (FSE: CWY). She has served as the Chairman of Orsus Therapeutics, Inc. since November 2022, as a member of the scientific advisory board of N2 OFF, Inc. (Nasdaq: NITO) since October 2021 and as a director of MitoCareX since May 2022. Dr. Zuloff-Shani holds a Ph.D. in human biology and immunology from Bar-Ilan University, Israel.

Mr. Amnon Ben Shay has served as a member of our Board of Directors since January 2021 and served as our external director under the Companies Law between January 2021 and January 2022. Mr. Ben Shay has been chief financial officer of Aerodrome Group Ltd since October 2022. Mr. Ben Shay previously served on the board of directors of Azorim Investments and Building Development Company Ltd. (TASE: AZRM), Value Capital One Ltd. (TASE: VALU) and B.G.I. Investments (1961) Ltd. (TASE: BGI). Mr. Ben Shay was chief financial officer of Hadar Hasharon Marketing and Distributions Ltd. from February 2019 to October 2022. From February 2017 to January 2019, Mr. Ben Shay served as the chief financial officer of Fridenson Air & Ocean Ltd. From January 2014 to January 2017, Mr. Ben Shay served as the chief financial officer of Abetrans Logistics Ltd. Prior to that, Mr. Ben Shay served as the chief financial officer of Isline Export and Import Services Ltd. from 2010 to 2013. Prior to the year 2009, Mr. Ben Shay served as the chief financial officer of several Israeli real estate investment groups. Mr. Ben Shay holds a B.A. in economics and business and an M.B.A in business, both from The Hebrew University of Jerusalem, Israel, and an accounting certificate from The College of Management Academic Studies, Israel.

Mr. Alon Dayan has served as a member of our Board of Directors since January 2021 and served as our external director under the Companies Law between January 2021 and January 2022. Mr. Dayan is the founder of L1-Systems Ltd. and has served as its chief executive officer since 2014 and is also the founder of Viewbix Inc. (formerly known as Virtual Crypto Technologies Inc.) (OTC: VBIX), a company he served as chief executive officer from 2018 to 2019. Mr. Dayan is currently director at Viewbix Inc. Prior to that, he served as a business development manager at Elbit Systems Ltd. from 2006 to 2013. Mr. Dayan holds a B.A. in electronical engineering from Ariel University, Israel.

Mr. Moshe Revach has served as a member of our board of directors since September 2022. Mr. Revach also previously served as our director since August 2020 until his resignation on March 13, 2022. Mr. Revach has served as vice-counselor of the Ramat Gan municipality and has been on its financial committee since March 2024. Mr. Revach serves as a director of L.L.N IT solutions, a wholly owned subsidiary of the Jewish Agency for Israel, RPG Economic Society, ParaZero Technologies Ltd. (Nasdaq: PRZO), Plantify Foods Inc (CVE: PTFY), and Jeffs’ Brands Ltd (Nasdaq: JFBR). Mr. Revach previously served as a director of Biomedico Hadarim, and Jewish Experience Company on behalf of the Jewish Agency and also served as deputy mayor of Ramat Gan, Israel from 2013 to 2023, while also heading the sports and government relations departments in the Ramat Gan municipality. Mr. Revach holds an LL.B from the Ono Academic College, Israel, and a B.A. in management and economics from the University of Derby.

Ms. Liat Sidi has served as our Director since August 2020. Ms. Sidi serves as the manager of the accounting department for Foresight Autonomous Holdings Ltd. (Nasdaq and TASE: FRSX) and has served as director for N2 OFF, Inc.. (Nasdaq: NITO) since November 2023. Ms. Sidi previous served as director for Plantify Foods Inc (CVW: PTFY) from September 2023 to January 2024. Ms. Sidi previously served as an accountant for Panaxia Labs Israel Ltd. (TASE: PNAK) from 2015 to 2020 and as an accountant for Soho Real Estate Ltd. from 2015 to 2016. Ms. Sidi also served as an accountant for Feldman-Felco Ltd. from 2006 to 2010 and as an accountant for Eli Abraham accounting firm from 2000 to 2006. Ms. Sidi completed tax, finance and accounting studies in Ramat Gan College of Accounting.

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Mr. Lior Vider has served as our Director since August 2020. Mr. Vider has served as investment manager at Finessa Capital since November 2023. Mr. Vider previously served as chief investment manager for Impact Investment Management Ltd., from the Union Bank group, from 2007 to 2010 and as chairman of the board of directors and a member of the group’s investment committee of Rahkia Capital Markets Ltd. from 2006 to 2007. Mr. Vider also served as a director at Endymed Medical Ltd. and Apollo Power Ltd. Mr. Vider founded and managed sponser.co.il, a financial portal specializing in services for investors from 2005 to 2017. Mr. Vider holds a B.A. in industry and management engineering from Shenkar College in Israel.

Scientific Advisory Board

We have a Scientific Advisory Board of eleven award winning and active physicians and scientists in the field(s) of: psychiatry and child psychiatry, TS, neurology, Alzheimer’s disease, hospice and palliative medicine neurobiology, pharmacology and neuropsychopharmacology, organic and medicinal chemistry, cannabinoids and drug discovery. We consult with the members of our Scientific Advisory Board on a regular basis.

Prof. Elon Eisenberg, is the Dean of the Faculty of Medicine at the Technion - Israel Institute of Technology. Prof. Eisenberg is a Professor of Neurology and Pain Medicine at the Faculty of Medicine and holds the Otto Barth Family Academic Chair in Biomedical Science. Prof. Eisenberg graduated from Sackler School of Medicine, Tel-Aviv University in Israel. Prof. Eisenberg completed a residency in Neurology, at Rambam Medical Center, Haifa, Israel, and Neurology - Pain Fellowship at Massachusetts General Hospital, Harvard Medical School in Boston, USA. Prof. Eisenberg has been the director of the Institute of Pain Medicine at Rambam Health Care Campus, Haifa, Israel, and the President of the Israeli Pain Association. Prof. Eisenberg is currently the director of the Pain Research Unit at the Institute of Pain Medicine, Rambam Health Care Campus. H Prof. Eisenberg’s main areas of research include mechanisms and treatment of pain with special emphasis on neuropathic pain, CRPS, cancer pain, opioids and cannabinoids. Prof. Eisenberg has published about two-hundred articles, book chapters and other manuscripts in various areas of pain.

Prof. James Leckman, M.D. is the Neison Harris Professor of Child Psychiatry, Psychiatry, Psychology and Pediatrics at Yale University. Prof. Leckman is a well-known child psychiatrist and patient-oriented clinical investigator. For more than 20, years he served as the Director of Research for the Yale Child Study Center. His peers have regularly selected him as one of the Best Doctors in America. Dr. Leckman is the author or co-author of over 430 original articles published in peer-reviewed journals, twelve books, and 140 book chapters. Dr. Leckman has a longstanding interest in Tourette syndrome and Obsessive-Compulsive Disorder (OCD). His research on these disorders is multifaceted from phenomenology and natural history, to neurobiology to genetics, to risk factor research and treatment studies. One area of active research interest concerns the role of the immune system in the pathobiology of Tourette syndrome and other neuropsychiatric disorders.

Prof. Michael Davidson currently serves, among other things, as Chairman of the Israeli Medical Centre for Alzheimer’s Disease Care and Research in Ramat Gan and Chairman of the department of psychiatry at the Nicosia University Medical School. Prof. Davidson served as Chief Psychiatrist at the Department of Psychiatry of the Sheba Medical Centre in Tel-Hashomer for six years. Prof. Davidson holds a secondary professorship at the Sackler School of Medicine of Tel Aviv University and at the Mount Sinai School of Medicine in New York. Prof. Davidson is considered an international expert on Alzheimer’s disease and schizophrenia is the author of approximately 350 publications in scientific literature.

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Prof. Daniele Piomelli serves as the Louise Turner Arnold Chair in Neurosciences and Professor of Anatomy and Neurobiology, Pharmacology, and Biological Chemistry at University of California, Irvine. Prof. Piomelli is also the founding director of the drug discovery and development unit (D3) at the Italian Institute of Technology in Genoa, Italy, as well as the Editor in Chief of Cannabis and Cannabinoid Research of Cannabis and Cannabinoid Research. Prof. Piomelli’s research has resulted in several contributions to the pharmacology of lipid based signaling molecules including endocannabinoid substances and lipid amides. Prof. Piomelli is the author of more than 400 peer reviewed articles and books and has received several awards and honors. Prof. Piomelli studied Pharmacology and Neuroscience at Columbia University, and the Rockefeller University, and earned his degree of Doctor of Pharmacy from University of Naples.

Prof. Kirsten Müller-Vahl is a Professor of Psychiatry at the Department of Psychiatry, Socialpsychiatry and Psychotherapy at the Hannover Medical School, Germany. Prof. Müller-Vahl is a specialist in both neurology and adult psychiatry. She serves as the head of the TS outpatient department and over the past twenty-five years, Prof. Müller-Vahl has investigated more than 4000 patients with TS, both children and adults. She serves on the scientific advisory board of the German Tourette Syndrome Association and is the current president of the European Society of the study of Tourette syndrome (ESSTS), the national German Association for Cannabinoid Medicines (ACM) as well as the International Alliance for Cannabinoid Medicines (IACM). Her scientific work related to TS includes a large number of clinical trials funded by the EU (TS-EUROTRAIN: FP7-PEOPLE-2012-ITN, No. 316978; EMTICS: EU FP7-HEALTH-2011, 278367), by the NIMH (TIC-GENETICS (1R01MH115958-01), by the German ministry of education and research (BMBF) (ONLINE-TICS: 01KG1421) and the German Research Foundation (DFG) (CANNA-TICS: NCT03087201). At the 9th IACM Conference on Cannabinoids in Medicine in 2017 she received the “IACM Award 2017 for Clinical Research” for her special achievements regarding the re-introduction of cannabis and cannabinoids as medicine. Prof. Müller-Vahl has published more than 180 scientific articles, is the author of several book chapters and the leading German textbook on TS, and co-editor of the leading German textbook on cannabis-based medicine. She is author of several guidelines on TS including ESSTS guidelines and treatment guidelines published by the American Academy of Neurology (AAN).

Prof. Avi Weizman is a Professor of Child and Adult Psychiatry at the Sackler Faculty of Medicine of Tel Aviv University, a former Director of the Felsentein Medical Research Center and the head of the Laboratory for Biological and Molecular Psychiatry and the head of the Research Unit at the Geha Mental Health Center. Prof. Weizman’s research involves the investigation of brain mechanisms of mental disorders. Currently, it focuses on neurodevelopmental disorders, the development of new strategies for treating psychotic disorders, and the psychopharmacology of mental disorders. Prof. Weizman is the author of more than 760 original papers, five full books, 28 book chapters, and 60 review articles. After completing his residency in Psychiatry, Prof. Weizman spent two years as a visiting scientist at the National Institute of Mental Health in Bethesda, MD.

Dr. Michael H. Bloch, M.D., M.S. graduated from Yale School of Medicine and completed his child and adult psychiatry training at Yale. His research interests focus on studying Tourette syndrome, obsessive-compulsive disorder (OCD) and trichotillomania (TTM) across the lifespan and developing better pharmacological treatments for children with depression, anxiety and ADHD. His research focuses on developing better treatments for children and adults with these conditions particularly through clinical trials and meta-analysis. He has over 200 peer-reviewed publications and is currently the Research Review Editor for the Journal of Child Psychology and Psychiatry. He also serves on the scientific advisory boards of the Tourette Association of America and the TLC Foundation for Body-Focused Repetitive Behaviors. Prof. Saoirse O’Sullivan, PhD received her doctorate from Trinity College Dublin in 2001 and moved to the University of Nottingham in 2002 as a Research fellow where she began researching cannabinoid pharmacology through basic and clinical research. She was made Lecturer in 2007 and Associate Professor in 2011 and Full Professor in 2019. Prof. O’Sullivan has over 40 peer reviewed articles, six reviews and three books chapters on the topic of cannabinoid pharmacology, with specific interests on the cardiovascular and gastrointestinal effects of cannabinoids and therapeutic potential of cannabis-based medicines. Prof. O’Sullivan’s research methodologies span from cellular and animal models to human healthy volunteer studies and early phase clinical trials. In 2016, Prof. O’Sullivan was named the International Cannabinoid Research Society Young Investigator of the year. Prof. O’Sullivan now runs an independent consulting company called CanPharmaConsulting Ltd, and through this, acts as scientific advisor to Therapix Biosciences, Artelo Biosciences, Inc., CBD Science Group PLC, FSD Pharma Inc., and Dragonfly Biosciences Ltd. She is the science lead for the Centre for Medicine Cannabis, working to shape the UK’s new medicinal cannabis regime for patients. She is also secretary to the International Cannabinoid Research Society.

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Dr. Mellar P. Davis, MD, FCCP FAAHPM is a Professor of Palliative Medicine, the Geisinger Commonwealth School of Medicine and a member of the Palliative Care Department, and Section Head, Geisinger Medical System Danville, PA. He has been a member of the Geisinger Medical Staff since August 2016. In his role as Section Head, Dr. Davis is responsible for developing palliative care services throughout the Geisinger Medical System including outpatient and inpatient services. In addition, Dr. Davis works with the Geisinger Hospice Services to develop and coordinate care within the central region. Dr. Davis was a member of the Cleveland Clinic Palliative Care section, Taussig Cancer Institute and fellowship director until joining the Geisinger Medical System. Dr. Davis was the co-chair of the Palliative Care Study Group of the Multinational Association of Supportive Care (MASCC) and a past board member since 2010. Dr. Davis has been a Professor of Medicine in The Cleveland Clinic Lerner College of Medicine, Case Western Reserve University, since 2009 and was elected as a Fellow to the American Academy of Hospice and Palliative Medicine in 2010. Dr. Davis is Editor in Chief of Progress on Palliative Care. Dr. Davis’ present duties are as the Associate Editor in Chief of PC Fast Article Critical Summary for Clinicians in Palliative Care.

Prof. Avi Schroeder is the head of the Targeted Drug Delivery and Personalized Medicine Group, at the Technion, Israel Institute of Technology, and has translational research experience with the development of liposome-based clinical systems. He is the author of 60 scientific papers in the field of nanotechnology and medicine and is the inventor on 17 patents, and a recipient of 30 national and international innovation awards. Prof. Schroeder is a scientific entrepreneur, starting multiple successful Technion spin-outs. Prof. Schroeder received three degrees in Chemical Engineering from the Ben-Gurion University of the Negev and his postdoctoral training took place at MIT.

Prof. Yossi Tam received his B.Med.Sc., M.Sc., Ph.D. and D.M.D. from the Hebrew University of Jerusalem. He did his postdoctoral training at the National Institutes of Health (NIH), and in 2014 he moved to the Hebrew University to head the Obesity and Metabolism Laboratory at the Institute for Drug Research, where he focuses on targeting the endocannabinoid system for Obesity, Diabetes and the metabolic syndrome. Prof. Tam won major national and international grants. He authored over 80 peer-reviewed papers in leading journals (such as Science, Nature Medicine, Cell Metabolism, JCI, PNAS, Hepatology, Gastroenterology, Molecular Metabolism, to name a few), and three book chapters, with 5,412 citations yielding an H-index of 36. In addition, Prof. Tam co-invented 14 patents that were commercialized to different pharmaceutical companies for further clinical development and testing. Prof. Tam also serves as the Director of the Hebrew University’s Multidisciplinary Center for Cannabinoid Research and a Scientific Advisory Board Member of several biotech companies, which develop a portfolio of non-psychoactive cannabinoid-modulating medicines for unmet market needs. Prof. Tam’s research projects over the past twenty years have crossed subjects, disciplines and methodologies, yet the main research interests remain focused on the different pathophysiological aspects of the endocannabinoid system. Having a clinical background with basic science training, he has always been interested in how science can directly improve people’s everyday lives. Thus, he has strived unceasingly to integrate his clinical curiosity and experimental knowledge, in order to deepen the understanding of clinically relevant research questions.

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Family Relationships

There are no family relationships between any members of our executive management and our directors.

Arrangements for Election of Directors and Members of Management

We are not a party to, and there are no arrangements or voting agreements that we are aware of for the election of our directors and members of management.

B. Compensation

Compensation

The following table presents in the aggregate all compensation we paid to all of our directors and senior management, as a group for the year ended December 31, 2024. The table does not include any amounts we paid to reimburse any of such persons for costs incurred in providing us with services during this period.

All amounts reported in the tables below reflect the cost to us for the year ended December 31, 2024.

USD in thousands |  | Salary/Fee |  |  | Pension, Retirement and Other Similar Benefits(1) |  |  | Share- Based Compensation(2) |
All directors and senior management as a group, consisting of 9 persons |  | $ | 675 |  |  | $ | 90 |  |  | $ | 157 |

(1) | Represents the directors and senior management’s payment of mandatory social benefits made by us on behalf of such officer. Such benefits may include, to the extent applicable to the executive, payments, contributions and/or allocations for savings funds, education funds (referred to in Hebrew as “Keren Hishtalmut”), pension, severance, risk insurances (e.g., life or work disability insurance) and payments for social security.

(2) | Computed based on fair value for Ordinary Shares options granted and estimated using the Black-Scholes option pricing model.

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In accordance with the Companies Law, the table below reflects the compensation granted to our five most highly compensated officers or directors during or with respect to the year ended December 31, 2024.

Annual Compensation

Executive Officer |  | Salary/Fee |  |  | Pension, Retirement and Other Similar Benefits |  |  | Share- Based Compensation(1) |  |  | Total |
USD in thousands |  |  |  |  |  |  |  |  |  |  |  |
Oz Adler Chief Executive Officer and Chief Financial Officer |  | $ | 374 |  |  | $ | 48 |  |  | $ | 31 |  |  | $ | 453 |
Dr. Adi Zuloff-Shani Chief Technologies Officer |  | $ | 283 |  |  | $ | 42 |  |  | $ | 17 |  |  | $ | 342 |
Itschak Shrem President |  | $ | 268 |  |  | $ | - |  |  | $ | 31 |  |  | $ | 299 |
Amitay Weiss Chairman |  | $ | 268 |  |  | $ | - |  |  | $ | 31 |  |  | $ | 299 |
Lior Vider Director |  | $ | 28 |  |  | $ | - |  |  | $ | 9 |  |  | $ | 37 |

| (1) | Share-based compensation includes the cost of our non-cash share-based compensation in 2024.

Employment and Services Agreements with Executive Officers

We have entered into written employment agreements and/or consulting agreements with each of our executive officers. All of these agreements contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. Most of these agreements are terminable by either party upon 30 days’ prior written notice. However, a longer 90 day notice period is required with respect to each of our executive officers. In addition, we have entered into agreements with each executive officer and director pursuant to which we have agreed to indemnify each of them up to a certain amount and to the extent that these liabilities are not covered by directors and officers insurance. Members of our senior management are eligible for bonuses each year, subject to a pre-determined target-based bonus plan, which is usually set during the first quarter of each calendar year following the recommendation of our compensation committee and the approval of our Board of Directors. The annual bonuses are payable upon meeting objectives and targets that are set by our Chief Executive Officer and compensation committee and approved annually by our Board of Directors.

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For a description of the terms of our options and option plans, see Item 6.E. “Share Ownership” below.

As required by the Companies Law, our compensation committee and Board of Directors approved, and recommended to our shareholders to approve, amended terms of compensation of our Chief Executive Officer, Mr. Oz Adler, our President, Mr. Itschak Shrem, and our and Chairperson of the Board of Directors, Mr. Amitay Weiss, as set forth below. Such terms are in line with our Compensation Policy and were approved by our shareholders on February 10, 2022. We intend to ask our shareholders to reapprove the Compensation Policy at the annual meeting to be held in 2025.

| ● | President and Chairperson of the Board of Directors - a monthly fee in the amount of NIS 52,500 (approximately $14,919) and an annual target bonus of up to six monthly salaries, or eight in the case of overachievement.

| ● | Chief Executive Officer - a monthly fee in the amount of NIS 66,000 (approximately $18,755) and an annual target bonus of up to six monthly salaries, or eight in the case of overachievement, plus applicable pension, retirement and other similar benefits.

Directors’ Service Contracts

We do not have written agreements with any director providing for benefits upon the termination of his/her employment with us.

C. Board Practices

Corporate Governance Practices

As an Israeli company, we are subject to various corporate governance requirements under the Companies Law. However, pursuant to regulations promulgated under the Companies Law, companies with shares traded on certain U.S. stock exchanges, including the Nasdaq, may, subject to certain conditions, “opt out” from the requirements to appoint external directors and related rules concerning the composition of the audit committee and compensation committee of the board of directors, other than the gender diversification rule, which requires the appointment of a director from the other gender if, at the time a director is appointed, all members of the board of directors are of the same gender. In accordance with these regulations, following our listing on the Nasdaq, in January 2022, we elected to “opt out” from these requirements of the Companies Law. Under these regulations, the exemptions from such Companies Law requirements will continue to be available to us so long as: (i) we do not have a “controlling shareholder”, as such term is defined under the Companies Law, (ii) our shares are traded on certain U.S. stock exchanges, including the Nasdaq, and (iii) we comply with the director independence requirements and the audit committee and compensation committee composition requirements under U.S. laws, including the rules of the applicable exchange, that are applicable to U.S. domestic issuers.

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We are a “foreign private issuer”, as such term is defined in Rule 405 under the Securities Act. As a foreign private issuer we are permitted to comply with Israeli corporate governance practices instead of the corporate governance rules of Nasdaq, provided that we disclose which requirements we are not following and the equivalent Israeli requirement. As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing 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 periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.

For more information regarding our corporate governance practices and foreign private issuer status, see “Item 16.G Corporate Governance” below.

Board of Directors

Our Board of Directors presently consists of seven members. Nasdaq listing standards require that a majority of our Board of Directors be independent. These standards provide, among other things, that a person will be considered an independent director if he or she is not an officer of the Company and is, in the view of our board of directors, free of any relationship that would interfere with the exercise of independent judgment. We believe that Mr. Vider, Ms. Sidi, Mr. Ben Shay, Mr. Revach and Mr. Dayan are all currently considered “independent” for purposes of the Nasdaq rules. As such, our Board of Directors is comprised of a majority of independent directors as such term is defined in the Nasdaq rules. Our amended and restated articles of association provide that the number of directors shall be set by the general meeting of the shareholders provided that it will consist of not less than three and not more than 12 directors. Pursuant to the Companies Law, the overall planning and management of our business is vested in our Board of Directors. Our Board of Directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executive officers are responsible for our day-to-day management and have individual responsibilities established by our Board of Directors. Our Chief Executive Officer is appointed by, and serves at the discretion of, our Board of Directors. All other executive officers are appointed by the Board of Directors or by our Chief Executive Officer, provided that he was authorized by the Board of Directors to do so. Their terms of employment are subject to the approval of our Board of Directors’ Compensation Committee (see “-Compensation Committee”) and of the Board of Directors (and in case the terms are not compatible with the provisions of the compensation policy, to our shareholders’ approval as well), and are subject to the terms of any applicable employment agreements that we may enter into with them.

Our directors are divided into three classes with staggered three-year terms. Each class of directors consists, as nearly as possible, of one third of the total number of directors constituting the entire board of directors. At each annual general meeting of our shareholders, the election or re-election of directors following the expiration of the term of office of the directors of that class of directors is for a term of office that expires on the third annual general meeting following such election or re-election, such that at each annual general meeting the term of office only one class of directors will expire. Each director holds office until the annual general meeting of our shareholders for the year in which his or her term expires and until his or her successor is duly appointed, unless the tenure of such director expires earlier pursuant to the Companies Law upon the occurrence of certain events or unless removed from office by a vote of the holders of at least 65% of the total voting power of our shareholders at a general meeting of our shareholders in accordance with our amended and restated articles of association.

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Our directors are divided among the three classes as follows:

| ● | the Class I directors consist of Ms. Liat Sidi and Mr. Amnon Ben Shay, and their terms will expire at our annual general meeting of shareholders to be held in 2027;

| ● | the Class II directors consist of Mr. Alon Dayan, Mr. Moshe Revach and Mr. Lior Vider and their terms will expire at our annual general meeting of shareholders to be held in 2025; and

| ● | the Class III directors consist of Mr. Amitay Weiss and Mr. Itschak Shrem and their terms will expire at our annual general meeting of shareholders to be held in 2026.

In addition, our amended and restated articles of association allow our Board of Directors to appoint directors to fill vacancies on our Board of Directors or in addition to the acting directors (subject to the limitation on the number of directors and their qualifications), until the next general meeting in which directors may be appointed or such appointment terminated.

Under the Companies Law, nominations for directors may be made by any shareholder holding at least 5% of our outstanding voting power. However, any such shareholder may make such a nomination only if a written notice of such shareholder’s intent to make such nomination has been given to our Board of Directors. Any such notice must include certain information, a description of all arrangements between the nominating shareholder and the proposed director nominee(s) and any other person pursuant to which the nomination(s) are to be made by the nominating shareholder, the consent of the proposed director nominee(s) to serve as our director(s) if elected and a declaration signed by the nominee(s) declaring that there is no limitation under the Companies Law preventing their election and that all of the information that is required to be provided to us in connection with such election under the Companies Law has been provided.

Under the Companies Law, our Board of Directors must determine the minimum number of directors who are required to have accounting and financial expertise. Our Board of Directors has determined that the minimum number of our directors of who are required to have accounting and financial expertise is one.

Our Board of Directors is required to elect one director to serve as the Chairman of the Board of Directors to preside at the meetings of the Board of Directors and may also remove that director as Chairman. Pursuant to the Companies Law, neither the chief executive officer nor any of his or her relatives is permitted to serve as the Chairman of the Board of Directors, and a company may not (subject to a certain time-limited exemption, as described below) vest the Chairman or any of his or her relatives with the chief executive officer’s authorities. In addition, a person who reports, directly or indirectly, to the chief executive officer may not serve as the Chairman of the Board of Directors; the Chairman may not be vested with authorities of a person who reports, directly or indirectly, to the chief executive officer; and the Chairman may not serve in any other position in the company or a controlled company, but he or she may serve as a director or chairman of a controlled company. However, and notwithstanding the foregoing, the Companies Law permits the shareholders of a company to determine, for periods not exceeding three years from each such determination, that the Chairman or his or her relative may serve as chief executive officer or be vested with the chief executive officer’s authorities, and that the chief executive officer or his or her relative may serve as Chairman or be vested with the Chairman’s authorities. Such determination of a company’s shareholders requires either: (1) the approval of at least the majority of the shares of those shareholders present and voting on the matter (other than controlling shareholders and those having a personal interest in the determination); or (2) that the total number of shares opposing such determination does not exceed 2% of the total voting power in the company.

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The Board of Directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees of the Board of Directors, and it may, from time to time, revoke such delegation or alter the composition of any such committees, subject to certain limitations. Unless otherwise expressly provided by the Board of Directors, the committees shall not be empowered to further delegate such powers. The composition and duties of our audit committee and compensation committee, are described below. See “-Committees of the Board of Directors” below.

Role of Board of Directors in Risk Oversight Process

The Board of Directors oversees how management monitors compliance with our risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by us. Our Board of Directors encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings, and conducts specific strategic planning and review sessions that include a focused discussion and analysis of the risks we face. Senior management reviews these risks with the Board of Directors focusing on particular business functions, operations or strategies, and presents the steps taken by management to mitigate or eliminate such risks. The Board of Directors is assisted in its oversight role by an internal auditor. The internal auditor undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to our audit committee. See “-Committees of the Board of Directors-Internal Auditor” below.

Leadership Structure of the Board of Directors

In accordance with the Companies Law and our amended and restated articles of association, our Board of Directors is required to appoint one of its members to serve as Chairman of the Board of Directors. Our Board of Directors has appointed Mr. Amitay Weiss to serve as Chairman of the Board of Directors, effective January 10, 2022, and subsequently further named as the President of the Company, Mr. Itschak Shrem, the authorities of the Chairman of the Board of Directors as well.

Alternate Directors

Our amended and restated articles of association provide, consistent with the Companies Law, that any director, and with respect to external directors (to the extent required under applicable law - see the description of the External Directors Relief Resolution under “-External Directors” below) – only subject to certain preconditions, may appoint another person to serve as his alternate director, provided such person has the qualifications prescribed under the Companies Law to be appointed and to serve as a director and is not already serving as a director or an alternate director of the company. The term of an alternate director may be terminated at any time by the appointing director and automatically terminates upon the termination of the term of the appointing director. An alternate director has the same rights and responsibilities as a director. To date there are no alternate director appointments in effect.

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External Directors

Under the Companies Law, companies incorporated under the laws of the State of Israel that are “public companies” are required to appoint at least two external directors who meet the qualification requirements under the Companies Law. Pursuant to regulations promulgated under the Companies Law, companies with shares traded on certain U.S. stock exchanges, including Nasdaq, which do not have a “controlling shareholder,” may, subject to certain conditions, “opt out” from the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee of the board of directors (other than the gender diversification rule under the Companies Law, which requires the appointment of a director from the other gender if at the time a director is appointed all members of the board of directors are of the same gender). In accordance with these regulations, in January 2022, following our listing on Nasdaq, our Board of Directors elected to “opt out” from the Companies Law requirement to appoint external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee of our board of directors.

Fiduciary Duties of Office Holders

The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company. “Office holders” includes the chief executive officer, general manager, chief business manager, deputy general manager, vice general manager, any other person assuming the responsibilities of any of the above positions regardless of that person’s title, and a director, or a manager directly subordinate to the chief executive officer or general manager.

The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care of an office holder includes a duty to use reasonable means to obtain:

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

| ● | all other important information pertaining to these actions.

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

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

| ● | refrain from any action that constitutes competition with the company’s business;

| ● | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or others; and

| ● | disclose to the company any information or documents relating to the company’s affairs which the office holder has received due to his position as an office holder.

On February 15, 2022, we filed a lawsuit in the Economic Division of the Tel Aviv Court against six of our former directors, including our former interim chief executive officer and executive chairman, which included allegations of breaches of their fiduciary duties (duty of care and duty of loyalty) under the Companies Law. This lawsuit was settled in February 2025, pursuant to a settlement agreement entered into between the defendants and us and thereafter approved by the court. See “Legal Proceedings” in Item 8.A below for additional information.

Approval of Related Party Transactions under Israeli Law

General

Under the Companies Law, we may approve an action by an office holder from which the office holder would otherwise have to refrain, as described above, if:

| ● | the office holder acts in good faith and the act or its approval does not cause harm to the company; and

| ● | the office holder disclosed the nature of his or her interest in the transaction (including any significant fact or document) to the company at a reasonable time before the company’s approval of such matter.

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Disclosure of Personal Interests of an Office Holder

The Companies Law requires that an office holder disclose to the company, promptly, and, in any event, not later than the board meeting at which the transaction is first discussed, any direct or indirect personal interest that he or she may have and all related material information known to him or her relating to any existing or proposed transaction by the company.

A “personal interest” includes the personal interest of a person for whom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or she holds a proxy even if such shareholder has no personal interest in the matter.

If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by:

| ● | the office holder’s relatives; or

| ● | any corporation in which the office holder or his or her relatives holds 5% or more of the shares or voting rights, serves as a director or general manager or has the right to appoint at least one director or the general manager.

An office holder is not, however, obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction.

Under the Companies Law, an extraordinary transaction is a transaction:

| ● | not in the ordinary course of business;

| ● | not on market terms; or

| ● | that is likely to have a material effect on the company’s profitability, assets or liabilities.

The Companies Law does not specify neither to who within us nor the manner in which required disclosures are to be made. We require our office holders to make such disclosures to our Board of Directors.

Under the Companies Law, once an office holder complies with the above disclosure requirement, the board of directors may approve a transaction between the company and an office holder, or a third party in which an office holder has a personal interest, unless the articles of association provide otherwise and provided that the transaction is in the company’s interest and is performed by the office holder in good faith. If the transaction is an extraordinary transaction, first the audit committee and then the board of directors, in that order, must approve the transaction. Under specific circumstances, shareholder approval may also be required. Any director (and any person, in general) who has a personal interest in an extraordinary transaction, which is considered at a meeting of the board of directors or the audit committee, may not be present at this meeting or vote on this matter, unless the chairman of the relevant committee or board of directors determines that he or she should be present in order to present the transaction that is subject to approval. If a majority of the board of directors or the audit committee, as the case may be, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors (as applicable) on such transaction and the voting on approval thereof, but shareholder approval is also required for such transaction.

Under the Companies Law, all arrangements as to compensation and indemnification or insurance of office holders require approval of the compensation committee and board of directors, and compensation of office holders who are directors must be also approved, subject to certain exceptions, by the shareholders, in that order. If shareholders of a company do not approve the compensation terms of office holders, other than directors, the compensation committee and board of directors may override the shareholders’ decision, subject to certain conditions.

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Disclosure of Personal Interests of a Controlling Shareholder

Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a “controlling shareholder” of a public company. 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 or the compensation committee, as the case may be, 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, the 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.

In addition, any extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest with a term of more than three years requires the abovementioned approval every three years; however, such transactions not involving the receipt of services or compensation can be approved for a longer term, provided that the audit committee determines that such longer term is reasonable under the circumstances.

Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder or his or her relative, or with directors, that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the audit or compensation committee and board of directors.

The Companies Law requires that every shareholder that participates, in person, by proxy or by voting instrument, in a vote regarding a transaction with a controlling shareholder, must indicate in advance or in the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate will result in the invalidation of that shareholder’s vote.

The term “controlling shareholder” is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or its general manager. The definition a “controlling shareholder” is deemed to include any shareholder that holds 25% or more of the voting rights in a company if no other shareholder holds more than 50% of the voting rights in the company. For the purpose of determining the holding percentage stated above, two or more shareholders who have a personal interest in a transaction that is brought for the company’s approval are deemed as joint holders. According to the foregoing, the Companies Law recognizes a situation where there exists a “controlling shareholder” regarding a particular matter or in relation to a particular transaction, although such shareholder would not be considered to have a controlling interest on an ongoing basis or in any other case.

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Duties of Shareholders

Under the 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:

| ● | amendment of the articles of association;

| ● | increase in the company’s authorized share capital;

| ● | merger; 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 oppressing and 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 oppression of 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 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.

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Committees of the Board of Directors

Our Board of Directors has established two standing committees, both of which (the audit committee and the compensation committee) are mandatory (and to date comprised of the same members and combined into one functional committee which resides as a unified committee). In addition, occasionally our Board of Directors may form sub-committees for certain matters on an ad hoc basis, such as a pricing committee or a nomination and corporate governance committee, with advisory powers only, operating under a framework and guidelines as outlined and defined in advance by our Board of Directors.

Audit Committee

Companies Law Requirements

Under the Companies Law, we are required to appoint an audit committee.

Listing Requirements

Under the corporate governance rules of Nasdaq, we are required to maintain an audit committee consisting of at least three independent directors, each of whom is financially literate and one of whom has accounting or related financial management expertise.

Our audit committee, acting pursuant to a written charter, consists of Mr. Vider, Mr. Ben Shay and Mr. Dayan. Mr. Ben Shay serves as chairperson of our audit committee. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the corporate governance rules of Nasdaq. Our Board of Directors has determined that Amnon Ben Shay is an audit committee financial expert as defined by the SEC rules and has the requisite financial experience as defined by the corporate governance rules of Nasdaq.

Audit Committee Role

Under the Companies Law, our audit committee is responsible for:

| ● | determining whether there are deficiencies in the business management practices of our company, and making recommendations to the Board of Directors to improve such practices;

| ● | determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under Companies Law) (see “-Approval of Related Party Transactions under Israeli Law”);

| ● | examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities;

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| ● | examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our Board of Directors or shareholders, depending on which of them is considering the appointment of our auditor;

| ● | establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees;

| ● | determining whether certain acts of an office holder not in accordance with his or her fiduciary duty owed to the company are extraordinary or material and to approve such acts and certain related party transactions (including transactions in which an office holder has a personal interest) and whether such transaction is extraordinary or material under the Companies Law (see “-Approval of Related Party Transactions Under Israeli Law”);

| ● | deciding whether to approve and to establish the approval process (including by tender or other competitive proceedings) for certain transactions with a controlling shareholder or in which a controlling shareholder has a personal interest; and

| ● | determining the process of approving of transactions that are not negligible, including determining the types of transactions that will be subject to the approval of the audit committee.

We have adopted an audit committee charter setting forth among others, the responsibilities of the audit committee consistent with the rules of the SEC and Nasdaq listing rules, including, among others, the following:

| ● | considering and making recommendations to the Board of Directors on our financial statements, reviewing and discussing the financial statements and presenting its recommendations with respect to the financial statements to the Board of Directors prior to the approval of the financial statements by our Board of Directors;

| ● | oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the Board of Directors in accordance with Israeli law;

| ● | recommending the engagement or termination of the person filling the office of our internal auditor, reviewing the services provided by our internal auditor and reviewing effectiveness of our system of internal control over financial reporting;

| ● | recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our Board of Directors;

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| ● | reviewing and monitoring, if applicable, legal matters with significant impact, reviewing regulatory authorities’ findings, receiving reports regarding irregularities and legal compliance, acting according to “whistleblower policy” and recommending to our Board of Directors if so required, and overseeing our policies and procedures regarding compliance with applicable financial and accounting related standards, rules and regulations; and

| ● | supervising the manner we implement the requirements of the Privacy Protection Law, 1981 and the Privacy Protection Regulations (Data Security), 2017.

Compensation Committee

Companies Law Requirements

Under the Companies Law, the board of directors of any public company must establish a compensation committee. The compensation committee must be comprised of at least three directors.

Listing Requirements

Our compensation committee is acting pursuant to a written charter, and consists of Mr. Vider, Mr. Ben Shay and Mr. Dayan. Mr. Ben Shay is the Chairperson of the compensation committee. Our Board of Directors has determined that each member of our compensation committee is independent under the corporate governance rules of Nasdaq, including the additional independence requirements applicable to the members of a compensation committee.

Compensation Committee Role

Our compensation committee reviews and recommends to our Board of Directors: (1) the annual base compensation of our executive officers and directors; (2) annual incentive bonus, including the specific goals and amount; (3) equity compensation; (4) employment agreements, severance arrangements, and change in control agreements/provisions; (5) retirement grants and/or retirement bonuses; and (6) any other benefits, compensation, compensation policies or arrangements.

The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement of office holders, to which we refer as a Compensation Policy. The Compensation Policy must be adopted by the company’s Board of Directors, after considering the recommendations of the Compensation Committee. The Compensation Policy is then brought for approval by our shareholders and is subject to special majority requirements. On February 10, 2022, our shareholders approved our new Compensation Policy, which expired on February 9, 2025. We intend to ask our shareholders to reapprove the Compensation Policy at the annual meeting to be held in 2025. The duties of the compensation committee also include the administration of the Company’s policy for recovery of erroneously awarded compensation.

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Compensation Policy

The Compensation Policy must serve as the basis for decisions concerning the financial terms of employment or engagement of executive officers and directors, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The Compensation Policy must be approved (or reapproved) not longer than every three years, and relate to certain factors, including advancement of the company’s objectives, the company’s business and its long-term strategy, and creation of appropriate incentives for executives. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The Compensation Policy must furthermore consider the following additional factors:

| ● | the knowledge, skills, expertise and accomplishments of the relevant office holder (director or executive);

| ● | the director’s or executive’s roles and responsibilities and prior compensation agreements with him or her;

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

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

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

| ● | as to severance compensation, the period of service of the director or executive, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company.

The Compensation Policy must also include the following principles:

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

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

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| ● | the conditions under which a director or executive would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial statements;

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

| ● | maximum limits for severance compensation.

The Compensation Policy must also consider appropriate incentives from a long-term perspective and maximum limits for severance compensation.

The Compensation Committee is responsible for (1) recommending the Compensation Policy to a company’s Board of Directors for its approval (and subsequent approval by our shareholders) and (2) duties related to the compensation policy and to the compensation of a company’s office holders as well as functions previously fulfilled by a Company’s Audit Committee with respect to matters related to approval of the terms of engagement of office holders, including:

| ● | recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years);

| ● | recommending to the board of directors periodic updates to the compensation policy;

| ● | assessing implementation of the compensation policy; and

| ● | determining whether the compensation terms of the chief executive officer of the company need not be brought to approval of the shareholders.

Internal Auditor

Under the Companies Law, the Board of Directors of an Israeli public company must also appoint an internal auditor nominated and supervised by the audit committee. Our internal auditor is Mr. Daniel Shapira, who has been serving as our internal auditor since March 2006. Mr. Shapira is a Certified Public Accountant and holds a B.A. degree in Economics and Accounting from Bar-Ilan University, Israel.

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The role of the internal auditor is to examine whether a company’s actions comply with the law and proper business procedure. Our Chairman acts as the internal auditor’s organizational supervisor. The internal auditor will submit his internal auditor’s work plan for the approval of our audit committee. The internal auditor may not be an “interested party” or office holder, or a relative of any interested party or office holder, and may not be a member of the company’s independent accounting firm or its representative. The Companies Law defines an interested party as a holder of 5% or more of the shares or voting rights of a company, any person or entity that has the right to nominate or appoint at least one director or the general manager of the company or any person who serves as a director or as the general manager of a company. Our internal auditor is not our employee, but the managing partner of a firm which specializes in internal auditing.

Remuneration of Directors

Under the Companies Law, remuneration of directors is subject to the approval of the compensation committee, thereafter by the board of directors and thereafter by the general meeting of the shareholders. In case the remuneration of the directors is in accordance with regulation applicable to remuneration of the external directors then such remuneration shall be exempt from the approval of the general meeting.

Insurance

Under the Companies Law and our amended and restated articles of association, a company may obtain insurance for any of its office holders for:

| ● | a breach of his or her duty of care to the company or to another person, including a breach arising out of the negligent conduct of the office holder;

| ● | a breach of his or her duty of loyalty to the company, provided that the office holder acted in good faith and had reasonable cause to assume that his or her act would not prejudice the company’s interests;

| ● | a financial liability imposed upon him or her in favor of another person concerning an act performed by such office holder in his or her capacity as an officer holder;

| ● | any other insurable action in accordance with the Companies Law;
| ● | expenses incurred by an office holder relating to an administrative enforcement proceeding conducted with respect to such office holder including reasonable litigation expenses and attorneys’ fees; and

| ● | payments to the party injured by the violation, in accordance with the Securities Law.

We currently have liability insurance providing total coverage of $5 million per claim and in the aggregate for the benefit of all of our directors and officers and company coverage for securities claims. We also have an excess Side A difference in conditions policy providing a total coverage of $2.5 million per claim and in the aggregate for the benefit of all of our directors and officers for claims against them, which may operate as a primary coverage in certain cases, subject to policy terms and conditions.

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Indemnification

The Companies Law and our amended and restated articles of association provide that we may indemnify an office holder against:

| ● | a financial liability imposed on him or her in favor of another person by any judgment concerning an act performed in his or her capacity as an office holder, including a settlement or arbitrator’s award approved by a court; However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on a company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking must detail the abovementioned foreseen events and amount or criteria;

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

| ● | reasonable litigation expenses, including attorneys’ fees, expended by the office holder or charged to him or her by a court relating to an act performed in his or her capacity as an office holder, in connection with: (1) proceedings that the company institutes, or that another person institutes on the company’s behalf, against him or her; (2) a criminal charge of which he or she was acquitted; or (3) a criminal charge for which he or she was convicted for a criminal offense that does not require proof of criminal thought;

| ● | expenses incurred by an office holder relating to an administrative enforcement proceeding conducted with regard to such office holder, including reasonable litigation expenses and including attorneys’ fees;

| ● | payment to the party injured by the violation; and

| ● | liability or expense otherwise permitted as an indemnification by the Companies Law.

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Our amended and restated articles of association allow us to indemnify our office holders up to a certain amount. The Companies Law also permits a company to undertake in advance to indemnify an office holder, provided that if such indemnification relates to financial liability imposed on him or her, as described above, then the undertaking should be limited:

| ● | to categories of events that the board of directors determines are likely to occur in light of the operations of the company at the time that the undertaking to indemnify is made; and

| ● | in amount or criterion determined by the board of directors, at the time of the giving of such undertaking to indemnify, to be reasonable under the circumstances.

We have entered into indemnification agreements, with each of our directors and with certain members of our senior management. Each such indemnification agreement provides the office holder with indemnification to the fullest extent permitted under applicable law and up to a certain amount, and including with respect to liabilities resulting from our initial public offering in the United States and any other subsequent public offerings, and to the extent that the directors and officers insurance do not cover these liabilities.

Exculpation

Under the Companies Law, an Israeli company may not exculpate an office holder from liability for a breach of his or her duty of loyalty, but may exculpate in advance an office holder from his or her liability to the company, in whole or in part, and for damages caused to the company as a result of a breach of his or her duty of care (other than in relation to distributions), but only if a provision authorizing such exculpation is included in its articles of association. A company may not exculpate a director from liability arising out of a prohibited dividend or distribution to shareholders. Our amended and restated articles of association provide that we may exculpate any office holder from liability to us to the fullest extent permitted by law.

We have entered into exculpation agreements with each of our current directors and executive officers undertaking to exculpate and release our office holders from any and all liability to us related to any breach by them of their duty of care to us to the fullest extent permitted by law and including with respect to liabilities resulting from our initial public offering in the United States and any other subsequent public offerings.

Limitations

The Companies Law provides that we may not exculpate or indemnify an office holder nor enter into an insurance contract that would provide coverage for any liability incurred as a result of any of the following: (1) a breach by the office holder of his or her duty of loyalty unless (in the case of indemnity or insurance only, but not exculpation) the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice us; (2) a breach by the office holder of his or her duty of care if the breach was carried out intentionally or recklessly (as opposed to merely negligently); (3) any action taken or omission committed with the intent to derive an illegal personal benefit; or (4) any fine or forfeit levied against the office holder.

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Equity Incentive Plans

Israeli Share Option Plan (2015); Israeli Share Option Plan (2005)

In July 2005, we adopted the Israeli Share Option Plan (2005), or the 2005 Plan, which was in force for a period of 10 years. Upon the expiration of the 2005 Plan, we adopted the Israeli Share Option Plan (2015), or the 2015 Plan. There are no options outstanding under our 2005 Plan.

We no longer grant any awards under the 2015 Plan as it was superseded by the 2023 Share Incentive Plan, or the 2023 Plan, although previously granted awards remain outstanding. Ordinary shares subject to outstanding options granted under the 2015 Plan that expire or become unexercisable without having been exercised in full will become available again for future grant under the 2023 Plan. Our board of directors, or a duly authorized committee of our board of directors administers the 2015 Plan.

2023 Share Incentive Plan

The 2023 Plan was adopted by our board of directors on December 28, 2023. The 2023 Plan provides for the grant of equity-based incentive awards to our employees, directors, office holders, service providers and consultants in order to incentivize them to increase their efforts on behalf of the Company and to promote the success of the Company’s business. As of April 23, 2025, 953,787 Ordinary Shares were reserved and available for issuance under the 2023 Plan.

Shares Available for Grants. The maximum number ordinary shares available for issuance under the 2023 Plan is equal to the sum of (i) 2,000,0000 shares and (ii) any shares subject to awards under the 2015 Plan which have expired, or were cancelled, terminated, forfeited or settled in cash in lieu of issuance of shares or became unexercisable without having been exercised, provided that no more than 1,013,787, Ordinary Shares may be issued upon the exercise of Incentive Stock Options. If permitted by our board of directors, shares tendered to pay the exercise price or withholding tax obligations with respect to an award granted under the 2023 Plan or the 2015 Plan may again be available for issuance under the 2023 Plan, unless determined otherwise by the Board. Our board of directors may also reduce the number of ordinary shares reserved and available for issuance under the 2023 Plan in its discretion.

Administration. Our board of directors, or a duly authorized committee of our board of directors, or the administrator, will administer the 2023 Plan. Under the 2023 Plan, the administrator has the authority, subject to applicable law, to interpret the terms of the 2023 Plan and any award agreements or awards granted thereunder, designate recipients of awards, determine and amend the terms of awards, including the exercise price of an option award, the fair market value of an ordinary share, the time and vesting schedule applicable to an award or the method of payment for an award, accelerate or amend the vesting schedule applicable to an award, prescribe the forms of agreement for use under the 2023 Plan and take all other actions and make all other determinations necessary for the administration of the 2023 Plan.

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The administrator also has the authority to approve the conversion, substitution, cancellation or suspension under and in accordance with the 2023 Plan of any or all option awards or ordinary shares, and the authority to modify option awards to eligible individuals who are foreign nationals or are individuals who are employed outside Israel to recognize differences in local law, tax policy or custom, in order to effectuate the purposes of the 2023 Plan but without amending the 2023 Plan.

The administrator also has the authority to amend and rescind rules and regulations relating to the 2023 Plan or terminate the 2023 Plan at any time before the date of expiration of its ten year term.

D. Employees.

On December 31, 2022, we had 3 full-time employees. On December 31, 2023, we had 3 full-time employees. On December 31, 2024, we had 2 full-time employees, our Chief Executive Officer, who is also our Chief Financial Officer, and our Chief Technologies Officer.

None of our current employees and officeholders is represented by labor unions or covered by collective bargaining agreements. We believe that we maintain good relations with all of our employees. However, in Israel, we are subject to certain Israeli labor laws, regulations and national labor court precedent rulings, as well as certain provisions of collective bargaining agreements applicable to us by virtue of extension orders issued in accordance with relevant labor laws by the Israeli and Industry of Economy and which apply such agreement provisions to our employees even though they are not part of a union that has signed a collective bargaining agreement.

E. Share Ownership.

See “Item 7.A. Major Shareholders” below.

F. Action to Recover Erroneously Awarded Compensation

Not applicable.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

The following table sets forth information regarding beneficial ownership of our ordinary shares as of April 23, 2025 by:

| ● | each person, or group of affiliated persons, known to us to be the beneficial owner of more than 5% of our outstanding ordinary shares;

| ● | each of our directors, and executive officers; and

| ● | all of our directors, and executive officers as a group.

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Except as indicated in footnotes to this table, we believe that the shareholders named in this table have sole voting and investment power with respect to all shares shown to be beneficially owned by them, based on information provided to us by such shareholders. Unless otherwise noted below, each beneficial owner’s address is c/o SciSparc Ltd., 20 Raul Wallenberg Street, Tower A, Tel Aviv, 6971916 Israel.

Holders of more than 5% of our ordinary shares |  | Number of Ordinary Shares Beneficially Owned(1) |  |  | Percent of Class(2) |
Officers and Directors who are not 5% holders: |  |  |  |  |  |
Itschak Shrem |  |  | 76,536 | (3) |  |  | * |
Amitay Weiss |  |  | 76,221 | (4) |  |  | * |
Oz Adler |  |  | 76,256 | (5) |  |  | * |
Dr. Adi Zuloff-Shani |  |  | 38,756 | (6) |  |  | * |
Amnon Ben Shay |  |  | 22,711 | (7) |  |  | * |
Alon Dayan |  |  | 22,711 | (7) |  |  | * |
Liat Sidi |  |  | 22,711 | (7) |  |  | * |
Lior Vider |  |  | 22,711 | (7) |  |  | * |
Moshe Revach |  |  | 22,500 | (8) |  |  | * |
All directors and executive officers as a group (9 persons) |  |  | 381,113 |  |  |  | 3.50 | %

* | Less than 1%.

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(1) | Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.

(2) | The percentages shown are based on 10,828,251 ordinary shares issued and outstanding as of April 23, 2025, plus ordinary shares relating to restricted share units, or RSUs, options and warrants currently exercisable or vesting within 60 days of April 23, 2025, which are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person.

(3) | Includes (i) 340 Ordinary Shares; (ii) 50,000 vested RSUs; (iii) 25,000 RSUs vesting within 60 days of April 23, 2025; and (iv) options to purchase 1,196 Ordinary Shares at an exercise price of $169 per share, and an expiration date of January 3, 2028.

(4) | Includes (i) 25 Ordinary Shares; (ii) 50,000 vested RSUs; (iii) 25,000 RSUs vesting within 60 days of April 23, 2025; and (iv) options to purchase 1,196 Ordinary Shares at an exercise price of $169 per share and an expiration date of January 3, 2028.

(5) | Includes (i) 50,000 vested RSUs; (ii) 25,000 RSUs vesting within 60 days of April 23, 2025; (iii) options to purchase 1,196 Ordinary Shares at an exercise price of $169 per share; and (iv) options to purchase 60 Ordinary Shares at an exercise price of $5,460 per share. Mr. Adler’s options have an expiration date of January 3, 2028, to October 10, 2029, and a weighted average exercise price of $422.

(6) | Includes (i) 25,000 vested RSUs; (ii) 12,500 RSUs vesting within 60 days of April 23, 2025; (iii) options to purchase 6 Ordinary Shares at an exercise price of NIS 77,241 (approximately $20,876) per share; (iv) options to purchase 54 Ordinary Shares at an exercise price of $5,640 per share; and (v) options to purchase 1,196 Ordinary Shares at an exercise price of $169 per share. Dr. Zuloff-Shani’s options have an expiration date of February 16, 2026 to October 10, 2029, and a weighted average exercise price of $207.

(7) | Includes (i) 15,000 vested RSUs; (ii) 7,500 RSUs vesting within 60 days of April 23, 2025; and (iii) options to purchase 211 Ordinary Shares at an exercise price of $169 per share and an expiration date of January 3, 2028.

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Changes in Percentage Ownership by Major Shareholders

To our knowledge, other than as disclosed in the table above, our other filings with the SEC and this Annual Report, there has been no significant change in the percentage ownership held by any major shareholder during the past three years.

Voting Rights

No major shareholders listed above had or have voting rights with respect to their Ordinary Shares that are different from the voting rights of other holders of our Ordinary Shares.

Record Holders

As of April 23, 2025, there were 30 holders of record of our Ordinary Shares, eight of which have a registered address in the United States.

These numbers are not representative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were held of record by brokers or other nominees.

Change in Control Arrangements

We are not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and there are no arrangements known to us which would result in a change in control at a subsequent date.

B. Related Party Transactions

Employment Agreements

We have entered into written employment agreements with Mr. Oz Adler, our Chief Executive Officer and Chief Financial Officer, and Dr. Adi Zuloff-Shani, our Chief Technologies Officer. Each of these agreements contains customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. These agreements are terminable by either party upon 30 days’ prior written notice. In addition, we have entered into agreements with each executive officer and director pursuant to which we have agreed to indemnify each of them up to a certain amount and to the extent that these liabilities are not covered by directors and officers insurance. Members of our senior management are eligible for bonuses each year. The bonuses are payable upon meeting objectives and targets that are set by our Chief Executive Officer and approved annually by our Board of Directors that also set the bonus targets for our Chief Executive Officer. See Item 6.B. “Compensation-Employment and Service Agreements with Executive Officers” and see the descriptions of exculpation and indemnification agreements and directors and officers insurance arrangements in Item 6.A. “Directors and Senior Management” and Item 6.C. “Board Practices-Insurance,” - “Indemnification” and “-Exculpation.”

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Options

Since our inception, we have granted options to purchase our Ordinary Shares, and RSUs to our employees, officers, service providers and certain of our directors. Such option and RSU agreements and may contain acceleration provisions upon certain merger, acquisition, or change of control transactions. We describe our equity incentive plans under Item 6.E. “Share Ownership-Equity Incentive Plans.” If the relationship between us and an executive officer or a director is terminated, except for cause (as defined in the various option plan agreements), options that are vested will generally remain exercisable for 90 days after such termination.

Commercial Agreements

Clearmind

On March 7, 2022, we entered into the Cooperation Agreement with Clearmind, a company in which Dr. Adi Zuloff-Shani, our Chief Technologies Officer, Mr. Weiss, our President, and Mr. Adler, our Chief Executive Officer and Chief Financial Officer serve as officers and directors. See Item 4.B. “Business Overview- Collaboration with Clearmind” for additional information.

On November 17, 2022, we invested $1.5 million in Clearmind in connection with its initial public offering on Nasdaq, in exchange for 230,769 common shares of Clearmind, representing 9.33% of the outstanding share capital of Clearmind.

Polyrizon

On May 31, 2022, we entered into the Polyrizon Collaboration Agreement with Polyrizon. Mr. Adler, our Chief Executive Officer and Chief Financial Officer, serves as a director in Polyrizon. See Item 4.B. “Business Overview - Polyrizon” for additional information.

On August 13, 2024, we entered into a termination agreement with Polyrizon to terminate the Polyrizon Collaboration Agreement.

Additionally, on August 13, 2024, we entered into the License Agreement for the out-licensing of our SCI-160 program with Polyrizon. Pursuant to the License Agreement, we granted Polyrizon the Polyrizon License and received 320,000 ordinary shares of Polyrizon, pre-funded warrants to purchase 364,931 ordinary shares of Polyrizon, and common warrants to purchase 2,054,793 ordinary shares of Polyrizon, at an exercise price of $4.38 per share. On December 30, 2024, we entered into the Polyrizon Share Transfer Agreement and sold all of the Polyrizon ordinary shares and pre-funded warrants held by us, as well as an aggregate of 1,541,096 Polyrizon common warrants to third parties, for aggregate consideration of $770,548. See Item 4.B. “Business Overview — Polyrizon” for additional information.

On April 1, 2025, we entered into a securities purchase agreement with Polyrizon, pursuant to which we participated in a private placement of Polyrizon and invested $100,000 (out of an aggregate investment of approximately $17 million), in exchange for ordinary shares and Series A warrants to purchase ordinary shares, of Polyrizon. In addition, we entered into an exchange agreement with Polyrizon, pursuant to which we exchanged existing ordinary share warrants of Polyrizon held by us for Series A warrants to purchase ordinary shares of Polyrizon.

Jeffs’ Brands

On February 23, 2023, we entered into the Wellution Sale Agreement with Jeffs’ Brands and Jeffs’ Holdings. See Item 5.B. “Operating and Financial Review and Prospects — Liquidity and Capital Resources” for additional information

Mr. Oz Adler, our Chief Executive Officer and Chief Financial Officer, is the chairman of the board of directors of Jeffs’ Brands, Mr. Amitay Weiss, our chairman of the board of directors and Mr. Moshe Revach, a member of our board of directors, are both directors in Jeffs’ Brands.

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MitoCareX

On February 25, 2025, we entered into the MitoCareX SPEA together with MitoCareX, the other Sellers, pursuant to which the Sellers will sell their stakes in MitoCareX to N2OFF, thereby resulting in MitoCareX becoming a wholly-owned subsidiary of N2OFF. The closing of the MitoCareX SPEA is contingent upon, among other customary obligations, obtaining approval of N2OFF’s stockholders by the requisite majority. On the closing date of the transactions contemplated under the MitoCareX SPEA, we will transfer and sell our stake in MitoCareX to N2OFF in consideration for a cash payment of $700,000 N2OFF Common Stock, representing 16.75% of N2OFF on a fully-diluted basis. Either party may terminate the MitoCareX SPEA if the closing date has not occurred within ninety days of February 25, 2025. Following the closing date of the MitoCareX SPEA, the Sellers may receive Additional N2OFF Stock, if respective milestones are achieved as defined in the MitoCareX SPEA. For more information, see Item 4.B. “Business Overview — MitoCareX” for additional information.

Each of Amitay Weiss and Liat Sidi, our board members, also serve as board members of N2OFF.

AutoMax

On June 25, 2023, we entered into the AutoMax SPA with AutoMax.

On November 22, 2023, we announced the signing of a non-binding letter of intent, to acquire AutoMax, with certain new negotiated terms as announced on December 7, 2023.

On January 14, 2024, we entered into the Bridge Loan with AutoMax.

On April 10, 2024, we signed the Merger Agreement with AutoMax

On June 9, 2024, we entered into the Amended Bridge Loan with AutoMax.

On August 14, 2024, we signed the Merger Agreement Addendum with AutoMax.

On September 5, 2024, we entered into the Second Amendment with AutoMax.

On November 26, 2024, we signed the Merger Agreement Second Addendum with AutoMax.

On February 24, 2025, we entered into the Additional Loan Agreement with AutoMax.

On March 27, 2025, we signed the Merger Agreement Third Addendum with AutoMax.

See Item 4.B. “Business Overview — AutoMax” for additional information on commercial agreements related to AutoMax.

Mr. Amitay Weiss, our chairman of the board of directors is the chairman of the board of directors of AutoMax.

C. Interests of Experts and Counsel

Not applicable.

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ITEM 8. FINANCIAL INFORMATION.

A. Consolidated Statements and Other Financial Information.

See Item 18. “Financial Statements.”

Legal Proceedings

Claims Against our Former Directors

On February 15, 2022, we filed a lawsuit against our former directors in the Economic Division of the Tel Aviv Court, case number 34426-02-22, or the Lawsuit. The Lawsuit named the Defendants and includes allegations of breaches of fiduciary duties (duty of care and duty of loyalty) of the Defendants under the Companies Law.

The Lawsuit challenged a transaction approved by the Defendants in August 2018, to acquire, via one of our subsidiaries, Therapix Healthcare Resources, Inc., eight pain clinics and a fully equipped laboratory from Anesthesia Services Associates PLLC. (d/b/a Comprehensive Pain Specialist), or the Transaction. The Lawsuit claimed that the Defendants breached their fiduciary duties when approving the Transaction, causing us significant harm. The Lawsuit claimed damages in the amount of NIS 13,114,200 (approximately $4.12 million), accounting for the amounts invested by the Company in the Transaction and indirect expenses arising from the Transaction.

In February 2025, we announced that we settled this lawsuit, pursuant to which we received a settlement sum of $411,000 from the Defendants in exchange for our dismissing the lawsuit, or the Settlement. The Settlement also includes the termination, effective February 5, 2024, of a licensing agreement, or the Dekel License Agreement, with Dekel Pharmaceuticals Ltd., a company controlled by Dr. Shmulewitz. As part of the Settlement, we will retain our exclusive global rights to our intellectual property portfolio, patents, know-how and technologies and are released from all alleged commitments, claims and royalties related or arising out of the Dekel License Agreement, including those related to claimed core technologies. Dekel will assume full and exclusive ownership of the patent application for compositions and methods for treating inflammatory disorders and all such underlying intellectual property, which are not related to our pipeline and development program.

Dividends

We have never declared or paid any cash dividends on our Ordinary Shares and do not anticipate paying any cash dividends in the foreseeable future. Payment of cash dividends, if any, in the future will be at the discretion of our Board of Directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our Board of Directors may deem relevant.

The distribution of dividends may also be limited by the Companies Law, which permits the distribution of dividends only out of retained earnings or earnings derived over the two most recent fiscal years, whichever is higher, provided that there is no reasonable concern that payment of a dividend will prevent a company from satisfying its existing and foreseeable obligations as they become due.

Payment of dividends may be subject to Israeli withholding taxes. See Item 10.E. “Taxation” for additional information.

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B. Significant Changes

No significant change, other than as otherwise described in this Annual Report, has occurred in our operations since the date of our consolidated financial statements included in this Annual Report.

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

Our Ordinary Shares are listed on the Nasdaq Capital Market, trading under the symbol “SPRC”.

B. Plan of Distribution

Not applicable.

C. Markets

Our Ordinary Shares are traded on the Nasdaq under the symbol “SPRC”.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

A copy of our amended and restated articles of association is attached as Exhibit 1.1 to this Annual Report. The information called for by this Item is set forth in Exhibit 2.1 to this Annual Report on Form 20-F and is incorporated by reference into this Annual Report.

C. Material Contracts

We have not entered into any material contract within the two years prior to the date of this Annual Report, other than contracts entered into in the ordinary course of business, as otherwise described herein in “Item 4.A. History and Development of the Company” above, “Item 4.B. Business Overview” above, “Item 5.A. Operating Results” above, or “Item 7.B. Related Party Transactions” above.

D. Exchange Controls

There are currently no Israeli currency control restrictions on remittances of dividends on our Ordinary Shares, proceeds from the sale of the shares or interest or other payments to non-residents of Israel, except for shareholders who are subjects of countries that are, or have been, in a state of war with Israel.

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E. Taxation.

ISRAELI TAX CONSIDERATIONS AND GOVERNMENT PROGRAMS

The following is a description of the material Israeli income tax consequences of the ownership of our Ordinary Shares. The following also contains a description of material relevant provisions of the current Israeli income tax structure applicable to companies in Israel, with reference to its effect on us. To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, there can be no assurance that the tax authorities will accept the views expressed in the discussion in question. The discussion is not intended, and should not be taken, as legal or professional tax advice and is not exhaustive of all possible tax considerations.

The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our Ordinary Shares. Shareholders should consult their own tax advisors concerning the tax consequences of their particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.

General Corporate Tax Structure in Israel

Israeli resident companies are generally subject to corporate tax, currently at the rate of 23% of a company’s taxable income. Capital gains derived by an Israeli resident company are subject to tax at the prevailing corporate tax rate. Under Israeli tax legislation, a corporation will be considered as an “Israeli resident company” if it meets one of the following: (i) it was incorporated in Israel; or (ii) the control and management of its business are exercised in Israel.

The Encouragement of Research, Development and Technological Innovations in the Industry Law, 5744-1984

Under the Innovation Law, research and development programs which meet specified criteria and are approved by a committee of the IIA are eligible for grants of up to 50% of the project’s expenditure, as determined by the research committee, and subject to the benefit track under which the grant was awarded. A company that receives a grant from the IIA, or a grant recipient, is typically required to pay royalties from the revenues generated from the sale of products and related services developed, in whole or in part pursuant to, or as a result of, a research and development program funded by the IIA. Under the regular benefits tracks, the royalties are generally at a range of 3% to 5% of revenues until the entire IIA grant is repaid, together with an annual accrued interest. Under the regulations of the Innovation Law, grants received before January 1, 1999, bear no interest. Grants received before June 30, 2017, bear an annual interest rate that applied at the time of the approval of the applicable IIA file, and that interest rate will apply to all of the funding received under that IIA approval. Grants received from the IIA after June 30, 2017, bear an annual interest rate based on the 12-month Secured Overnight Financing Rate, or SOFR, or at an alternative rate published by the Bank of Israel plus 0.71513%. Grants approved after January 1, 2024, bear the higher interest rate of (i) 12 months SOFR, plus 1%, or (ii) a fixed annual interest rate of 4%.

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The obligation to pay royalties is contingent on actual income generated from such products and services. In the absence of such income, no payment of such royalties is required.

The terms of the Innovation Law also require that the manufacture of products developed with IIA grants be performed in Israel. The transfer of manufacturing activity outside Israel is subject to the prior approval of the IIA (such approval is not required for the transfer of a portion of the manufacturing capacity which does not exceed, in the aggregate, 10% of the portion declared to be manufactured outside of Israel in the applications for funding, in which case only notification is required). It should be noted that the terms of the Innovation Law do not restrict the export of products that incorporate the funded know-how. Under the regulations of the Innovation Law, assuming we receive approval from the IIA to manufacture our IIA-funded products outside Israel, our liability to the IIA may be increased to between 120% and 300% of the grants we received from IIA depending upon the manufacturing volume that is performed outside of Israel. For grant applications submitted to the IIA after October 25, 2023, the maximum increased liability in connection with manufacturing outside of Israel is up to 150% of the IIA grants, plus interest accrued thereon, instead of 300%.

If the manufacturing is performed outside of Israel, the rate of royalties payable by us on revenues from the sale of products manufactured outside of Israel will increase by 1% over the regular rates.

The know-how developed within the framework of the IIA plan may not be transferred or licensed to third parties outside Israel without the prior approval of the IIA. The approval, however, is not required for the export of any products developed using grants received from the IIA. The IIA approval to transfer know-how created, in whole or in part, in connection with an IIA-funded project(s) to a third party outside Israel is subject to payment of a redemption fee to the IIA calculated according to a formula provided under the Innovation Law that is based, in general, on the ratio between the aggregate IIA grants and our aggregate research and development investments in the project that was funded by these IIA grants, multiplied by the transaction consideration taking into account a depreciation mechanism (if applicable), and less royalties already paid to the IIA. According to regulations promulgated under the Innovation Law, the maximum amount payable to the IIA in case of transfer of know-how outside Israel shall not exceed six times the amount of the grants received plus interest, with a possibility to reduce such payment to up to three times the amount of the grants received plus interest if the grant recipient undertakes to continue the research and development activity in Israel for a period of at least three years after the transfer of knowhow, and maintain at least 75% of the research and development employees the company had for the six months before the know-how was transferred, subject to additional conditions specified in the regulations.

Transfer or licensing of know-how to an Israeli entity is subject to the IIA prior approval and to an undertaking of the recipient Israeli entity to undertake all the transferor’s obligations to the IIA and to comply with the provisions of the Innovation Law and related regulations, including the restrictions on the transfer and licensing of know-how and the obligation to pay royalties, as further described in the Innovation Law and related regulations.

The restrictions under the Innovation Law will continue to apply even after we repay the full amount of royalties payable pursuant to the grants. In addition, the government of the State of Israel may from time to time audit sales of product candidates which it claims incorporate technology funded via IIA programs and this may lead to additional royalties being payable on additional product candidates.

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These restrictions may impair our ability to outsource manufacturing or research and development activities or otherwise transfer or license our know-how outside Israel and may require us to obtain the approval of the IIA for certain actions and transactions and pay additional royalties or other payments to the IIA. If we fail to comply with certain restrictions under the Innovation Law, we may be subject to mandatory repayment of grants received by us (together with interest and penalties), as well as be exposed to criminal charges.

Our research and development efforts have been financed, partially, through grants that we have received from the IIA. We therefore must comply with the requirements of the Innovation Law and related regulations. Our total outstanding obligation to the IIA, respectively, including the interest accrued through December 31, 2024, amounts to approximately $1.2 million.

Tax Benefits for Research and Development

Israeli tax law allows, under certain conditions, a tax deduction for expenditures, including capital expenditures, in scientific research in the fields of industry, agriculture, transportation or energy, for the year in which they are incurred. Expenditures are deemed related to scientific research and development projects, if:

| ● | The expenditures are approved by the relevant Israeli government ministry, determined by the field of research;

| ● | The research and development must be for the promotion of the company; and

| ● | The research and development is carried out by or on behalf of the company seeking such tax deduction.

The amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. No deduction under these research and development deduction rules is allowed if such deduction is related to an expense invested in an asset depreciable under the general depreciation rules of the Israeli Income Tax Ordinance (New Version) 1961, or the Ordinance. Expenditures not so approved are deductible in equal amounts over three years.

From time to time we may apply the IIA for approval to allow a tax deduction for all research and development expenses during the year incurred. There can be no assurance that such application will be accepted.

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Law for the Encouragement of Capital Investments, 5719-1959

The Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentives for capital investments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).

The Investment Law was significantly amended effective April 1, 2005 (which we refer to as the 2005 Amendment), further amended as of January 1, 2011 (which we refer to as the 2011 Amendment) and further amended as of January 1, 2017 (which we refer to as the 2017 Amendment). Pursuant to the 2005 Amendment, tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by the 2005 Amendment remain in force but any benefits granted subsequently are subject to the provisions of the 2005 Amendment. Similarly, the 2011 Amendment introduced new benefits to replace those granted in accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment. However, companies entitled to benefits under the Investment Law as in effect prior to January 1, 2011 were entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead irrevocably to forego such benefits and have the benefits of the 2011 Amendment apply. The 2017 Amendment introduced new benefits for Technological Enterprises, alongside the existing tax benefits.

Taxation of our Shareholders

Capital Gains

Capital gain tax is imposed on the disposal of capital assets by an Israeli resident, and on the disposal of such assets by a non-Israeli resident if those assets are either (i) located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation, or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a tax treaty between Israel and the seller’s country of residence provides otherwise. The Ordinance, distinguishes between “Real Gain” and the “Inflationary Surplus.” Real Gain is the excess of the total capital gain over Inflationary Surplus. Inflationary Surplus is computed generally on the basis of the increase in the Israeli Consumer Price Index or, in certain circumstances, according to the change in the foreign currency exchange rate, between the date of purchase and the date of disposal. Inflationary Surplus is not subject to tax in Israel.

Real Gain accrued by individuals on the sale of our Ordinary Shares will be taxed at the rate of 25%. However, if the shareholder claims deduction of interest and linkage differences expenses in connection with the purchase and holding of such shares or the individual shareholder is a “Significant Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with such person’s relative or another person who collaborates with such person on a permanent basis, based on a written contract, 10% or more of one of the Israeli resident company’s “means of control” including, among other things, the right to company profits, voting rights, the right to the company’s liquidation proceeds and the right to appoint a company director) at the time of sale or at any time during the preceding 12 months period, such gain will be taxed at the rate of 30%.

Real Gain derived by corporations will be generally subject to the regular corporate tax rate (23% in 2024).

Individual and corporate shareholder dealing in securities in Israel for whom the income from the sale of securities is considered “business income” as defined in Section 2(1) of the Ordinance are taxed at the tax rates applicable to business income- 23% for corporations in 2024 and a marginal tax rate of up to 47% in 2024 for individuals, unless the benefiting provisions of an applicable tax treaty applies. Certain Israeli institutions who are exempt from tax under Section 9(2) or Section 129(C)(a)(1) of the Ordinance (such as exempt trust fund, pension fund) may be exempt from capital gains tax from the sale of shares.

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Capital Gains Taxes is Applicable also to Non-Israeli Resident Shareholders. A non-Israeli resident (whether an individual or a corporation) who derives capital gains from the sale of shares in an Israeli resident company may be exempt from Israeli capital gain tax so long as the following cumulative conditions are met: (i) the shares were purchased upon or after the registration of the securities on a recognized stock exchange, outside of Israel (such as Nasdaq) (ii) the seller does not have a permanent establishment in Israel to which the derived capital gain is attributed, and (iii) with respect to securities listed on a recognized stock exchange outside of Israel, such shareholders are not subject to the Israeli Income Tax Law (Inflationary Adjustments) 5745-1985. However, non-Israeli corporation will not be entitled to the foregoing exemptions if Israeli residents (a) have a controlling interest of more than 25% in such non-Israeli corporation, or (b) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly and indirectly. In addition, such exemption would not be available to a person whose gains from selling or otherwise disposing of the securities are deemed to be business income.

If not exempt, a non-Israeli resident would generally be subject to tax on capital gain at the ordinary corporate tax rate (23% in 2024) if generated by a company, or at the rate of 25%, if generated by an individual, or 30%, if generated by an individual who is a “Significant Shareholder”, at the time of sale or at any time during the preceding 12-month period (or if the shareholder claims a deduction for interest and linkage differences expenses in connection with the purchase and holding of such shares). Individual and corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (a corporate tax rate for a corporation and a marginal tax rate of up to 47% for an individual in 2024) unless contrary provisions in a relevant tax treaty applies.

Additionally, a sale of shares by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under the Convention Between the Government of the United States of America and the Government of the State of Israel with respect to Taxes on Income, as amended, or the United States-Israel Tax Treaty, the sale, exchange or other disposition of shares by a shareholder who is a United States resident (for purposes of the United States-Israel Tax Treaty) holding the shares as a capital asset and is entitled to claim the benefits afforded to such a resident by the United States.-Israel Tax Treaty, or a Treaty U.S. Resident, is generally exempt from Israeli capital gains tax unless either: (i) the capital gain arising from such sale, exchange or disposition is attributed to real estate located in Israel; (ii) the capital gain arising from such sale, exchange or disposition is attributed to royalties; (iii) the capital gain arising from the such sale, exchange or disposition is attributed to a permanent establishment of the shareholder which is maintained in Israel, under certain terms; (iv) such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more of the voting capital during any part of the 12-month period preceding the disposition, subject to certain conditions; or (v) such Treaty U.S. Resident, if an individual, was present in Israel for a period or periods of 183 days or more in the aggregate during the relevant taxable year. In any such case, the sale, exchange or disposition of such shares would be subject to Israeli tax, to the extent applicable; however, under the United States-Israel Treaty, a U.S. resident would be permitted to claim a credit for the Israeli tax against the U.S. federal income tax imposed with respect to the sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The United States-Israel Treaty does not provide such credit against any U.S. state or local taxes.

In some instances where our shareholders may be liable for Israeli tax on the sale of their Ordinary Shares, the payment of the consideration may be subject to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, in transactions involving a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the Israel Tax Authority may require from shareholders who are not liable for Israeli tax to sign declarations in forms specified by this authority or obtain a specific exemption from the Israel Tax Authority to confirm their status as non-Israeli residents, and, in the absence of such declarations or exemptions, may require the purchaser of the shares to withhold taxes at source.

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Either the purchaser, the Israeli stockbrokers or financial institution through which the shares are held is obliged, subject to the above mentioned exemptions, to withhold tax on the amount of consideration paid upon the sale of securities from the Real Gain at the rate of 25% for individuals and 23% for corporations.

At the sale of securities traded on a stock exchange, a detailed return, including a computation of the tax due, must be filed and an advance payment must be made on January 31 and July 31 of every calendar year in respect of sales of securities made within the previous six months. However, if all tax due was withheld at source according to applicable provisions of the Ordinance and regulations promulgated thereunder, the aforementioned return need not be filed and no advance payment must be paid. Capital gains are also reportable on the annual income tax return.

Dividends

A distribution of dividends from an Israeli company to an Israeli resident individual, will generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a Significant Shareholder (as defined above in this section) at the time of distribution or at any time during the preceding 12 months period. If the recipient of the dividend is an Israeli resident corporation, generally, such dividend will be exempt from income tax provided the income from which such dividend is distributed was derived or accrued within Israel (although, if such dividends are subsequently distributed to individuals, the aforesaid will apply).

Non-Israeli residents (whether individuals or a corporations) are generally subject to Israeli income tax on the receipt of dividends paid on our Ordinary Shares at the rate of 25% or 30% with respect to a Significant Shareholder (as defined above) at the time of receiving the dividend or on any time during the preceding twelve months. Such dividends are generally subject to Israeli withholding tax at a rate of 25% so long as the shares are registered with a Nominee Company (whether the recipient is a Significant Shareholder or not). For example, under the United States-Israel Tax Treaty, the rate of tax withheld at source in Israel on dividends paid to a holder of our Ordinary Shares who is a Treaty U.S. Resident is 25%. However, generally, the maximum rate of withholding tax on dividends, not generated by an Approval/Beneficial/Preferred Enterprise (as defined under the Investment Law), that are paid to a United States corporation holding 10% or more of the outstanding voting capital throughout the tax year in which the dividend is distributed as well as during the previous tax year, is 12.5%, provided that not more than 25% of the gross income for such preceding year consists of certain types of dividends and interest. The aforementioned rates will not apply if the dividend income was generated through a permanent establishment of the U.S. resident in Israel.

A non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i) such income was not generated from business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed, and (iii) the taxpayer is not obligated to pay excess tax (as further explained below).

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Excess Tax

Individuals who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) are also subject to an additional tax at a rate of 3% on annual income exceeding a certain threshold NIS 721,560 for 2024, which amount is linked to the annual changes to the Israeli Consumer Price Index(with the exception that based on Israeli new legislation such amount, and certain other statutory amounts will not be linked to the Israeli consumer price index for the years 2025-2027)including, but not limited to income derived from dividends, interest and capital gains. According to new legislation, in effect as of January 1, 2025, an additional 2% excess tax is imposed on Capital-Sourced Income (defined as income from any source other than employment income, business income or income from “personal effort”), to the extent that the Individual’s Capital Sourced Income exceeds the specified threshold of NIS 721,560 (and regardless of the employment/business income amount of such individual). This new excess tax applies, among other things, to income from capital gains, dividends, interest, rental income, or the sale of real property.

Foreign Exchange Regulations

Non-residents of Israel who hold our Ordinary Shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, repayable in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is generally required to have been paid or withheld on these amounts.

Estate and Gift Tax

Israeli law presently does not impose estate or gift taxes if the Israeli Tax Authority is satisfied that the gift was made to an Israeli resident individual in good faith and on condition that the recipient of the gift is not a non-Israeli resident. If the gift giver is a non-Israeli resident individual, then he should be exempted under the aforementioned capital gains tax exemptions provided for a regular sale of shares.

U.S. FEDERAL INCOME TAX CONSIDERATIONS

THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITARY SHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.

Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S. Holder” arising from the purchase, ownership and sale of the Ordinary Shares. For this purpose, a “U.S. Holder” is a holder of Ordinary Shares that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) or a partnership (other than a partnership that is not treated as a U.S. person under any applicable U.S. Treasury regulations) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust; or (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.

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This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income tax considerations that may be relevant to a decision to purchase our Ordinary Shares. This summary generally considers only U.S. Holders that will own our Ordinary Shares as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal tax consequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, or the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof, (including with respect to the TCJA of 2017), and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which are open to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Shares by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.

This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. holder based on such holder’s particular circumstances and in particular does not discuss any estate, gift, generation-skipping, transfer, state, local, excise or foreign tax considerations. In addition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investment company, or other financial institution or “financial services entity;” (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our Ordinary Shares in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5) a U.S. Holder that holds our Ordinary Shares as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or other risk-reduction transaction for U.S. federal income tax purposes; (6) a tax-exempt entity; (7) real estate investment trusts or grantor trusts; (8) a U.S. Holder that expatriates out of the United States or a former long-term resident of the United States; or (9) a person having a functional currency other than the U.S. dollar. This discussion does not address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares representing 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of partnerships (or other pass-through entities) or persons who hold Ordinary Shares through a partnership or other pass-through entity are not addressed.

Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposing of our Ordinary Shares, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.

Taxation of Dividends Paid on our Ordinary Shares

We do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “Passive Foreign Investment Companies” below and the discussion of “qualified dividend income” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on our Ordinary Shares (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our earnings and profits will be treated first as a non-taxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares to the extent thereof, and then capital gain. We do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles and, therefore, U.S. Holders should expect that the entire amount of any distribution generally will be reported as dividend income.

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In general, preferential tax rates for “qualified dividend income” and long-term capital gains are applicable for U.S. Holders that are individuals, estates or trusts. For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is a corporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS has stated that the Israel/U.S. Tax Treaty satisfies this requirement, and we believe we are eligible for the benefits of that treaty.

Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, as described below under “Passive Foreign Investment Companies.” A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held our Ordinary Shares for at least 61 days of the 121 day period beginning on the date which is 60 days before the ex-dividend date, or (2) to the extent the U.S. Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss on our Ordinary Shares are not counted towards meeting the 61-day holding period. Finally, U.S. Holders who elect to treat the dividend income as “investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.

The amount of a distribution with respect to our Ordinary Shares will be measured by the amount of the fair market value of any property distributed, and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income of U.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S. Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS into U.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinary exchange gain or loss.

Taxation of the Disposition of our Ordinary Shares

Except as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” 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 such U.S. Holder’s tax basis for the Ordinary Shares in U.S. dollars and the amount realized on the disposition in U.S. dollar (or its U.S. dollar equivalent determined by reference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale, exchange or other disposition of Ordinary Shares will be long-term capital gain or loss if the U.S. Holder has a holding period of more than one year at the time of the disposition. Individuals who recognize long-term capital gains may be taxed on such gains at reduced rates of tax. The deduction of capital losses is subject to various limitations.

Gain realized by a U.S. Holder on a sale, exchange or other disposition of our Ordinary Shares will generally 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 our Ordinary Shares is generally allocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of our Ordinary Shares is subject to limitations. An additional 3.8% net investment income tax (described below) may apply to gains recognized upon the sale, exchange or other taxable disposition of our Ordinary Shares by certain U.S. Holders who meet certain income thresholds.

Passive Foreign Investment Companies

Special U.S. federal income tax laws apply to U.S. taxpayers who own shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal income tax purposes for any taxable year that either:

| ● | 75% or more of our gross income (including our pro rata share of gross income for any company, in which we are considered to own 25% or more of the shares by value), in a taxable year is passive; or

| ● | At least 50% of our assets, averaged over the year and generally determined based upon fair market value (including our pro rata share of the assets of any company in which we are considered to own 25% or more of the shares by value) are held for the production of, or produce, passive income.

For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and from notional principal contracts. Cash is treated as generating passive income.

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We do not believe that we would be deemed a PFIC for 2025. The tests for determining PFIC status are applied annually, and it is difficult to make accurate projections of future income and assets which are relevant to this determination. In addition, our PFIC status may depend in part on the market value of our Ordinary Shares. Accordingly, there can be no assurance that we currently are not or will not become a PFIC.

If we currently are or become a PFIC, each U.S. Holder who has not elected to mark the shares to market (as discussed below), would, upon receipt of certain distributions by us and upon disposition of our Ordinary Shares at a gain: (1) have such distribution or gain allocated ratably over the U.S. Holder’s holding period for the Ordinary Shares, as the case may be; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a step-up to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by the decedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.

The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held our Ordinary Shares while we are a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such a QEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary income and such U.S. Holder’s pro rata share of our net capital gains as long-term capital gain, regardless of whether we make any distributions of such earnings or gain. In general, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholder-by-shareholder basis and generally may be revoked only with the consent of the IRS. We do not intend to furnish U.S. Holders annually with information needed in order to complete IRS Form 8621 and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries are a PFIC. Therefore, the QEF election will not be available with respect to our Ordinary Shares.

U.S. Holders who hold our Ordinary Shares during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules.

Tax on Net Investment Income

Subject to certain adjustments under the PFIC rules, U.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends on and gains from the sale or other disposition of our Ordinary Shares), or in the case of estates and trusts on their net investment income that is not distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.

Tax Consequences for Non-U.S. Holders of Ordinary Shares

Except as provided below, an individual, corporation, estate or trust that is not a U.S. Holder referred to below as a non-U.S. Holder, generally will not be subject to U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares.

A non-U.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or gain from the disposition of our Ordinary Shares if: (1) such item is effectively connected with the conduct by the non-U.S. Holder of a trade or business in the United States and, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of a disposition of our Ordinary Shares, the individual non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the disposition and other specified conditions are met. Any dividend income or gain described in clause (1) above will be subject to U.S. federal income tax on a net income tax basis in the same manner as a U.S. Holder and, with respect to corporate holders, a branch profits tax imposed at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) may also apply to its effectively connected earnings and profits (subject to adjustments). Any dividend income or gain described in clause (2) above that is not effectively connected with the conduct by a Non-U.S. Holder of a trade or business within the U.S. generally will be subject to 30% withholding tax (or such lower rate as may be specified by an applicable income tax treaty) net of certain U.S. source capital losses.

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In general, non-U.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares if payment is made through a paying agent, or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. related person, non-U.S. Holders may be subject to backup withholding, unless the non-U.S. Holder provides an applicable IRS Form W-8 (or a substantially similar form) certifying its foreign status, or otherwise establishes an exemption.

The amount of any backup withholding from a payment to a non-U.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.

Information Reporting and Withholding

A U.S. Holder may be subject to backup withholding at a rate of 24% with respect to cash dividends and proceeds from a disposition of Ordinary Shares. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not apply with respect to payments made to designated exempt recipients, such as corporations and tax-exempt organizations. Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will file reports with the SEC. The SEC maintains an Internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC will also available to the public through the SEC’s website at www.sec.gov.

As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act. However, we file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and may submit to the SEC, on a Form 6-K, unaudited interim financial information.

We maintain a corporate website at http://www.scisparc.com. Information contained on, or that can be accessed through, our website and the other websites referenced above do not constitute a part of this Annual Report. We have included these website addresses in this Annual Report solely as inactive textual references.

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I. Subsidiary Information.

Not applicable.

J. Annual Report to Security Holders.

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.

Quantitative and Qualitative Disclosure About Market Risk

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our current investment policy is to invest available cash in bank deposits with banks that have a credit rating of at least A-minus. However, a substantial majority of our cash is held in current bank accounts that do not bear interest. In the future, we intend to hold most of our cash in deposits that bear interest. Given the current low rates of interest we receive, once we begin to hold most of our cash in deposits that bear interest, we do not expect to be adversely affected if such rates are reduced. Our market risk exposure is primarily a result of NIS/U.S. dollar exchange rates, which is discussed in detail in the following paragraph.

Foreign Currency Exchange Risk

Our results of operations and cash flow are subject to fluctuations due to changes mainly in NIS/U.S. dollar currency exchange rates. As of December 31, 2024, the vast majority of our liquid assets are held in U.S. dollars, and the majority of our expenses is denominated in U.S. dollars. Changes of both 5% and 10% in the U.S. Dollar/NIS exchange rate would decrease/increase our loss for 2024 by less than 1%, respectively. However, these historical figures may not be indicative of future exposure, as we expect that the percentage of our NIS denominated expenses will materially decrease in the near future, therefore reducing our exposure to exchange rate fluctuations. Our functional currency is the U.S. dollar.

We do not hedge our foreign currency exchange risk. In the future, we may enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

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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.

ITEM 15. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2024, or the Evaluation Date. Based on such evaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated and communicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. We have a program for the review of our internal control over financial reporting to ensure compliance with the requirements of the Exchange Act and Section 404 of the Sarbanes-Oxley Act. Our internal control over financial reporting includes those policies and procedures that:

| ● | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS;

| ● | provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In conducting its assessment of internal control over financial reporting, management based its evaluation on the Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission as of December 31, 2024. Based on its evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2024.

(c) Attestation Report of the Registered Public Accounting Firm

Not applicable (we are exempt from this requirement due to our status under the Exchange Act as a non-accelerated filer as of the current time).

(d) Changes in Internal Control over Financial Reporting

During the year ended December 31, 2024, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 16. [Reserved]

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

All of the members of our audit committee are “independent,” as such term is defined under Nasdaq rules. In addition, our Board of Directors has determined that Amnon Ben Shay is an audit committee financial expert, as defined under the rules under the Exchange Act.

ITEM 16B. CODE OF ETHICS

We have adopted a written code of ethics that applies to our officers and employees, including our principal executive officer, principal financial officer, principal controller and persons performing similar functions as well as our directors. Our Code of Ethics and Conduct is posted on our website at http://www.scisparc.com. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report and is not incorporated by reference herein. If we make any amendment to the Code of Ethics and Conductor grant any waivers, including any implicit waiver, from a provision of the code, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of the SEC including the instructions to Item 16B of Form 20-F. We have not granted any waivers under our Code of Business Conduct and Ethics.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Kost Forer Gabbay & Kasierer (a member of EY Global), served as our principal independent registered public accounting firm for each of the two years ended December 31, 2023 and 2024. Kost Forer Gabbay & Kasierer (a member of EY Global) has served as our principal independent registered public accounting firm since 2009.

The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of EY Global for all services, including audit services, for the years ended December 31, 2023 and 2024:

|  | Year Ended December 31, |
|  | 2023 |  |  | 2024 |
Audit fees(1) |  | $ | 155,000 |  |  | $ | 155,000 |
Audit-related fees(2) |  |  | 122,500 |  |  |  | 104,000 |
Tax fees(3) |  | $ | 4,000 |  |  | $ | 8,000 |
All other fees |  |  | - |  |  |  | - |
Total |  | $ | 281,500 |  |  | $ | 267,000 |

(1) | Includes professional services rendered in connection with the audit of our annual financial statements, review of our interim financial statements.

(2) | Includes professional services rendered in connection with the fees relating to our public equity offerings and related filings. Includes professional

(3) | services rendered in connection with the audit of our Israeli tax return report.

All of the services provided above were approved by our audit committee and by our board of directors.

Pre-Approval of Auditors’ Compensation

Our audit committee charter provides, among others, that our audit committee is responsible for: (1) pre-approving audit and non-audit services provided to us by the independent registered public accounting firm; (2) reviewing and approving disclosures relating to fees and non-audit services required to be included in the SEC reports; and (3) establishing pre-approval policies and procedures for the engagement of independent accountants to render us services. Subject to the Board of Directors’ and shareholders’ approval, if and to the extent required by applicable law, the audit committee shall have the authority to approve all audit engagement fees and terms and all non-audit engagements, as may be permissible, with the independent registered public accounting firm.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

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ITEM 16G. CORPORATE GOVERNANCE

We are a “foreign private issuer”, as such term is defined in Rule 405 under the Securities Act. As a foreign private issuer we are permitted to comply with Israeli corporate governance practices instead of the corporate governance rules of Nasdaq, provided that we disclose which requirements we are not following and the equivalent Israeli requirement.

We rely on this “foreign private issuer exemption” with respect to the following items:

| ● | Quorum. While the Nasdaq rules require that the quorum for purposes of any meeting of the holders of a listed company’s common voting stock, as specified in the company’s bylaws, be no less than 33 1/3% of the company’s outstanding common voting stock, under Israeli law, a company is entitled to determine in its articles of association the number of shareholders and percentage of holdings required for a quorum at a shareholders meeting. Our amended and restated articles of association provide that a quorum of two or more shareholders holding at least 15% of the voting rights present in person or by proxy is required for commencement of business at a general meeting. However, the quorum set forth in our amended and restated articles of association with respect to an adjourned meeting consists of any number of shareholders present in person or by proxy.

| ● | Shareholder approval. Although the Nasdaq rules generally require shareholder approval of equity compensation plans and material amendments thereto, we follow Israeli practice, which is to have such plans and amendments approved only by the board of directors, unless such arrangements are for the compensation of chief executive officer or directors, in which case they also require the approval of the compensation committee and the shareholders. In addition, rather than follow the Nasdaq rules requiring shareholder approval for the issuance of securities in certain circumstances, we follow Israeli law, under which a private placement of securities requires approval by our board of directors and shareholders if it will cause a person to become a controlling shareholder (generally presumed at 25% ownership) or if: (a) the securities issued amount to 20% or more of our outstanding voting rights before the issuance; (b) some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and (c) transaction will increase the relative holdings of a shareholder that holds 5% or more of our outstanding share capital or voting rights or will cause any person to become, as a result of the issuance, a holder of more than 5% of our outstanding share capital or voting rights.

| ● | Executive Sessions. The Nasdaq rules require that independent directors of a Nasdaq listed company must meet regularly in executive session (without members of management present), and such executive sessions should occur at least twice a year. In this regard we have elected to adopt the practices of our home country, Israel, which does not require independent directors to meet regularly in executive sessions separate from the full board of directors.

| ● | Nomination of our directors. Nasdaq rules require director nominations of a Nasdaq listed company to be made or recommended solely by independent directors and the director nominations process be addressed by a formal written charter or board resolution. We follow the requirements of Israeli law, which does not require us to have a formal written charter addressing the director nominations process. The nominations for directors, which are presented to shareholders by a board of directors, are generally made by the board of directors itself, in accordance with the provisions of the Companies Law. Nominations need not be made by a nominating committee of a board of directors consisting solely of independent directors or by a vote consisting solely of our independent directors in order to determine which persons shall be nominated for election by our shareholders.

We otherwise intend to comply with the rules generally applicable to U.S. domestic companies listed on Nasdaq. We may, however, in the future decide to rely upon the “foreign private issuer exemption” for purposes of opting out of some or all of the other corporate governance rules.

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ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

ITEM 16J. INSIDER TRADING POLICIES

We have adopted an insider trading policy governing the purchase, sale and other transactions in our securities that applies to our directors, senior management, employees, consultants, contractors and other covered persons, including immediate family members and entities controlled by any of the foregoing persons.

This policy prohibits, among other things, insider trading and certain speculative transactions in our securities (including short sales, buying put and selling call options and other hedging or derivative transactions in our securities) and establishes a regular blackout period schedule during which directors, senior management, employees, and other covered persons may not trade in our securities, as well as certain pre-clearance procedures that our directors and officers, our subsidiaries and/or affiliates must observe prior to effecting any transaction in our securities.

We believe that this policy is reasonably designed to promote compliance with applicable insider trading laws, rules and regulations, and listing standards applicable to us. A copy of this policy is filed as Exhibit 11.1 to this Form 20-F.

ITEM 16K. CYBERSECURITY.

Our board of directors recognizes the critical importance of maintaining the trust and confidence of our customers, clients, business partners and employees. Our IT general controls cybersecurity policies, standards, processes and practices are fully integrated into our risk management approach. In general, we seek to address IT general controls cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that we collect and store by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.

Risk Management and Strategy

As part of the critical elements of our overall risk management approach, our cybersecurity program is focused on the following key areas:

| ● | Governance: As discussed in more detail under the heading “Governance,” our management oversees our cybersecurity risk management and interacts with our Sarbanes-Oxley Act, or SOX, advisor and our Information Security advisor and other relevant members of management.

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| ● | Collaborative Approach: we have implemented a comprehensive, cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner.

| ● | Technical Safeguards: we deploy technical safeguards that are designed to protect our information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence.

| ● | Recovery Planning: we have established and maintains comprehensive recovery plans that fully address our response to a cybersecurity incident, and such plans are tested and evaluated on a regular basis.

| ● | Education and Awareness: We provide regular, mandatory training for personnel regarding cybersecurity threats as a means to equip our personnel with effective tools to address cybersecurity threats, and to communicate our evolving information security policies, standards, processes and practices.

We engage in the periodic assessment and testing of our policies, standards, processes and practices that are designed to address cybersecurity threats and incidents. These efforts include a wide range of activities, including audits, assessments, tabletop exercises, threat modeling, vulnerability evaluation, and other exercises focused on evaluating the effectiveness of our cybersecurity measures and planning. We are engaged with a subcontractor that monitors the IT system and cybersecurity, including centralized patch management as part of their routine job functions. We regularly engage third parties to perform assessments on our cybersecurity measures, including information security maturity assessments, audits and independent reviews of our information security control environment and operating effectiveness. The results of such assessments, audits and reviews are reported to the board of directors, and we adjust our cybersecurity policies, standards, processes and practices as necessary based on the information provided by these assessments, audits and reviews.

Governance

Our management interacts with our SOX advisor and our Information Security advisor and other relevant members of management. Our Information Security advisor is responsible for assessing and managing cyber risk management, informs senior management regarding the prevention, detection, mitigation, and remediation of cybersecurity incidents and supervises such efforts. Our Information Security advisor has experience selecting, deploying, and operating cybersecurity technologies, initiatives, and processes, and relies on threat intelligence as well as other information obtained from governmental, public or private sources. The board of directors receives updates on IT general controls, and a set of policies and procedures that govern how our IT systems operate and ensure the confidentiality, integrity, and availability of data as well as on cybersecurity risks, including prevention of data theft, unauthorized access, operational disruption, and data breaches. Our management also receives prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed. On an annual basis, our management discusses our approach to IT general controls and cybersecurity risk management with our SOX advisor.

As of April 23, 2025, we do not believe that we have experienced any cybersecurity attack. Cybersecurity threats and cybersecurity incidents, if they occur, can materially affect or are reasonably likely to affect us, including its business strategy, results of operations or financial condition.

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PART III

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide financial statements and related information pursuant to Item 18.

ITEM 18. FINANCIAL STATEMENTS

The consolidated financial statements and the related notes required by this Item are included in this Annual Report beginning on page F-1.

ITEM 19. EXHIBITS

|  |  |  | Incorporation by Reference
Exhibit No. |  | Exhibit Description |  | Form |  | File No. |  | Exhibit No. |  | Filing Date |  | Filed/ Furnished
1.1 |  | Amended and Restated Articles of Association of SciSparc Ltd. |  | F-3 |  | 333-269839 |  | 3.1 |  | February 16, 2023 |  |
2.1 |  | Description of Securities |  |  |  |  |  |  |  |  |  | *
2.2 |  | Form of Warrant |  | 6-K |  | 001-38041 |  | 4.2 |  | November 24, 2020 |  |
2.3 |  | Form of Pre-Funded Warrant |  | 6-K |  | 001-38041 |  | 99.4 |  | March 2, 2021 |  |
2.4 |  | Form of Series A Warrant |  | 6-K |  | 001-38041 |  | 99.5 |  | March 2, 2021 |  |
2.5 |  | Form of Series B Warrant |  | 6-K |  | 001-38041 |  | 99.6 |  | March 2, 2021 |  |
2.6 |  | Form of Ordinary Share Purchase Warrant, pursuant to Securities Purchase Agreement, dated May 27, 2022 |  | 6-K |  | 001-38041 |  | 99.5 |  | May 27, 2022 |  |

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4.1 |  | Form of Promissory Note between SciSparc Ltd. and YA II PN Ltd, which includes the Repayment Schedule (Exhibit 1) |  | 6-K |  | 001-38041 |  | 4.1 |  | January 25, 2024 |  |
4.2 |  | Form of Indemnification Agreement |  | 20-F |  | 001-38041 |  | 4.12 |  | May 1, 2017 |  |
4.3 |  | Form of Exculpation Agreement |  | 20-F |  | 001-38041 |  | 4.5 |  | March 30, 2021 |  |
4.4 |  | Consulting Agreement, dated March 22, 2023, by and between Jeffs’ Brands Ltd and SciSparc Nutraceuticals Inc. |  | 6-K |  | 001-38041 |  | 10.3 |  | April 4, 2023 |  |
4.5 |  | Standby Equity Purchase Agreement dated January 21, 2024, between YA II PN Ltd. and SciSparc Ltd. |  | 6-K |  | 001-38041 |  | 10.1 |  | January 25, 2024 |  |
4.6 |  | First Amendment to the Standby Equity Purchase Agreement, dated as of February 26, 2024, between SciSparc Ltd. and YA II PN, Ltd |  | F-1 |  | 333-277394 |  | 10.22 |  | February 27, 2024 |  |
4.7 |  | Israeli Share Option Plan |  | F-1 |  | 333-214458 |  | 10.5 |  | November 4, 2016 |  |
4.8 |  | SciSparc Share Incentive Plan (2023) |  | F-1 |  | 333-277394 |  | 10.7 |  | February 27, 2024 |  |
4.9 |  | Form of Shareholder Support Agreement, dated April 10, 2024, by and between SciSparc Ltd. and each of the parties named therein. |  | 6-K |  | 001-38041 |  | 99.2 |  | April 11, 2024 |  |
4.10 |  | Loan Agreement, dated January 14, 2024, by and between SciSparc Ltd. and AutoMax Motors Ltd. |  | F-1 |  | 333-277394 |  | 10.24 |  | June 17, 2024 |  |
4.11 |  | Amendment to the Loan Agreement, dated June 9, 2024, by and between SciSparc Ltd. and Polyrizon Ltd. |  | F-1 |  | 333-277394 |  | 10.25 |  | June 17, 2024 |  |
4.12 |  | Exclusive Patent License Agreement, dated August 13, 2024, between SciSparc Ltd. and Polyrizon Ltd. |  | 6-K |  | 001-38041 |  | 10.1 |  | August 19, 2024 |  |
4.13 |  | Second Amendment to the Loan Agreement, dated September 5, 2024, by and between SciSparc Ltd. and AutoMax Motors Ltd. |  | F-4 |  | 333-282351 |  | 10.4 |  | September 26, 2024 |  |
4.14 |  | Loan Agreement, dated February 24, 2025 by and between SciSparc Ltd. and AutoMax Motors Ltd. |  | 6-K |  | 001-38041 |  | 10.5 |  | February 27, 2025 |  |

176

4.15 |  | Form of Convertible Debenture |  | 6-K |  | 001-38041 |  | 4.1 |  | February 27, 2025 |  |
4.16 |  | Ordinary Shares Purchase Warrant |  | 6-K |  | 001-38041 |  | 4.2 |  | February 27, 2025 |  |
4.17 |  | Form of Securities Purchase Agreement between SciSparc Ltd. and each of the investors listed on the Schedule of Buyers therein |  | 6-K |  | 001-38041 |  | 10.1 |  | February 27, 2025 |  |
4.18 |  | Securities Purchase Agreement between SciSparc Ltd. and YA II PN, Ltd. |  | 6-K |  | 001-38041 |  | 10.2 |  | February 27, 2025 |  |
4.19 |  | Global Guaranty Agreement, dated February 25, 2025, by Brain Bright Ltd. and Evero Health Ltd. in favor of an investor. |  | 6-K |  | 001- 38041 |  | 10.3 |  | February 27, 2025 |  |
4.20 |  | Registration Rights Agreement, dated February 25, 2025, by and between an investor and SciSparc Ltd. |  | 6-K |  | 001- 38041 |  | 10.4 |  | February 27, 2025 |  |
4.21 |  | Securities Purchase and Exchange Agreement, dated February 25, 2025, by and among N2OFF, Inc., MitoCareX Bio Ltd., SciSparc Ltd., Dr. Alon Silberman and Prof. Ciro Leonardo Pierri. |  | 6-K |  | 001- 38041 |  | 10.1 |  | March 3, 2025 |  |
4.22 |  | Agreement and Plan of Merger, dated April 10, 2024, by and between SciSparc Ltd. with AutoMax Motors Ltd., and SciSparc Merger Sub Ltd. |  | 6-K |  | 001-38041 |  | 99.1 |  | April 11, 2024 |  |
4.23 |  | Addendum to the Agreement and Plan of Merger, dated August 14, 2024, by and between SciSparc Ltd. with AutoMax Motors Ltd., and SciSparc Merger Sub Ltd. |  | 6-K |  | 001-38041 |  | 99.1 |  | August 14, 2024 |  |
4.24 |  | Second Addendum to the Agreement and Plan of Merger, dated November 26, 2024, by and between SciSparc Ltd. with AutoMax Motors Ltd., and SciSparc Merger Sub Ltd. |  | F-4/A |  | 333-282351 |  | 2.4 |  | December 31, 2024 |  |
4.25 |  | Third Addendum to the Agreement and Plan of Merger, dated March 27, 2025, by and between SciSparc Ltd. with AutoMax Motors Ltd., and SciSparc Merger Sub Ltd. |  |  |  |  |  |  |  |  |  | *
8.1 |  | List of Subsidiaries |  | F-1 |  | 333-277394 |  | 21.1 |  | February 27, 2024 |  |
11.1 |  | Insider Trading Policy |  |  |  |  |  |  |  |  |  | *
12.1 |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |  |  |  |  |  |  |  |  |  | *
13.1 |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350. |  |  |  |  |  |  |  |  |  | **
15.1 |  | Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, independent registered accounting firm for the Registrant. |  |  |  |  |  |  |  |  |  | *
97.1 |  | Clawback Policy |  | 20-F |  | 001-38041 |  | 97.1 |  | April 1, 2024 |  |
101.INS |  | Inline XBRL Instance Document. |  |  |  |  |  |  |  |  |  |
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document. |  |  |  |  |  |  |  |  |  |
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |  |  |  |  |  |  |  |  |  |
101.DEF |  | Inline XBRL Taxonomy Definition Linkbase Document. |  |  |  |  |  |  |  |  |  |
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document. |  |  |  |  |  |  |  |  |  |
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document |  |  |  |  |  |  |  |  |  |
104 |  | Cover Page Interactive Data File (embedded within the Inline XBRL document). |  |  |  |  |  |  |  |  |  |

* | Filed herewith.

** | Furnished herewith.

177

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on Form 20-F filed on its behalf.

SCISPARC LTD. |
By: | /s/ Oz Adler |
| Oz Adler |
| Chief Executive Officer |

Date April 24, 2025

178

SCISPARC LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2024

U.S. DOLLARS IN THOUSANDS

INDEX

|  | Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 1281) |  | F-2 - F-3
Consolidated Statements of Financial Position |  | F-4 - F-5
Consolidated Statements of Comprehensive Loss |  | F-6
Consolidated Statements of Changes in Equity |  | F-7
Consolidated Statements of Cash Flows |  | F-8 - F-10
Notes to Consolidated Financial Statements |  | F-11 - F-53

F-1

| Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

SCISPARC LTD. AND ITS SUBSIDIARIES

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of SciSparc Ltd. and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, 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, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, negative cash flows from operating activities, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

F-2

Liquidity and Capital Resources

Description of the Matter |  | As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses since inception, and expects to continue to incur losses for the foreseeable future. At December 31, 2024, the Company’s cash and cash equivalents position is not sufficient to fund the Company’s planned operations for at least a year beyond the date of the issuance of the consolidated financial statements. Those factors raise substantial doubt about the Company’s ability to continue as a going concern. We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and execution uncertainty regarding the Company’s future cash flows and the risk of bias in management’s judgments and assumptions in estimating these cash flows to conclude the Company would have sufficient liquidity to sustain itself for at least a year beyond the date of the issuance of the consolidated financial statements. This in turn led to a high degree of auditor subjectivity and judgment to evaluate the audit evidence supporting the liquidity conclusions.
How We Addressed the Matter in Our Audit |  | Addressing the matter involved performing procedures and evaluating audit evidence in connection with our overall opinion on the consolidated financial statements. Our audit procedures included testing the reasonableness of the forecasted revenue, operating expenses, and uses and sources of cash used in management’s assessment of whether the Company has sufficient liquidity to fund operations for at least one year from the consolidated financial statement issuance date. This testing included inquiries with management, consideration of positive and negative evidence impacting management’s forecasts, the Company’s financing arrangements in place as of the report date, market and industry factors, we evaluated management’s analysis of their impact on the forecasted cash flows. We assessed the adequacy of the Company’s going concern disclosures included in Note 1 to the consolidated financial statements.

Fair value of loan to Automax (a related party)

Description of the Matter |  | As discussed in Note 24 to the consolidated financial statements, the Company entered into a Bridge Loan Agreement with AutoMax Motors Ltd. (“AutoMax”), which is considered a related party, under which the Company provided a total loan amount of $4,250 (the “Loan”) as of December 31, 2024. Evaluating the fair value of the Loan was complex and required considerable judgment due to the significant estimates in management’s assumptions, particularly regarding the involvement of a related party. The Company determined that the fair value of the Loan is a critical audit matter due to its materiality and the complexity involved in assessing the fair value of the Loan under the unique terms of the agreement.

How We Addressed the Matter in Our Audit |  | Our audit procedures related to the valuation of Loan to AutoMax at fair value included the following, among others, engaging specialists with expertise in evaluating the assumptions used by management in determining the fair value, assessing the methodology used in the valuation of the Loan, testing independent sourcing of key inputs and assumptions, and developing independent estimates. The significant assumptions used to estimate the fair value of the Loan included estimates of payment dates, credit spreads, volatility, share price, risk-free rate as of the valuation date, and loan cost were based on an analysis of AutoMax’s credit portfolio and the trading data of its Series B bonds listed on the Tel Aviv Stock Exchange. This analysis was conducted in order to derive an appropriate economic interest rate for the bridge loan. We examined the reasonableness and adequacy of the disclosures related to the transaction within the financial statements.

/s/ KOST FORER GABBAY & KASIERER |  | Tel Aviv, Israel
|  | April 24, 2025

A Member of EY Global

We have served as the Company’s auditor since 2007.

F-3

SCISPARC LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

|  |  |  |  | December 31, |
|  |  |  |  | 2024 |  |  | 2023 |
|  | Note |  |  | USD in thousands |
ASSETS |  |  |  |  |  |  |  |  |
CURRENT ASSETS: |  |  |  |  |  |  |  |  |
Cash |  | 4 |  |  | $ | 1,540 |  |  | $ | 2,076 |
Restricted deposit |  |  |  |  |  | 20 |  |  |  | 65 |
Short-term deposit |  |  |  |  |  | - |  |  |  | 3,000 |
Trade receivables |  |  |  |  |  | 10 |  |  |  | 22 |
Other accounts receivable |  | 6 |  |  |  | 1,079 |  |  |  | 540 |
Investments in short-term financial assets |  | 24g |  |  |  | 517 |  |  |  | - |
Bridge loan to related parties |  | 24a |  |  |  | 4,224 |  |  |  | - |
Inventory |  | 5 |  |  |  | 113 |  |  |  | 742 |
|  |  |  |  |  | 7,503 |  |  |  | 6,445 |
NON-CURRENT ASSETS: |  |  |  |  |  |  |  |  |  |  |
Intangible assets, net |  | 11 |  |  |  | 1,479 |  |  |  | 3,189 |
Investments in company accounted for at equity |  | 7 |  |  |  | 952 |  |  |  | 781 |
Investments in financial assets |  | 8, 24d |  |  |  | 354 |  |  |  | 659 |
Property and equipment, net |  | 10 |  |  |  | 59 |  |  |  | 108 |
|  |  |  |  |  | 2,844 |  |  |  | 4,737 |
|  |  |  |  | $ | 10,347 |  |  | $ | 11,182 |

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

F-4

SCISPARC LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

|  |  |  |  | December 31, |
|  |  |  |  | 2024 |  |  | 2023 |
|  | Note |  |  | USD in thousands |
LIABILITIES AND EQUITY |  |  |  |  |  |  |  |  |
CURRENT LIABILITIES: |  |  |  |  |  |  |  |  |
Trade payables |  | 12 |  |  | $ | 816 |  |  | $ | 802 |
Other accounts payable |  | 13 |  |  |  | 205 |  |  |  | 185 |
Warrants |  |  |  |  |  | - |  |  |  | 191 | (*)
Other short-term liability |  | 17e |  |  |  | 341 |  |  |  | 341 | (*)
Lease liability |  | 9 |  |  |  | 37 |  |  |  | 52 |
|  |  |  |  |  | 1,399 |  |  |  | 1,571 |
NON-CURRENT LIABILITIES: |  |  |  |  |  |  |  |  |  |  |
Lease liability |  | 9 |  |  |  | 9 |  |  |  | 24 |
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY: |  | 18 |  |  |  |  |  |  |  |  |
Share capital and premium |  |  |  |  |  | 70,886 |  |  |  | 64,526 |
Reserve from share-based payment transactions |  | 19 |  |  |  | 5,746 |  |  |  | 5,282 |
Warrants |  |  |  |  |  | 5,190 |  |  |  | 5,190 |
Foreign currency translation reserve |  | 2d |  |  |  | 497 |  |  |  | 497 |
Transactions with non-controlling interests |  |  |  |  |  | 810 |  |  |  | 810 |
Accumulated deficit |  |  |  |  |  | (74,975 | ) |  |  | (68,691 | )
|  |  |  |  |  | 8,154 |  |  |  | 7,614 |
Non-controlling interests |  |  |  |  |  | 785 |  |  |  | 1,973 |
Total equity |  |  |  |  |  | 8,939 |  |  |  | 9,587 |
Total liabilities and equity |  |  |  |  | $ | 10,347 |  |  | $ | 11,182 |

| (*) | Reclassified

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

F-5

SCISPARC LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

|  |  |  |  | Year ended December 31, |
|  |  |  |  | 2024 |  |  | 2023 |  |  | 2022 |
|  | Note |  |  | USD in thousands (except per share data) |
Revenues |  | 20 |  |  | $ | 1,306 |  |  | $ | 2,879 |  |  | $ | 1,347 |
Cost of goods sold |  | 20 |  |  |  | (800 | ) |  |  | (683 | ) |  |  | (322 | )
Gross profit |  |  |  |  |  | 506 |  |  |  | 2,196 |  |  |  | 1,025 |
Research and development expenses |  | 21a |  |  |  | 1,707 |  |  |  | 1,641 |  |  |  | 2,803 |
Sales and marketing |  | 21b |  |  |  | 1,515 |  |  |  | 2,484 | * |  |  | 1,082 | *
Impairment of intangible assets |  |  |  |  |  | 1,344 |  |  |  | 1,042 |  |  |  | - |
General and administrative expenses |  | 21c |  |  |  | 4,526 |  |  |  | 3,844 | * |  |  | 5,427 | *
Other income |  | 21d |  |  |  | (1,270 | ) |  |  | - |  |  |  | - |
Operating loss |  |  |  |  |  | 7,316 |  |  |  | 6,815 |  |  |  | 8,287 |
Equity losses from the investment in MitoCareX |  |  |  |  |  | 429 |  |  |  | 210 |  |  |  | 109 |
Finance income |  | 21e |  |  |  | (612 | ) |  |  | (2,219 | ) |  |  | (7,832 | )
Finance expenses |  | 21f |  |  |  | 353 |  |  |  | 1,055 |  |  |  | 2,014 |
Loss before income taxes |  |  |  |  |  | 7,486 |  |  |  | 5,861 |  |  |  | 2,578 |
Taxes on income |  |  |  |  |  | (14 | ) |  |  | 22 |  |  |  | 14 |
Total comprehensive loss |  |  |  |  |  | 7,472 |  |  |  | 5,883 |  |  |  | 2,592 |
Attributable to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity holders of the Company |  |  |  |  |  | 6,284 |  |  |  | 5,122 |  |  |  | 2,592 |
Non-controlling interests |  |  |  |  |  | 1,188 |  |  |  | 761 |  |  |  | - |
|  |  |  |  |  | 7,472 |  |  |  | 5,883 |  |  |  | 2,592 |
Basic loss per ordinary share attributable to equity holders of the Company: |  | 22 |  |  |  | 1.28 |  |  |  | 14.43 |  |  |  | 14.82 |
Diluted loss per ordinary share attributable to equity holders of the Company: |  | 22 |  |  |  | 1.28 |  |  |  | 14.43 |  |  |  | 14.82 |

| (*) | Reclassified

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

F-6

SCISPARC LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

|  | Attributable to equity holders of the Company |  |  |  |  |  |  |
|  | Share capital and premium |  |  | Reserve from share- based payment transactions |  |  | Warrants |  |  | Transactions with non- controlling interests |  |  | Foreign currency translation reserve |  |  | Accumulated deficit |  |  | Total |  |  | Non- controlling interests |  |  | Total equity |
|  | USD in thousands |
Balance at January 1, 2022 |  | $ | 58,541 |  |  |  | 4,331 |  |  |  | 5,190 |  |  |  | 559 |  |  |  | 497 |  |  |  | (60,977 | ) |  |  | 8,141 |  |  |  | - |  |  |  | 8,141 |
Loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (2,592 | ) |  |  | (2,592 | ) |  |  | - |  |  |  | (2,592 | )
Exercise of warrants |  |  | 3 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3 |  |  |  | - |  |  |  | 3 |
Cost of share-based payment |  |  | 48 |  |  |  | 849 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 897 |  |  |  | - |  |  |  | 897 |
Balance at December 31, 2021 |  | $ | 58,592 |  |  | $ | 5,180 |  |  | $ | 5,190 |  |  | $ | 559 |  |  | $ | 497 |  |  | $ | (63,569 | ) |  | $ | 6,449 |  |  | $ | - |  |  | $ | 6,449 |
Loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (5,122 | ) |  |  | (5,122 | ) |  |  | (761 | ) |  |  | (5,883 | )
Sale of minority interest in subsidiary |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 251 |  |  |  | - |  |  |  | - |  |  |  | 251 |  |  |  | 2,734 |  |  |  | 2,985 |
Issuance of share capital in respect of investment in affiliate |  |  | 288 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 288 |  |  |  | - |  |  |  | 288 |
Issuance of share capital, net of issue expenses |  |  | 5,552 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,552 |  |  |  | - |  |  |  | 5,552 |
Cost of share-based payment |  |  | 94 |  |  |  | 102 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 196 |  |  |  | - |  |  |  | 196 |
Balance at December 31, 2023 |  | $ | 64,526 |  |  | $ | 5,282 |  |  | $ | 5,190 |  |  | $ | 810 |  |  | $ | 497 |  |  | $ | (68,691 | ) |  | $ | 7,614 |  |  | $ | 1,973 |  |  | $ | 9,587 |
Loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (6,284 | ) |  |  | (6,284 | ) |  |  | (1,188 | ) |  |  | (7,472 | )
Issuance of share capital, net of issue expenses |  |  | 6,255 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |  |  |  | 6,255 |  |  |  | - |  |  |  | 6,255 |
Cost of share-based payment |  |  | 105 |  |  |  | 464 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 569 |  |  |  | - |  |  |  | 569 |
Balance at December 31, 2024 |  | $ | 70,886 |  |  | $ | 5,746 |  |  | $ | 5,190 |  |  | $ | 810 |  |  | $ | 497 |  |  | $ | (74,975 | ) |  | $ | 8,154 |  |  | $ | 785 |  |  | $ | 8,939 |

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

F-7

SCISPARC LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|  | Year ended December 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
|  | USD in thousands |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |
Loss |  | $ | (7,472 | ) |  | $ | (5,883 | ) |  | $ | (2,592 | )
Adjustments to reconcile loss to net cash used in operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Adjustments to the profit or loss items: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 482 |  |  |  | 538 |  |  |  | 187 |
Loss on impairment of intangible asset |  |  | 1,344 |  |  |  | 1,042 |  |  |  | - |
Cost of share-based payment |  |  | 569 |  |  |  | 196 |  |  |  | 897 |
Finance income, net |  |  | (897 | ) |  |  | (2,205 | ) |  |  | (6,585 | )
Group’s share of losses of company accounted for at equity, net |  |  | 429 |  |  |  | 210 |  |  |  | 109 |
Losses from remeasurement of investment in financial assets |  |  | 305 |  |  |  | 1,048 |  |  |  | 770 |
|  |  | 2,232 |  |  |  | 829 |  |  |  | (4,622 | )
Working capital adjustments: |  |  |  |  |  |  |  |  |  |  |  |
Decrease (increase) in other accounts receivable |  |  | (535 | ) |  |  | (409 | ) |  |  | 3 |
Increase (decrease) in trade payables |  |  | 25 |  |  |  | (397 | ) |  |  | - |
Increase (decrease) in other accounts payable |  |  | 20 |  |  |  | (8 | ) |  |  | 39 |
Increase in related parties |  |  | (15 | ) |  |  | - |  |  |  | - |
Decrease (increase) in trade receivables |  |  | 12 |  |  |  | 55 |  |  |  | (77 | )
Decrease (increase) in inventory |  |  | 629 |  |  |  | (74 | ) |  |  | (668 | )
|  |  | 136 |  |  |  | (833 | ) |  |  | (703 | )
Net cash used in operating activities |  | $ | (5,104 | ) |  | $ | (5,887 | ) |  | $ | (7,917 | )

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

F-8

SCISPARC LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|  | Year ended December 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
|  | USD in thousands |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |
Withdrawal of (investment in) restricted bank deposits |  | $ | 45 |  |  | $ | (5 | ) |  | $ | (15 | )
Withdrawal of (investment in) short-term bank deposits |  |  | 3,000 |  |  |  | (3,000 | ) |  |  | - |
Sale (purchase) of property and equipment |  |  | 8 |  |  |  | - |  |  |  | (8 | )
Investment in a company accounted for at equity |  |  | (600 | ) |  |  | (400 | ) |  |  | (700 | )
Bridge loan to related parties |  |  | (4,078 | ) |  |  | - |  |  |  | - |
Investments in financial assets |  |  | - |  |  |  | (689 | ) |  |  | (1,500 | )
Purchase of intangible asset |  |  | - |  |  |  | - |  |  |  | (4,861 | )
Net cash provided by (used in) investing activities |  |  | (1,625 | ) |  |  | (4,094 | )* |  |  | (7,084 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |
Proceeds from issue of share capital (net of issuance expenses) |  |  | 6,255 |  |  |  | 5,552 |  |  |  | 9,005 |
Sale of minority interest in subsidiary |  |  | - |  |  |  | 2,985 | * |  |  | - |
Exercise of warrants (a) |  |  | - |  |  |  | - |  |  |  | 2,770 |
Payment of issuance expenses related to previous period |  |  | - |  |  |  | - |  |  |  | 3 |
Interest paid on lease liability |  |  | (8 | ) |  |  | (7 | ) |  |  | (8 | )
Repayment of lease liability |  |  | (54 | ) |  |  | (47 | ) |  |  | (70 | )
Net cash provided by financing activities |  |  | 6,193 |  |  |  | 8,483 | * |  |  | 11,700 |
Decrease in cash |  |  | (536 | ) |  |  | (1,498 | ) |  |  | (3,301 | )
Cash at the beginning of the period |  |  | 2,076 |  |  |  | 3,574 |  |  |  | 6,875 |
Cash at the end of the period |  | $ | 1,540 |  |  | $ | 2,076 |  |  | $ | 3,574 |

| (*) | Reclassified

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

F-9

SCISPARC LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|  | Year ended December 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
|  | USD in thousands |
(a) Significant non-cash transactions: |  |  |  |  |  |  |  |  |
Right-of-use asset recognized with corresponding lease liability |  |  | 75 |  |  |  | 102 |  |  |  | - |
Investment in financial asset |  |  | - |  |  |  | 288 |  |  |  | - |

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

F-10

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 1:- | GENERAL

| a. | SciSparc Ltd. (formerly known as Therapix Biosciences Ltd.) (“SciSparc” or the “Company” or the “Group”), a pharmaceutical company, was incorporated in Israel and commenced its operations on August 23, 2004. Until March 2014, SciSparc and its subsidiaries at the time were mainly engaged in developing several innovative immunotherapy products and SciSparc’s own patents in the immunotherapy field. In August 2015, the Company decided to adopt a different business strategy and began focusing on developing a portfolio of approved drugs based on cannabinoid molecules. With this focus, the Company is currently engaged in development programs based on Δ9-tetrahydrocannabinol (“THC”) and/or non-psychoactive cannabidiol for the treatment of Tourette syndrome, Alzheimer’s disease and agitation, autism spectrum disorder and Status Epilepticus. The headquarters of the Company are located in Tel Aviv, Israel.

The Company’s ordinary shares are listed on Nasdaq and are trading under the symbol “SPRC”.

As of December 31, 2024, the Company had three private subsidiaries, including an inactive company incorporated under the laws of Israel: Evero Health Ltd (“Evero”); an inactive company incorporated under the laws of Israel: Brain Bright Ltd (“Brain Bright”); and a company incorporated under the laws of the State of Delaware: Scisparc Nutraceuticals Inc. (together with Evero and Brain Bright, the “Subsidiaries”).

On September 14, 2023, the Company’s board of directors (the “Board”) resolved that the final ratio for the Third Reverse Split (as defined below) will be 26:1, which became effective on September 28, 2023. Consequently, all share numbers, share prices, and exercise prices have been retroactively adjusted in these consolidated financial statements for all periods presented.

| b. | The Group incurred operating losses since its incorporation and expects to continue to incur operating losses for the foreseeable future. As of December 31, 2024, the Group had an accumulated deficit of approximately $74,975 as a result of recurring operating losses.

As of December 31, 2024, the Company’s cash and cash equivalents totaled $1,540. In the period ended December 31, 2024, the Company had an operating loss of $7,316 and negative cash flows from operating activities of $5,104. The Company’s current cash and cash equivalents position is not sufficient to fund the Company’s planned operations for at least a year beyond the date of the filing date of the financial statements. The ability to continue as a going concern is dependent upon the Company obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. While the Company has successfully raised funds in the past, there is no guarantee that it will be able to do so in the future. The inability to borrow or raise sufficient funds on commercially reasonable terms, would have serious consequences on our financial condition and results of operations. In addition, the Group has started recognizing revenues from sales. However, its pharmaceutical operations are dependent on its ability to raise additional funds from existing and/or new investors. This dependency will continue until the Group is able to completely finance its operations by generating revenue from its products. These above-mentioned factors raise substantial doubt about the Group’s ability to continue as a going concern.

The accompanying consolidated financial statements were prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business. Such financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.

| c. | Definitions and Meanings:

| The Company | - | SciSparc Ltd. (formerly known as Therapix Biosciences Ltd.)
| The Group | - | SciSparc Ltd. (formerly Therapix Biosciences Ltd.) and its Subsidiaries, as detailed in Note 1a.
| Subsidiaries | - | Companies that are controlled by the Company, as defined in IFRS 10, “Consolidated Financial Statements”, and whose accounts are consolidated with those of the Company (if active).
| Associates | - | An entity over which the Company has significant influence, as defined in IAS 28, “Investment in Associates and Joint Ventures” and is not a Subsidiary.
| Related Parties | - | As defined in IAS 24, “Related Party Disclosures”.
| IAS | - | International Accounting Standards issued by the International Accounting Standards Board (“IASB”).
| IFRS | - | International Financial Reporting Standards issued by the IASB.

F-11

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES

The following accounting policies have been applied consistently in the financial statements for all periods presented, unless otherwise stated.

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

These financial statements have been prepared in accordance with IFRS, as issued by the IASB.

The Company’s financial statements have been prepared on a cost basis, unless otherwise indicated.

The Company has elected to present the profit or loss items using the function of expense method.

The financial statements are presented in USD and all values are rounded to the nearest thousand (’000), except when otherwise indicated.

| b. | The operating cycle:

The operating cycle of the Company is one year.

| c. | Consolidated financial statements:

The consolidated financial statements comprise the financial statements of companies that are controlled by the Company (Subsidiaries). Control of a company is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Potential voting rights are considered when assessing whether an entity has control over the other entity. The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases.

The financial statements of the Company and of the Subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies by all companies in the Group. Significant intra-Group balances and transactions and gains or losses resulting from intra-Group transactions are eliminated in full in the consolidated financial statements.

Non-controlling interests in subsidiaries represent the equity in subsidiaries not attributable, directly or indirectly, to a parent. Non-controlling interests are presented in equity separately from the equity attributable to the equity holders of the Company. Profit or loss and components of other comprehensive income are attributed to the Company and to non-controlling interests. Losses are attributed to non-controlling interests even if they result in a negative balance of non-controlling interests in the consolidated statement of financial position.

| d. | Functional currency and foreign currency:

The functional currency of the Company, which is the currency that best reflects the economic environment in which the Company operates and conducts its transactions is the U.S. Dollar (“USD” or “$”), since it’s the primary currency of the economic environment in which the Company operates. The consolidated financial statements are also presented in USD since the Company believes that preparing the consolidated financial statements in USD provides more relevant information to the users of the consolidated financial statements.

| e. | Acquisition of a single asset company:

Upon the acquisition of a single asset company, the Group evaluates whether it is the acquisition of a business or of an asset. To be considered a business, the acquisition must include, at a minimum, an input and a substantive process that together can significantly contribute to the creation of outputs. The acquisition is accounted for as a business combination if the single asset company is a business. If it is not a business, the acquisition is accounted for as the acquisition of assets and liabilities. In such an acquisition, the cost of the acquisition includes transaction costs which are allocated to the identifiable acquired assets and liabilities proportionally based on their fair value on the acquisition date. In such case, goodwill and deferred taxes in respect of the temporary differences existing as of the acquisition date are not recognized.

F-12

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

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

| f. | Restricted deposits:

A restricted deposit is cash invested in a short-term deposit (between three months and one year) or in a long-term deposit (with a maturity of more than one year from the date of investment). Restricted deposits are designated to secure the Company’s office facilities lease agreements and its credit cards.

| g. | Investment in joint arrangements:

Joint arrangements are arrangements in which the Company has joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

| 1. | Joint ventures:

In joint ventures the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venture is accounted for at equity

| 2. | Joint operations:

In joint operations the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement. The Company recognizes in relation to its interest its share of the assets, liabilities, revenues and expenses of the joint operation.

The acquisition of interests in a joint operation which represents a business, as defined in IFRS 3, is accounted for using the acquisition method, including the measurement of the identifiable assets and liabilities at fair value, the recognition of deferred taxes arising from this measurement, the accounting treatment of the related transaction costs and the recognition of goodwill or bargain purchase gains. This applies to the acquisition of the initial interest and additional interests in a joint operation that represents a business.

| h. | Investments accounted for using the equity method:

The Group’s investments in associates and joint ventures are accounted for using the equity method.

Under the equity method, the investment in the associate or in the joint venture is presented at cost with the addition of post-acquisition changes in the Group’s share of net assets, including other comprehensive income of the associate or the joint venture. Gains and losses resulting from transactions between the Group and the associate or the joint venture are eliminated to the extent of the interest in the associate or in the joint venture. The cost of the investment includes transaction costs.

Goodwill relating to the acquisition of an associate or a joint venture is presented as part of the investment in the associate or the joint venture, measured at cost and not systematically amortized. Goodwill is evaluated for impairment as part of the investment in the associate or in the joint venture as a whole.

The financial statements of the Company and of the associate or joint venture are prepared as of the same dates and periods. The accounting policies applied in the financial statements of the associate or the joint venture are uniform and consistent with the policies applied in the financial statements of the Group.

Upon the acquisition of an associate or a joint venture achieved in stages when the former investment in the acquiree was accounted for pursuant to the provisions of IFRS 9, the Group applies the principles of IFRS 3 regarding business combinations achieved in stages. Consequently, equity interests in the acquiree that had been held by the Group prior to achieving significant influence or joint control are measured at fair value on the acquisition date and are included in the acquisition consideration while recognizing a gain or loss resulting from the fair value measurement.

The equity method is applied until the loss of significant influence in the associate or loss of joint control in the joint venture or classification as investment held for sale.

F-13

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

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

| i. | Property and equipment, net:

Property and equipment are measured at cost, including directly attributable costs, less accumulated depreciation, accumulated impairment losses and any related investment grants and excluding day-to-day servicing expenses.

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

|  | % |  | Mainly % |
Lab equipment |  | 6-50 |  |  | 33 |
Computers |  | 33-50 |  |  | 33 |
Office furniture and equipment |  | 7-15 |  |  | 15 |
Leasehold improvements |  | see below |  |  | - |

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

The useful life, depreciation method and residual value of an asset are reviewed at least each year-end and any changes are accounted for prospectively as a change in accounting estimate. Depreciation of an asset ceases at the earlier of: the date that the asset is classified as held for sale and the date that the asset is derecognized.

| j. | Intangible assets:

Separately acquired intangible assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Expenditures relating to internally generated intangible assets, excluding capitalized development costs, are recognized in profit or loss when incurred.

Intangible assets with a finite useful life are amortized over their useful life and reviewed for impairment whenever there is an indication that the asset may be impaired. The amortization period and the amortization method for an intangible asset are reviewed at least at each year end.

| k. | Impairment of non-financial assets:

The Company evaluates the need to record an impairment of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in profit or loss.

F-14

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

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

| l. | Financial instruments:

| 1. | Financial assets:

Financial assets are measured upon initial recognition at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets, except for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.

The Company classifies and measures debt instruments in the financial statements based on the following criteria:

| - | The Company’s business model for managing financial assets; and

| - | The contractual cash flow terms of the financial asset.

| a) | Debt instruments are measured at amortized cost when:

The Company’s business model is to hold the financial assets in order to collect their contractual cash flows, and the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial recognition, the instruments in this category are measured according to their terms at amortized cost using the effective interest rate method, less any provision for impairment.

On the date of initial recognition, the Company may irrevocably designate a debt instrument as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency, such as when a related financial liability is also measured at fair value through profit or loss.

| b) | Debt instruments are measured at fair value through profit or loss when:

A financial asset which is a debt instrument does not meet the criteria for measurement at amortized cost or at fair value through other comprehensive income. After initial recognition, the financial asset is measured at fair value and gains or losses from fair value adjustments are recognized in profit or loss.

| c) | Equity instruments and other financial assets held for trading:

Investments in equity instruments do not meet the above criteria and accordingly are measured at fair value through profit or loss.

Other financial assets held for trading such as derivatives, including embedded derivatives separated from the host contract, are measured at fair value through profit or loss unless they are designated as effective hedging instruments.

Dividends from investments in equity instruments are recognized in profit or loss when the right to receive the dividends is established.

F-15

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

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

| l. | Financial instruments: (Cont.)

| 2. | Derecognition of financial assets:

A financial asset is derecognized only when:

| - | The contractual rights to the cash flows from the financial asset have expired;

| - | The Company has transferred substantially all the risks and rewards deriving from the contractual rights to receive cash flows from the financial asset or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset; or

| - | The Company has retained its contractual rights to receive cash flows from the financial asset but has assumed a contractual obligation to pay the cash flows in full without material delay to a third party.

| 3. | Impairment of financial assets:

The Company evaluates at the end of each reporting period the loss allowance for financial debt instruments which are not measured at fair value through profit or loss. The Company distinguishes between two types of loss allowances:

| a) | Debt instruments whose credit risk has not increased significantly since initial recognition, or whose credit risk is low - the loss allowance recognized in respect of this debt instrument is measured at an amount equal to the expected credit losses within 12 months from the reporting date (12-month ECLs); or

| b) | Debt instruments whose credit risk has increased significantly since initial recognition, and whose credit risk is not low - the loss allowance recognized is measured at an amount equal to the expected credit losses over the instrument’s remaining term (lifetime ECLs).

The Company has short-term financial assets in respect of which the Company applies the simplified approach in IFRS 9 and measures the loss allowance in an amount equal to the lifetime expected credit losses.

The Company considers a financial asset in default when contractual payments are more than 180 days past due. However, in certain cases, the Company considers a financial asset to be in default when external or internal information indicates that the Company is unlikely to receive the outstanding contractual amounts in full.

| 4. | Financial liabilities:

| a) | Financial liabilities measured at amortized cost:

Financial liabilities are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial liability.

After initial recognition, the Company measures all financial liabilities at amortized cost using the effective interest rate method, except for financial liabilities at fair value through profit or loss such as derivatives.

| b) | Financial liabilities measured at fair value through profit or loss:

At initial recognition, the Company measures financial liabilities that are not measured at amortized cost at fair value. Transaction costs are recognized in profit or loss.

After initial recognition, changes in fair value are recognized in profit or loss.

| 5. | Derecognition of financial liabilities:

A financial liability is derecognized only when it is extinguished, that is when the obligation specified in the contract is discharged or cancelled or expires. A financial liability is extinguished when the debtor discharges the liability by paying in cash, other financial assets, goods or services, or is legally released from the liability.

F-16

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

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

| l. | Financial instruments: (Cont.)

| 6. | Offsetting financial instruments:

Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the liability simultaneously. The right of set-off must be legally enforceable not only during the ordinary course of business of the parties to the contract but also in the event of bankruptcy or insolvency of one of the parties. In order for the right of set-off to be currently available, it must not be contingent on a future event, there may not be periods during which the right is not available, or there may not be any events that will cause the right to expire.

| 7. | Compound financial instruments:

Convertible debentures which contain both an equity/derivative component and a liability component are separated into two components. This separation is performed by first determining the liability component based on the fair value of an equivalent non-convertible liability. The value of the conversion component is determined to be the residual amount. Directly attributable transaction costs are apportioned between the equity component and the liability component based on the allocation of proceeds to the equity and liability components.

| 8. | Issue of a unit of securities:

The issue of a unit of securities involves the allocation of the proceeds received (before issue expenses) to the securities issued in the unit based on the following order: financial derivatives and other financial instruments measured at fair value in each period. Then fair value is determined for financial liabilities that are measured at amortized cost. The proceeds allocated to equity instruments are determined to be the residual amount. Issue costs are allocated to each component pro rata to the amounts determined for each component in the unit.

| m. | Research and development expenditures:

Research expenditures are recognized in profit or loss when incurred.

The conditions enabling capitalization of development costs as an asset have not yet been met and, therefore, all development expenditures are recognized in profit or loss when incurred.

| n. | Finance income and expenses:

Finance income and expenses comprise interest income on amounts invested and exchange rate gains and losses. Interest income is recognized as it accrues using the effective interest method. Finance income and expenses derive also from changes in the fair value of financial liabilities measured at fair value through profit or loss. Borrowing costs are recognized in profit or loss using the effective interest method.

| o. | Fair value measurement:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement is based on the assumption that the transaction will take place in the asset’s or the liability’s principal market, or in the absence of a principal market, in the most advantageous market.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

Fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

F-17

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

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

| o. | Fair value measurement: (Cont.)

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchy based on the lowest level input that is significant to the entire fair value measurement:

| Level 1 | - | Quoted prices (unadjusted) in active markets for identical assets or liabilities.
| Level 2 | - | Inputs other than quoted prices included within Level 1 that are observable directly or indirectly.
| Level 3 | - | Inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data).

| p. | Taxes on income:

Current or deferred taxes are recognized in profit or loss, except to the extent that they relate to items which are recognized in other comprehensive income or equity.

| 1. | Current taxes:

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

| 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.

Deferred taxes are measured at the tax rate that is expected to apply when the asset is realized, or the liability is settled, based on tax laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is not probable that they will be utilized. Deductible carryforward losses and temporary differences for which deferred tax assets had not been recognized are reviewed at each reporting date and a respective deferred tax asset is recognized to the extent that their utilization is probable.

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

Taxes on income that relate to distributions of an equity instrument and to transaction costs of an equity transaction are accounted for pursuant to IAS 12, “Income Taxes”.

Deferred taxes are offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred taxes relate to the same taxpayer and the same taxation authority.

F-18

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

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

| q. | Share-based payment transactions:

The Company’s employees and other service providers may receive remuneration in the form of share-based payments (“Equity-settled transactions”).

Equity-settled transactions:

The cost of equity-settled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fair value is determined using an acceptable option pricing model (“OPM”). As for service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration for equity instruments granted.

The cost of equity-settled transactions is recognized in profit or loss together with a corresponding increase in equity during the period in which the performance and/or service conditions are to be satisfied ending on the date on which the relevant employees become entitled to the award (the “Vesting Period”). The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the Vesting Period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest.

No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied.

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

If a grant of an equity instrument is cancelled, it is accounted for as if it had vested on the cancellation date and any expense not yet recognized for the grant is recognized immediately. However, if a new grant replaces the cancelled grant and is identified as a replacement grant on the grant date, the cancelled and new grants are accounted for as a modification of the original grant, as described above.

| r. | Earnings (loss) per share:

Earnings (loss) per share are calculated by dividing the income (loss) attributable to equity holders of the Company by the weighted number of ordinary shares outstanding during the period.

Basic loss per ordinary share includes only ordinary shares that were outstanding during the period.

Potential ordinary shares are included in the computation of diluted loss per ordinary share when their conversion increases loss per ordinary share from continuing operations.

F-19

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

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

| s. | Employee benefit liabilities:

The Company has several employee-benefit plans:

| 1. | Short-term employee benefits:

Short-term employee benefits are benefits that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing plan is recognized when the Company has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made.

| 2. | Post-employment benefits:

The plans are normally financed by contributions to insurance companies and classified as defined contribution plans or as defined benefit plans.

The Company has defined contribution plans to its employees according to the specific laws per country.

| t. | Provisions:

A provision in accordance with IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”, is recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Company expects part or all of the expense to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense is recognized in the statement of profit or loss net of any reimbursement.

Following are the types of provisions included in the financial statements:

Legal claims:

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

| u. | Leases:

The Company elected to apply the provisions of IFRS 16, “Leases” (“IFRS 16”) using the modified retrospective method (without restatement of comparative data).

The accounting policy for leases applied effective from January 1, 2019, is as follows:

The Company accounts for a contract as a lease when the contract terms convey the right to control the use of an identified asset for a period of time in exchange for consideration.

F-20

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

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

| u. | Leases: (Cont.)

| 1. | The Company as a lessee:

For leases in which the Company is the lessee, the Company recognizes on the commencement date of the lease a right-of-use asset and a lease liability, excluding leases whose term is up to 12 months and leases for which the underlying asset is of low value. For these excluded leases, the Company has elected to recognize lease payments as an expense in profit or loss on a straight-line basis over the lease term (see Note 9). In measuring the lease liability, the Company has elected to apply the practical expedient in IFRS 16 and separates the lease components from the non-lease components (such as management and maintenance services, etc.) included in a single contract.

On the commencement date, the lease liability includes all unpaid lease payments discounted at the interest rate implicit in the lease, if that rate can be readily determined, or otherwise using the Company’s incremental borrowing rate. After the commencement date, the Company measures the lease liability using the effective interest rate method.

On the commencement date, the right-of-use asset is recognized in an amount equal to the lease liability plus lease payments already made on or before the commencement date and initial direct costs incurred. The right-of-use asset is measured applying the cost model and depreciated over the shorter of its useful life and the lease term.

The Company tests for impairment of the right-of-use asset whenever there are indications of impairment pursuant to the provisions of IAS 36, “Impairment of Assets”.

| 2. | Lease extension and termination options:

A non-cancelable lease term includes both the periods covered by an option to extend the lease when it is reasonably certain that the extension option will be exercised, and the periods covered by a lease termination option when it is reasonably certain that the termination option will not be exercised.

In the event of any change in the expected exercise of the lease extension option or in the expected non-exercise of the lease termination option, the Company remeasures the lease liability based on the revised lease term using a revised discount rate as of the date of the change in expectations. The total change is recognized in the carrying amount of the right-of-use asset until it is reduced to zero, and any further reductions are recognized in profit or loss.

| 3. | Lease modifications:

If a lease modification does not reduce the scope of the lease and does not result in a separate lease, the Company remeasures the lease liability based on the modified lease terms using a revised discount rate as of the modification date and records the change in the lease liability as an adjustment to the right-of-use asset.

If a lease modification reduces the scope of the lease, the Company recognizes a gain or loss arising from the partial or full reduction of the carrying amount of the right-of-use asset and the lease liability. The Company subsequently remeasures the carrying amount of the lease liability according to the revised lease terms, at the revised discount rate as of the modification date and records the change in the lease liability as an adjustment to the right-of-use asset.

F-21

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

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

| v. | Inventories

Inventories are stated at the lower of cost and or market based on net realizable value. Inventories are adjusted for estimated excess and obsolescence and written down to net realizable value based upon estimates of future demand, technology developments, and market conditions. Cost is determined in accordance with first-in, first-out Method (“FIFO”) and the cost of inventory includes shipment and freight costs.

| w. | Revenue recognition

The Company’s Brand sells products directly to customers mainly through the Brand’s online Amazon stores.

Under the Company’s standard contract terms, customers have a right of return within 30 to 90 days. For contracts with rights of return, the Company recognizes revenue based on the amount of the consideration which the Company expects to receive for products which it is highly probable that a significant revenue reversal will not subsequently occur. The Company recognizes a refund liability for consideration received or receivable if it expects to refund some or all of the consideration to the customer. At the end of each reporting period, the Company updates its estimates of expected product returns and adjusts the refund liabilities with a corresponding adjustment in revenues. As of December 31, 2024, the allowance for returns was immaterial. The refund liability is recorded as a decrease in revenues against other payables. A right of return asset and corresponding adjustment to cost of sales is also recognized for the right to recover the goods from the customer.

In certain contracts, the Company evaluates the nature of its promise to the customer and determines whether it is the principal or agent for each contract. In determining the nature of its promise to the customer, the Company evaluates whether it is appropriate to recognize revenues on a gross or net basis based upon its evaluation of whether the Company obtains control of the specified goods by considering if it is primarily responsible for fulfillment of the promise, has inventory risk, and has the latitude in establishing pricing and selecting suppliers, among other factors. Based on its evaluation of these factors, management has determined that it is the principal in these arrangements; therefore, sales are recorded on a gross basis.

| x. | Cost of sales

In accordance with Amazon’s terms of use, the Company is obligated to pay to Amazon incremental costs, such as sales fulfillment commissions which are contingent on making binding sales. Sales commissions would not have been incurred if the contract had not been obtained.

Cost of sales primarily consists of expenses related to Amazon’s commissions, storage costs and freight.

F-22

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

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

In the process of applying the significant accounting policies, the Company has made the following judgments which have the most significant effect on the amounts recognized in the financial statements:

| a. | Judgments:

| - | Discount rate for a lease liability:

When a company in the Group is unable to readily determine the discount rate implicit in a lease in order to measure the lease liability, such company uses an incremental borrowing rate. That rate represents the rate of interest that the Company would have to pay to borrow over a similar term and with similar security, the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment. When there are no financing transactions that can serve as a basis, said company determines the incremental borrowing rate based on its credit risk, the lease term and other economic variables deriving from the lease contract’s conditions and restrictions.

| - | Effective control:

The Company assesses whether it controls a company in which it holds less than the majority of the voting rights by, among others, reference to the size of its holding of voting rights relative to the size and dispersion of holdings of the other vote holders including voting patterns at previous shareholders’ meetings.

| - | Determining the fair value of share-based payment transactions:

The fair value of share-based payment transactions is determined upon initial recognition by an acceptable options pricing model (“OPM”). The inputs to the model include share price, exercise price and assumptions regarding expected volatility, expected life of share option, risk-free interest and expected dividend yield.

| b. | Estimates and assumptions:

The preparation of the financial statements requires management to make estimates and assumptions that have an effect on the application of the accounting policies and on the reported amounts of assets, liabilities, revenues and expenses. Changes in accounting estimates are reported in the period of the change in estimate.

The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by the Company that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

| - | Legal claims:

In estimating the likelihood of outcome of legal claims filed or threatened to commence against the Company and/or its Subsidiaries and/or affiliates, the Company relies on its management’s best knowledge and estimations and where applicable, on the opinion of their legal counsels. These estimates are based, among others, on management’s familiarity of and proximity to the circumstances, and also on the legal counsels’ best professional judgment, taking into account the stage of proceedings and legal precedents in respect of the different issues. Since the outcome of the claims might be determined in courts and/or other quasi-judicial tribunals, the results could differ from these estimates.

F-23

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

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

| b. | Estimates and assumptions: (Cont.)

| - | Fair value of financial instruments:

When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using a variety of valuation techniques that include the use of valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimation is required in establishing fair values. The models are tested for validity by calibrating to prices from any observable current market transactions in the same instrument when available.

| b. | Disclosure of new standards in the period prior to their adoption:

IFRS 18, “Presentation and Disclosure in Financial Statements”:

In April 2024, the International Accounting Standards Board (“the IASB”) issued IFRS 18, “Presentation and Disclosure in Financial Statements” (“IFRS 18”) which replaces IAS 1, “Presentation of Financial Statements”.

IFRS 18 is aimed at improving comparability and transparency of communication in financial statements.

IFRS 18 retains certain existing requirements of IAS 1 and introduces new requirements on presentation within the statement of profit or loss, including specified totals and subtotals. It also requires disclosure of management-defined performance measures and includes new requirements for aggregation and disaggregation of financial information.

IFRS 18 does not modify the recognition and measurement provisions of items in the financial statements. However, since items within the statement of profit or loss must be classified into one of five categories (operating, investing, financing, taxes on income and discontinued operations), it may change the entity’s operating profit. Moreover, the publication of IFRS 18 resulted in consequential narrow scope amendments to other accounting standards, including IAS 7, “Statement of Cash Flows” and IAS 34, “Interim Financial Reporting”.

IFRS 18 is effective for annual reporting periods beginning on or after January 1, 2027, and is to be applied retrospectively. Early adoption is permitted commencing from January 1, 2025, subject to disclosure.

The Company is evaluating the effects of IFRS 18, including the effects of the consequential amendments to other accounting standards, on its consolidated financial statements.

F-24

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 4:- | CASH

|  | December 31, |
|  | 2024 |  |  | 2023 |
Cash for immediate withdrawal - in USD |  | $ | 1,383 |  |  | $ | 1,866 |
Cash for immediate withdrawal - in NIS |  |  | 157 |  |  |  | 210 |
|  | $ | 1,540 |  |  | $ | 2,076 |

NOTE 5:- | INVENTORY

|  | December 31, |
|  | 2024 |  |  | 2023 |
Goods in transit |  | $ | 9 |  |  | $ | 73 |
Finished goods |  |  | 104 |  |  |  | 669 |
|  | $ | 113 |  |  | $ | 742 |

NOTE 6:- | OTHER ACCOUNTS RECEIVABLE

|  | December 31, |
|  | 2024 |  |  | 2023 |
Government authorities |  | $ | 78 |  |  | $ | 62 |
Other receivables |  |  | 449 |  |  |  | 203 |
Prepaid expenses |  |  | 350 |  |  |  | 275 |
Receivables in respect of downpayment on merger |  |  | 187 |  |  |  | - |
Related party |  |  | 15 |  |  |  | - |
|  | $ | 1,079 |  |  | $ | 540 |

NOTE 7:- | INVESTMENT IN ASSOCIATES AND JOINT VENTURES

| a. | MitoCareX - Joint Venture Transaction

On March 10, 2022, the Company entered into a Founders and Investment Agreement with Dr. Alon Silberman, or the MitoCareX Agreement. Pursuant to the MitoCareX Agreement, the Company invested an initial amount of $700, and agreed to invest over the next two years, an additional $1,000, subject to the achievement of certain pre-determined milestones as agreed upon in the MitoCareX Agreement, for up to a 50.01% ownership in MitoCareX Bio Ltd. (“MitoCareX”). MitoCareX is focused on the discovery and development of potential drugs for cancers and other life-threatening conditions. The MitoCareX Agreement also contains customary representations, warranties, covenants, and indemnification provisions. On March 31, 2022, the closing conditions were met, and the Company paid the initial investment amount of $700 to MitoCareX. As of December 31, 2022, the Company owns 31.48% of the outstanding shares of MitocareX.

On February 17, 2023, MitoCareX achieved its first milestone pursuant to the MitoCare X Agreement. As a result of MitoCareX meeting this milestone, the Company will invest an additional $400 in MitoCareX and increase its share ownership in MitoCareX Bio from 31.48% to 41.92%.

F-25

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 7:- | INVESTMENT IN ASSOCIATES AND JOINT VENTURES (CONT.)

| a. | MitoCareX - Joint Venture Transaction (Cont.)

On November 25, 2023, MitoCareX achieved its second milestone pursuant to the MitoCareX Agreement. As a result of MitoCareX meeting this milestone, the Company invested an additional sum of $600 in MitoCareX and increased its share ownership in MitoCareX from 41.92% to 52.73%. Notwithstanding the above, the Company and MitoCareX agreed for the additional $600 installment to be deferred to March 25, 2024, and the $600 installment was paid on March 11, 2024.

On September 26, 2024, the Company signed a non-binding letter of intent relating to the sale of its entire ownership interest in MitoCareX to N2OFF, Inc. (“N2OFF”) a publicly-traded company in the United States which is a related party (the “Purchaser”). Pursuant to the terms of the letter of intent, initially, in exchange for transferring and selling to the Purchaser a number of ordinary shares of MitoCareX that constitute 27% of SciSparc’s ownership in MitoCareX, SciSparc will receive cash consideration of $700. Subsequent to this first phase, SciSparc will transfer to the Purchaser the remaining 73% of its ownership stake in MitoCareX in exchange for a certain number of shares based on the valuation of the Purchaser equal to $8,000 and a valuation of MitoCareX equal to $5,000 (the latter of which includes the $700, in cash consideration for SciSparc’s shares described above). The letter of intent also includes provisions for additional milestones that, upon achievement, may increase the consideration paid by the Purchaser to SciSparc from $5,000 to $7,000. The details of the full terms of this transaction are subject to negotiation and execution of definitive agreements. As of December 31, 2024, the Company and the Purchaser have not closed the sale of the ownership of MitoCareX and the Company still holds 52.73% of the issued and outstanding share capital of MitoCareX. See also Note 25(d).

During the year ended December 31, 2024, the Company recorded equity losses from the investment in MitoCareX in the amount of $429 (for the year ended December 31, 2023 - $210).

The table below summarizes the fair value of the investment in MitoCareX:

Balance at January 1, 2022 |  | $ | - |
Investment date March 31, 2022 |  |  | 700 |
Equity losses from investment in MitoCareX |  |  | (109 | )
Balance at December 31, 2022 |  | $ | 591 |
Investment following achievement of first milestone |  |  | 400 |
Equity losses from investment in MitoCareX |  |  | (210 | )
Balance at December 31, 2023 |  | $ | 781 |
Investment following achievement of second milestone |  | $ | 600 |
Equity losses from investment in MitoCareX |  |  | (429 | )
Balance at December 31, 2024 |  | $ | 952 |

NOTE 8:- | INVESTMENT IN FINANCIAL ASSETS

|  | Clearmind On November 17, 2022, the Company invested $1,500 in the initial public offering of Clearmind Medicine Inc. (“Clearmind”) and received 230,769 common shares of Clearmind, resulting in the Company holding 9.33% of share capital of Clearmind. Shares of Clearmind are listed for trading on Nasdaq Capital Market and the Canadian Securities Exchange under the symbol “CMND” and the Frankfurt Stock Exchange under the symbol “CWY.” On November 21, 2023, Clearmind conducted a reverse share split of its issued and outstanding ordinary shares, no par value, at a ratio of 1-for-30. As a result, the Company holdings in Clearmind decreased from 230,769 common shares to 7,692. As of December 31, 2024, the listed share price of Clearmind on Nasdaq was $1.38 and the Company has recorded a loss in its statements of comprehensive loss for the year ended December 31, 2024 of $11 on its investment (for the year ended December 31, 2023 - $727).

F-26

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 9:- | LEASES

On April 1, 2024, the Company entered into a two-year lease agreement with for a total area of approximately 240 square meters, whereby the Company occupies approximately 120 square meters for the Company’s offices, in the district of Tel Aviv, Israel. The Company has an option to extend for an additional three-year term. The monthly lease fee was set at approximately $3, linked to the NIS.

NOTE 10:- | PROPERTY AND EQUIPMENT, NET

|  | Computers |  |  | Office furniture and equipment |  |  | Right of use asses |  |  | Total |
Cost: |  |  |  |  |  |  |  |  |  |  |  |
Balance at January 1, 2024 |  | $ | 11 |  |  |  | 33 |  |  |  | 181 |  |  |  | 225 |
Additions |  |  | 2 |  |  |  | - |  |  |  | 75 |  |  |  | 77 |
Disposals |  |  | (1 | ) |  |  | (21 | ) |  |  | (181 | ) |  |  | (203 | )
Balance at December 31, 2024 |  |  | 12 |  |  |  | 12 |  |  |  | 75 |  |  |  | 99 |
Accumulated depreciation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at January 1, 2024 |  |  | 6 |  |  |  | 5 |  |  |  | 106 |  |  |  | 117 |
Depreciation |  |  | 4 |  |  |  | 1 |  |  |  | 28 |  |  |  | 33 |
Disposals |  |  | (1 | ) |  |  | (4 | ) |  |  | (106 | ) |  |  | (111 | )
Balance at December 31, 2024 |  |  | 9 |  |  |  | 3 |  |  |  | 28 |  |  |  | 40 |
Depreciated cost at December 31, 2024 |  |  | 3 |  |  |  | 9 |  |  |  | 47 |  |  |  | 59 |
Balance at January 1, 2023 |  | $ | 11 |  |  |  | 33 |  |  |  | 78 |  |  |  | 122 |
Additions |  |  | - |  |  |  | - |  |  |  | 103 |  |  |  | 103 |
Balance at December 31, 2023 |  |  | 11 |  |  |  | 33 |  |  |  | 181 |  |  |  | 225 |
Accumulated depreciation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at January 1, 2023 |  |  | 3 |  |  |  | 3 |  |  |  | 59 |  |  |  | 65 |
Depreciation |  |  | 3 |  |  |  | 2 |  |  |  | 47 |  |  |  | 52 |
Balance at December 31, 2023 |  |  | 6 |  |  |  | 5 |  |  |  | 106 |  |  |  | 117 |
Depreciated cost at December 31, 2023 |  |  | 5 |  |  |  | 28 |  |  |  | 75 |  |  |  | 108 |

Depreciation expenses for the years ended December 31, 2024, 2023 and 2022 amounted to $37, $52 and $43, respectively.

NOTE 11:- | INTANGIBLE ASSET

On September 30, 2022, the Company announced the closing of the acquisition of WellutionTM, a top seller Amazon.com Marketplace account (the “Brand”), American food supplements and cosmetics brand and trademark (the “Acquisition”). In connection with the Acquisition, the Company incorporated a new wholly owned Delaware subsidiary, SciSparc Nutraceuticals Inc., to hold the new assets. The definitive agreement for the acquisition of the Brand was entered into with Merhavit M.R.M Holding and Management Ltd (“M.R.M”).

At the closing, the Company paid a base cash payment of $4,540 and in 12 months following the closing agreed to pay an additional deferred cash payment equal to a multiple of 3 times the amount by which the Brand’s EBITDA exceeds $1,120 during the 12-month period following the closing of the Acquisition. The Company paid an additional $321 as purchase costs.

F-27

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 11:- | INTANGIBLE ASSET (CONT.)

The Company reviewed the transaction and deemed it to be the purchase of assets for accounting purposes under generally accepted accounting principles. The Company reviewed the guidance under IFRS 3 for the transaction and determined that the fair value of the gross assets acquired was concentrated in a single identifiable asset, a brand. Accordingly, the Company treated the transaction as an asset acquisition. On the closing date of the acquisition, the Company fully recognized the acquisition amount total of $4,861 as an intangible asset, to be amortized over a period of 10 years.

In the years ended December 31, 2022, 2023, and 2024, the Brand recorded significant losses. As of December 31, 2024, the Company has determined there are signs of decline in the value of the Brand and recognized a loss as a result of impairment to its intangible asset of $1,344 (as of December 31, 2023 - $1,042).

The impairment loss was determined based on the revenue projections of the Brand, using the relief from royalty approach. Under the relief from royalty approach, the fair value of a brand is determined based on discounted future royalty payments that owner of the asset would have been required to pay if instead of purchasing the intangible asset it would have been licensed from a third party. Revenues were projected for a period of 7.8 years (2023 – 8.7), commensurate with the remaining estimated useful life of the Brand and with no terminal value. The projections were determined based on the current period revenues, assuming a growth rate for the short term that is consistent with management’s expectations that revenues of the brand will resume their past extent, as of the date of purchase of the brand, a growth rate thereafter of 27.8% (2023 – 13.8%) and a declining growth rate for the long term, reaching 2% (2023 – 2%) at the terminal year. Theoretical royalties arising from the brand were capitalized at a discount rate of 21.9% (2023 – 20.6%).

The table below summarizes the fair value of the intangible asset:

Balance at January 1, 2023 |  | $ | 4,717 |
Loss on impairment of intangible asset |  |  | (1,042 | )
Depreciation of intangible asset |  |  | (486 | )
Balance at December 31, 2023 |  | $ | 3,189 |
Loss on impairment of intangible asset |  |  | (1,344 | )
Depreciation of intangible asset |  |  | (366 | )
Balance at December 31, 2024 |  | $ | 1,479 |

During the year ended December 31, 2024, the Company recognized depreciation expenses in respect to intangible asset in the amount of $366 (for the year ended December 31, 2023 - $486).

NOTE 12:- | TRADE PAYABLES

|  | December 31, |
|  | 2024 |  |  | 2023 |
Accrued expenses |  | $ | 608 |  |  | $ | 538 |
Open debts |  |  | 208 |  |  |  | 264 |
|  | $ | 816 |  |  | $ | 802 |

F-28

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 13:- | OTHER ACCOUNTS PAYABLE

|  | December 31, |
|  | 2024 |  |  | 2023 |
Employees and payroll accruals |  | $ | 75 |  |  | $ | 48 |
Accrued vacation |  |  | 130 |  |  |  | 104 |
Other payables |  |  | - |  |  |  | 33 |
|  | $ | 205 |  |  | $ | 185 |

NOTE 14:- | FINANCIAL INSTRUMENTS

| a. | Classification of financial assets and financial liabilities:

The financial assets and financial liabilities in the consolidated statements of financial position are classified by groups of financial instruments pursuant to IFRS 9, “Financial Instruments” (“IFRS 9”):

|  | December 31, |
|  | 2024 |  |  | 2023 |
Financial assets: |  |  |  |  |  |
Cash and restricted deposits |  | $ | 1,560 |  |  | $ | 2,141 |
Short-term deposits |  |  | - |  |  |  | 3,000 |
Other receivables |  |  | 449 |  |  |  | 203 |
Related parties |  |  | 4,239 |  |  |  | - |
Total financial assets at amortized cost |  |  | 6,248 |  |  |  | 5,344 |
Investments in financial assets at fair value |  |  | 871 |  |  |  | 659 |
Financial liabilities: |  |  |  |  |  |  |  |
Credit from others |  |  | 75 |  |  |  | 48 |
Warrants liability |  |  | - |  |  |  | 191 |
Lease liability |  |  | 48 |  |  |  | 76 |
Total financial and lease liabilities |  | $ | 123 |  |  | $ | 315 |

F-29

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 14:- | FINANCIAL INSTRUMENTS (CONT.)

| a. | Classification of financial assets and financial liabilities: (Cont.)

The tables below are a comparison between the carrying amount and fair value of the Company’s financial instruments as of December 31, 2024, and 2023, which are presented in the financial statements not at fair value (other than those whose amortized cost is a reasonable approximation of fair values):

|  | Carrying amount |  |  | Fair Value |
|  | December 31, |  |  | December 31, 2023 |
|  | 2024 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Investments in short-term financial assets |  | $ | 354 |  |  | $ | 354 |  |  | $ | - |  |  | $ | - |
Investments in financial assets |  | $ | 517 |  |  | $ | 517 |  |  | $ | - |  |  | $ | - |

|  | Carrying amount |  |  | Fair Value |
|  | December 31, |  |  | December 31, 2023 |
|  | 2023 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Investments in financial assets |  | $ | 659 |  |  | $ | - |  |  | $ |  |  |  | $ | 659 |
Warrants |  |  | 191 |  |  |  | - |  |  |  | 191 |  |  |  | - |

Management believes that the carrying amount of cash, short-term deposits, trade receivables, trade payables, overdrafts and other current liabilities approximate their fair value due to the short-term maturities of these instruments.

F-30

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 14:- | FINANCIAL INSTRUMENTS (CONT.)

| b. | Financial risk factors:

The Company’s activities expose it to various financial risks such as market risks (foreign currency risk and interest risk), credit risk and liquidity risk. The Company’s comprehensive risk management plan focuses on activities that reduce to a minimum any possible adverse effects on the Company’s financial performance.

Risk management is performed by management in accordance with the policies approved by the Board. The Board establishes written principles for the overall risk management activities as well as specific policies with respect to certain exposures to risks such as exchange rate risk, credit risk and the investments of surplus funds.

| 1. | Market risks:

Foreign currency risk:

The Company is exposed to exchange rate risk resulting from the exposure to different currencies, mainly from transactions in NIS. Exchange rate risk arises from recognized liabilities that are denominated in a foreign currency other than the functional currency.

| 2. | Credit risks:

All cash and restricted deposits related to the Company are held in two banks in Israel which are considered financially solid.

| 3. | Liquidity risk:

The Company monitors the risk of a shortage of funds on a regular basis and acts to raise funds to satisfy its liabilities. As of December 31, 2024, the Company expects to settle all of its financial liabilities in less than one year.

The carrying amounts of cash and restricted deposits, and all other financial assets and liabilities approximate their fair value.

F-31

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 15:- | EMPLOYEE BENEFIT LIABILITIES

Employee benefits consist of short-term benefits and post-employment benefits.

Post-employment benefits:

According to the labor laws and the Israeli Severance Pay Law, 1963 (the “Severance Pay Law”), the Company is required to pay compensation to an employee upon dismissal or retirement or to make current contributions in defined contribution plans pursuant to Section 14 of the Severance Pay Law, as specified below. The Company’s liability is accounted for as a post-employment benefit. The computation of the Company’s employee benefit liability is made in accordance with a valid employment contract based on the employee’s salary and employment term which establish the entitlement to receive the compensation.

The post-employment benefits are normally financed by contributions classified as defined benefit plans or as defined contribution plans as detailed below.

Defined contribution plans:

Section 14 of the Severance Pay Law applies to a substantial part of the compensation payments, pursuant to which the fixed contributions paid by the Company into pension funds and/or policies of insurance companies release the Company from any additional liability to employees for whom said contributions were made. These contributions and contributions for compensation represent defined contribution plans.

|  | Year ended December 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Expenses in respect of defined contribution plans |  | $ | 106 |  |  | $ | 105 |  |  | $ | 115 |

NOTE 16:- | TAXES ON INCOME

| a. | Tax rates applicable to the Company:

The Israeli statutory corporate tax rate and real capital gains tax rate were 23% in 2024, 2023, and 2022.

| b. | Tax assessments:

The assessments of the Company are deemed final through the 2016 tax year.

| c. | Carryforward tax losses and other temporary differences:

The Company has accumulated tax losses since its inception.

As of December 31, 2024, the Company’s net carryforward tax losses are estimated to be approximately $62,000.

F-32

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 17:- | CONTINGENT LIABILITIES, COMMITMENTS, CLAIMS AND LIENS

| a. | License Agreement with Dekel Pharmaceuticals Ltd.:

In May 2015, the Company entered into an exclusive, irrevocable, worldwide license agreement with Dekel for certain technology and one granted U.S. patent related to compositions and methods for treating inflammatory disorders (the “Dekel License Agreement”). The Dekel License Agreement became effective in August 2015.

Pursuant to the Dekel License Agreement, the Company is obligated to pay Dekel fees based on specific milestones and royalties upon commercialization. The milestone payments include: (i) $25 upon the successful completion of preclinical trials (which milestone was met in November 2016; this milestone was paid in cash in March 2017); (ii) $75 upon the successful completion of a Phase I/IIa trial; and (iii) $75 upon the earlier of generating net revenues of at least $200 from the commercialization of the technology or the approval of the U.S. Food and Drug Administration or the European Medicines Agency, of a drug based on the licensed assets. In each case, and subject to the Company’s discretion, the respective milestone payments are payable in cash or equity based on a price per ordinary share of NIS 0.5. The royalty payments are 8% for commercialization and 35% pursuant to a sub-license of the licensed assets. The patent expiration dates of any patents maturing from this application would likely be 2029.

On July 14, 2019, an amendment to the Dekel License Agreement was signed (the “Amendment”), which encompasses the Company and Dekel’s original intention to exclude certain consumer packaged goods (meaning, inter alia, food, beverage, cosmetics, pet products and hemp based products, which are sources of nutrients or other substances which may have a nutritional effect) from the scope of the licensed products and the field of activity of the Company described in the Dekel License Agreement. The parties agreed to amend the Dekel License Agreement to reflect the foregoing clarification, as well as certain additional less material matters as discussed in the Amendment.

The Amendment also prescribes for a specific development plan under the Dekel License Agreement requiring the Company to invest in the licensed technology (as defined under the Dekel License Agreement) formulation development and maintenance a total annual investment to be capped at $350. The Amendment also included a non-compete and non-solicitation obligation by Dekel and Dr. Ascher Shmulewitz, the Company’s former Executive Chairman of the Board and former interim Chief Executive Officer, towards the Company’s field of activity.

On November 13, 2019, an additional milestone under the Dekel License Agreement, in the amount of $75, was reached upon the successful completion of a Phase IIa clinical trial. The Company paid the milestone amount on April 13, 2020.

On February 5, 2024, SciSparc received written notice from Dekel for the termination of the Dekel License Agreement, effective immediately, based on SciSparc allegedly breaching its material contractual obligations by allegedly failing to provide Dekel with certain reports regarding the licensed products under the Dekel License Agreement.

On February 16, 2025, the Dekel License Agreement was terminated, as part of a settlement of a lawsuit filed against SciSparc’s former directors, effective as of February 5, 2024. In accordance with the settlement, SciSparc retained its exclusive global rights to its intellectual property portfolio, patents, know-how and technologies and was released from all alleged commitments, claims and royalties related or arising out of the Dekel License Agreement, including those related to claimed core technologies, and Dekel assumed full and exclusive ownership of the patent application for compositions and methods for treating inflammatory disorders and all such underlying intellectual property.

F-33

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 17:- | CONTINGENT LIABILITIES, COMMITMENTS, CLAIMS AND LIENS (CONT.)

| b. | License Agreement with Yissum Research Development Company of the Hebrew University of Jerusalem Ltd. (“Yissum”):

On July 29, 2018, the Company entered into an exclusive, worldwide, sublicensable, royalty-bearing license with Yissum for a license to make commercial use of the licensed technology, in order to develop, obtain regulatory approvals, manufacture, market, distribute or sell products, all within the field and the territory only, as determined in the agreement (the “Yissum License Agreement”). According to the Yissum License Agreement, the Company shall pay Yissum royalties at the rates of future net sales, subject to the royalty reductions as described in the Yissum License Agreement. The Company is also obligated to pay sublicense fees out of the sublicense consideration. All rights, title and interest in and to the Yissum License Agreement shall vest solely in Yissum, and the Company shall hold and make use of the rights granted. All rights in the development results shall be solely owned by the Company, except to the extent that an employee of Yissum, including the researcher, is considered an inventor of a patentable invention arising from the development results, in which case such invention and all patent applications and/or patents claiming such invention shall be owned jointly by the Company and Yissum, as appropriate, and Yissum’s share in such joint patents shall be automatically included in the Yissum License Agreement.

| c. | Agreement with Hannover Medical School:

On April 11, 2017, the Company entered into an investigator-initiated study contract with Hannover Medical School (“MHH”) to conduct during 2018 a phase IIb clinical trial titled “A Randomized, Double-Blind, Placebo controlled study to Evaluate the Safety, Tolerability and Efficacy of Up to Twice Daily Oral SCI-110 in Treating Adults with Tourette Syndrome” in treating approximately 20 Tourette syndrome subjects aged 18 to 65. Upon the execution of the agreement the Company paid the first installment in the amount of $122 out of a total estimated amount of approximately $776. Due to regulatory and strategic reasons, the Company decided to change the study design from investigator-initiated to an industry sponsored trial. During October 2017, a discussion was carried out between the Company and MHH and the latter was informed about this change and a termination letter stating the above was sent to MHH on November 19, 2017. MHH has acknowledged that part of the first instalment that was paid by the Company, in accordance with the initial agreement, will be used to set-off amounts owed under a new agreement or will be paid back to the Company.

On August 13, 2018, the Company entered into an agreement with MHH to conduct a clinical study to evaluate the safety, tolerability and efficacy of daily oral SCI-110 in treating adults with Tourette syndrome, which agreement was subsequently updated on December 2, 2021, in an estimated amount of $1,385.

| d. | Agreement with Yale University: On July 27, 2022, the Company entered into an agreement with Yale University to conduct a clinical investigation and laboratory services for a randomized, double-blind, placebo-controlled, cross over study to evaluate the safety, tolerability and efficacy of daily oral SCI-110 in treating adults with Tourette syndrome in treating approximately 10 Tourette syndrome subjects aged 18 to 65. The total estimated amount of the agreement is approximately $370.

F-34

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 17:- | CONTINGENT LIABILITIES, COMMITMENTS, CLAIMS AND LIENS (CONT.)

| e. | On May 2, 2023, Capital Point Ltd. (“Capital Point”) filed with the Tel Aviv-Jaffa District Court (the “Court”) a suit against the Company, case number 2050-05-23 (the “Suit”). The Suit names the Company as the sole defendant and includes allegations of breaches of contract by the Company under the Israeli Contracts Law, 1973, unjust enrichment under the Israeli Unjust Enrichment Law, 1979 and breaches of the Company under the Israeli Torts Ordinance, 1968. The Suit challenges a certain warrant issued by the Company to Capital Point (the “Capital Point Warrant”) to purchase $340 of ordinary shares of the Company (the “Warrant Shares”). The Capital Point Warrant was exercisable for 12 months from May 15, 2021, to May 15, 2022 and was issued in connection with the joint venture transaction, entered on May 15, 2020, by and between the Company, Capital Point and Evero Health Ltd., a majority owned subsidiary of the Company, as further described in the Company’s Report on Form 6-K, filed on May 19, 2020. The Suit claims that the Company unlawfully refused to accept the Capital Point Warrant exercise notice as of November 4, 2021 and accordingly the Company did not issue to Capital Point the Warrant Shares. The Suit claims damages in the amount of NIS 10,000,000 (approximately $2.75 million), which accounts for, as of the date of the filing of the Suit, the agreed compensation according to Section 2(d)(i) of the Capital Point Warrant, an injunction order for the Company to issue the Warrant Shares to Capital Point, return of any unlawful profits received by the Company and punitive damages. As of December 31, 2024, in connection with the aforementioned litigation, the shares of Evero Health Ltd. held by Capital Point are dormant and were forfeited by Evero Health Ltd. As of the Approval Date, the Company cannot predict the likelihood of success of the Suit.

NOTE 18:- | EQUITY

| a. | Composition of share capital:

|  | December 31, 2024 |  |  | December 31, 2023 |
|  | Authorized |  |  | Issued and outstanding |  |  | Authorized |  |  | Issued and outstanding |
|  | Number of shares |
Ordinary shares |  |  | 75,000,000 |  |  |  | 10,828,251 |  |  |  | 75,000,000 |  |  |  | 706,683 |

F-35

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 18:- | EQUITY (CONT.)

| a. | Composition of share capital: (Cont.)

Reverse Share Splits

On September 15, 2022, the Company convened an annual general meeting of its shareholders, whereby the shareholders approved to increase the Company’s share capital to 75,000,000 ordinary shares with no par value.

On August 18, 2023, the Company convened a general meeting of its shareholders, whereby the shareholders approved, inter alia, a reverse split of the Company’s share capital up to a ratio of 30:1 (the “Third Reverse Split”). Following the implementation of the Third Reverse Split, the Company’s authorized share capital was adjusted under the Company’s Articles, which as of the date hereof consists of 75,000,000 ordinary shares, no par value.

On September 14, 2023, the Company’s Board resolved that the final ratio for the Third Reverse Split will be 26:1, which became effective on September 28, 2023.

Consequently, all share numbers, share prices, and exercise prices have been retroactively adjusted in these consolidated financial statements for all periods presented.

| b. | Changes in share capital:

Issued and outstanding share capital:

|  | Number of ordinary shares |
Balance at January 1, 2024 |  |  | 706,683 |
Issuance of share capital – in respect of exercise of October 2023 pre-funded warrants (Note 18h |  |  | 3,677,311 |
Share issued to consultants (Note 18(e), and Note 19 (a) (3) |  |  | 646,179 |
Issuance of share capital – in respect of January 2024 SEPA (Note 18(i)) |  |  | 5,798,078 |
Balance at December 31, 2024 |  |  | 10,828,251 |

F-36

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 18:- | EQUITY (CONT.)

| c. | Rights attached to shares:

Voting rights at the shareholders meeting, right to dividends, rights upon liquidation of the Company and right to nominate the directors in the Company.

| d. | Capital management in the Company:

The Company’s capital management objectives are to preserve the Company’s ability to ensure business continuity thereby creating a return for the shareholders, investors and other interested parties. The Company is not under any minimal equity requirements nor is it required to attain a certain level of capital return.

| e. | Additional issuances of ordinary shares:

On August 2, 2022, the Company issued a consultant 923 ordinary shares in respect of services rendered.

On November 1, 2022, the Company issued a consultant 1,423 ordinary shares in respect of services rendered.

On March 22, 2023, the Company issued 13,858 ordinary shares in respect of the stock purchase agreement entered into by and among Jeffs’ Brands and Jeffs’ Brands Holdings Inc. (“NewCo”) (see also Note 25a).

During the year ended December 31, 2024, the Company issued 646,179 ordinary shares to consultants in respect of services rendered in the amount of $105

| f. | June 2022 Financing Round

On June 1, 2022, the Company completed a private offering with an investor for gross proceeds of $10,210 (the “June 2022 Financing Round”), providing for the issuance of an aggregate of 136,388 units and pre-funded units, as follows: (a) 12,885 units at a price of $74.88 per unit, each consisting of (i) one ordinary share of the Company, and (ii) two warrants each to purchase one ordinary share (the “June 2022 Warrants”), and (b) 123,504 pre-funded units at a price of $73.29 per unit, each consisting of (i) one pre-funded warrant to purchase one ordinary share and (ii) two June 2022 Warrants.

The June 2022 Warrants have an exercise price of $68.38 per ordinary share. The June 2022 Warrants were exercisable upon issuance and will expire seven years from the date of issuance.

F-37

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 18:- | EQUITY (CONT.)

| f. | June 2022 Financing Round (Cont.)

General Overview of Valuation Approaches used in the Valuation:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Economic methodology:

The June 2022 Warrants’ fair value was calculated using the Black–Scholes option pricing model, which takes into account the parameters as disclosed below for each period valuated, in which a valuation was performed at (i) the issuance date, and (ii) each reporting date with the following assumptions:

|  | December 31, 2024 |  |  | December 31, 2023 |
Dividend yield (%) |  |  | 0 |  |  |  | 0 |
Expected volatility (%) |  |  | 72 |  |  |  | 72 |
Risk-free interest rate (%) |  |  | 4.38 |  |  |  | 3.872 |
Underlying share price ($) |  |  | 0.36 |  |  |  | 4.88 |
Exercise price ($) |  |  | 68.38 |  |  |  | 68.38 |
Warrants fair value ($) |  |  | - | (*) |  |  | 192 |

| (*) | Less than $1 thousand

During the year ended December 31, 2022, the Company issued 123,504 ordinary shares in respect of the exercise of 123,504 pre-funded warrants.

| g. | August 2023 Financing Round

On August 14, 2023, the Company closed an underwritten public offering (the “2023 Public Offering”) of 212,500 ordinary shares, at a purchase price of $5.20 per ordinary share and pre-funded warrants to purchase up to 37,500 ordinary shares at a purchase price of $5.174 per pre-funded warrant, for aggregate gross proceeds of approximately $1,300, pursuant to an underwriting agreement between the Company and Aegis Capital Corp (“Aegis”), the underwriter in the 2023 Public Offering, dated August 10, 2023. Pursuant to the terms of the underwriting agreement, the Company also granted the underwriter a 45-day option to purchase up to an additional 37,500 ordinary shares solely to cover over-allotments, if any, at the share price of the 2023 Public Offering less underwriting discounts and commissions.

| h. | October 2023 Financing Round

On October 13, 2023, the Company announced the closing of a private placement with an institutional investor with gross cash proceeds to the Company of approximately $5,026, before deducting fees to the placement agent and other offering expenses payable by the Company.

In connection with the private placement, the Company issued an aggregate of 1,930,108 units, each unit consisting of two pre-funded warrants (the “Pre-Funded Warrants”). The Pre-Funded Warrants have an exercise price of $0.001, are immediately exercisable upon issuance and have a term of five years from the date of issuance.

During the year ended December 31, 2024, the Company issued 3,677,311 ordinary shares in respect of the exercise of 3,677,311 Pre-Funded Warrants.

F-38

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 18:- | EQUITY (CONT.)

| j. | January 2024 Standby Equity Purchase Agreement

On January 21, 2024, the Company entered into a Standby Equity Purchase Agreement (“SEPA”), as amended on February 26, 2024, with YA II PN, LTD (“YA”), which provided for the sale of up to $20,000 of the Company’s ordinary shares (the “Advance Shares”). As of December 31, 2024, of the $20,000 eligible to be sold pursuant to the SEPA (the “Commitment Amount”), the Company has sold 5,742,785 ordinary shares for total proceeds of $6,255. The Advance Shares to be purchased or purchased by YA pursuant to the SEPA are for a share price of 97% of the market price, which is defined as the lowest daily volume weighted average price of the Company’s ordinary shares during the three consecutive trading days commencing on the trading day immediately following the delivery of an advance notice to YA.

In connection with the SEPA, the Company may request pre-paid advances of the Commitment Amount, in an amount up to $5,000 (each a “Pre-Paid Advance”). Each Pre-Paid Advance will be evidenced by a promissory note (each a “Promissory Note”). Each Promissory Note will fully mature 24 months following its issuance and shall accrue interest on the outstanding principal balance thereon at a rate of 5% per annum, increasing to 18% per annum upon an Event of Default (as defined in the Promissory Note). Beginning 150 days after the issuance of a Promissory Note, the Company shall pay to YA a monthly installment payment of 10% of the original principal amount of the Promissory Note and accrued interest, payable in cash or by submitting an advance notice, where YA will offset the amount due to be paid to the Company under such notice against an equal amount of the monthly installment amount, at the Company’s option. If the Company elects to pay in cash, the installment amount shall also include a payment premium in the amount of 5% of the principal amount of the installment payment. The Promissory Note contains the Company’s customary representations and warranties and events of default.

In addition, pursuant to the SEPA, the Company issued to YA an aggregate of 55,293 of its Ordinary Shares, or the Commitment Shares, in satisfaction of payment of the commitment fee of $200.

YA will pay all brokerage fees and commissions and similar expenses in connection with the offer and sale of Ordinary Shares by YA pursuant to the SEPA. The Company will pay the expenses (except brokerage fees and commissions and similar expenses) incurred and register pursuant to the Securities Act of 1933, as amended, the offer and sale of the Ordinary Shares pursuant to the SEPA by YA.

NOTE 19:- | SHARE-BASED PAYMENT TRANSACTIONS

| a. | The cost of share-based payment recognized in the financial statements:

The expenses due to share-based compensation for the years ended December 31, 2024, 2023 and 2022, recognized in the financial statements in respect of the share option plan of the Company is shown in the following table, detailed by departments:

|  | Year ended December 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Research and development expenses |  | $ | 45 |  |  | $ | 34 |  |  | $ | 264 |
General and administrative expenses |  |  | 524 |  |  |  | 162 |  |  |  | 633 |
|  | $ | 569 |  |  | $ | 196 |  |  | $ | 897 |

F-39

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 19:- | SHARE-BASED PAYMENT TRANSACTIONS (CONT.)

| a. | The cost of share-based payment recognized in the financial statements: (Cont.)

| 1. | The 2005 and 2015 ESOP and 2023 Plan of the Company:

On December 28, 2023, the Board adopted an additional new plan, the 2023 Share Incentive Plan (the “2023 Plan”).

The Company no longer grants any awards under the 2015 ESOP as it was superseded by the 2023 Plan, although previously granted awards under the 2015 ESOP remain outstanding and subject to the 2015 ESOP. Under the 2023 Plan, the Company may grant its employees and other service providers equity-based incentive awards (“Share Options”).

On December 28, 2023, the Board approved to reserve for issuance under the 2023 Plan 1,000,0000 Ordinary Shares.

| 2. | On January 3, 2022 (the “2022 Grant Date”), the Board approved the grant of 6,851 Share Options under the 2015 ESOP to directors, officers, employees and consultants, some of which required the approval of the general meeting of the Company’s shareholders (the “2022 General Meeting”), which occurred on February 10, 2022. The date of commencement for all Share Options granted, the date on which the vesting started, was the 2022 Grant Date. The exercise price was set at $169 per Share Option.

The fair value for Share Options granted to the consultant was estimated using the Black-Scholes OPM with the following parameters:

|  | February 10, 2022 |  |  | January 3, 2022 |
Underlying ordinary share price |  |  | 129.74 |  |  |  | 174.98 |
Dividend yield (%) |  |  | 0 |  |  |  | 0 |
Expected volatility (%) |  |  | 133 |  |  |  | 134 |
Risk-free interest rate (%) |  |  | 2.00 |  |  |  | 1.46 |
Expected life of Share Options (years) |  |  | 6 |  |  |  | 6 |

The fair value of the Share Options granted on January 3, 2022, was set at $158.34 per Share Option, and the fair value of the Share Options granted on February 10, 2022, was set at $114.66 per Share Option. The Share Option vesting period was set to commence retroactively from April 21, 2021, and end at April 21, 2024.

During the year ended December 31, 2024, share-based compensation in respect of Share Options of $7 was charged to the consolidated statements of comprehensive loss.

| 3. | During the year ended December 31, 2024, the Company issued consultants 646,179 ordinary shares in respect of services rendered. The shares were granted at a discount rate of 25% to the share price quoted on the date of each grant. The total fair value of the ordinary shares granted to consultants was $105.

F-40

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 19:- | SHARE-BASED PAYMENT TRANSACTIONS (CONT.)

| b. | Movement during the year:

| 1. | The following table lists the number of Share Options, the weighted average exercise prices of Share Options and changes in directors (and former directors), officers, employees and consultants Share Options during the years ended on December 31, 2024, and 2023:

|  | Number of Share Options |  |  | Weighted average exercise price |
|  |  |  |  | USD |
2024: |  |  |  |  |  |
Share Options outstanding at the beginning of the year |  |  | 7,013 |  |  |  | 166.28 |
Share Options outstanding at the end of the year |  |  | 6,802 |  |  |  | 350.23 |
Share Options exercisable at the end of the year |  |  | 6,802 |  |  |  | 350.23 |
2023: |  |  |  |  |  |  |  |
Share Options outstanding at the beginning of the year |  |  | 7,060 |  |  |  | 166.14 |
Share Options cancelled during the year |  |  | (47 | ) |  |  | 144.55 |
Share Options outstanding at the end of the year |  |  | 7,013 |  |  |  | 166.28 |
Share Options exercisable at the end of the year |  |  | 5,869 |  |  |  | 165.58 |

| 2. | The weighted average remaining contractual life of the Share Options outstanding was 2.99 years and 4.03 years as of December 31, 2024, and 2023, respectively.

| 3. | The range of exercise prices of Share Options outstanding at the end of the year was $169 - $21,179 (inclusive) as of December 31, 2024, and 2023, respectively.

F-41

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 19:- | SHARE-BASED PAYMENT TRANSACTIONS (CONT.)

| c. | Restricted Share Units:

| 1 | On June 20, 2024, the Company granted 530,000 Restricted Share Units (“RSUs”) to directors and officers, pursuant to the Company’s RSU Plan. The RSUs will vest at each recipient’s discretion and taking into account personal tax implications and convert into 530,000 ordinary shares of the Company. The RSUs vest on a quarterly basis over a period of two years, commencing on June 20, 2024. The fair value of the RSUs was established using the quoted share price of the Company on June 20, 2024, which was $0.893.

| 2 | On August 8, 2024, the Company granted 530,000RSUs to directors and officers, pursuant to the Company’s RSU Plan. The RSUs will vest at each recipient’s discretion and taking into account personal tax implications and convert into 530,000 ordinary shares of the Company. The RSUs vest on a quarterly basis over a period of two years, commencing on June 20, 2024. The fair value of the RSUs was established using the quoted share price of the Company on August 8, 2024, which was $0.316.

RSU transactions for the year ended December 31, 2024, and for the year ended December 31, 2023, are as follows:

|  | Number |
Balance, January 1, 2024 |  |  | - |
RSUs granted |  |  | 1,060,000 |
Expiry of RSUs |  |  | - |
Exercise of RSUs |  |  | - |
Balance, December 31, 2024 |  |  | 1,060,000 |

Total exercisable RSUs as of December 31, 2024, are 265,000. During the year ended December 31, 2024, share-based compensation in respect of RSUs of $456 was charged to the Consolidated Statements of Comprehensive Loss.

F-42

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 20:- | REVENUES AND COST OF REVENUES

The Company’s Brand sells products directly to customers mainly through the Brand’s online Amazon stores.

Under the Company’s standard contract terms, customers have a right of return within 30 to 90 days. For contracts with rights of return, the Company recognizes revenue based on the amount of the consideration which the Company expects to receive for products which it is highly probable that a significant revenue reversal will not subsequently occur. The Company recognizes a refund liability for consideration received or receivable if it expects to refund some or all of the consideration to the customer. At the end of each reporting period, the Company updates its estimates of expected product returns and adjusts the refund liabilities with a corresponding adjustment in revenues. As of December 31, 2024, the allowance for returns was immaterial. The refund liability is recorded as a decrease in revenues against other payables. A right of return asset and corresponding adjustment to cost of sales is also recognized for the right to recover the goods from the customer.

In certain contracts, the Company evaluates the nature of its promise to the customer and determines whether it is a principal or agent for each contract. In determining the nature of its promise to the customer, the Company evaluates whether it is appropriate to recognize revenues on a gross or net basis based upon its evaluation of whether the Company obtains control of the specified goods by considering if it is primarily responsible for fulfillment of the promise, has inventory risk, and has the latitude in establishing pricing and selecting suppliers, among other factors. Based on its evaluation of these factors, management has determined that it is the principal in these arrangements; therefore, sales are recorded on a gross basis.

The following table discloses the breakdown of our revenues, cost of sales and gross profit for the periods set forth below:

|  | Year ended December 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Cost of goods sold |  |  |  |  |  |  |  |  |
Purchased goods |  | $ | 798 |  |  | $ | 672 |  |  | $ | 301 |
Freight |  |  | 2 |  |  |  | 11 |  |  |  | 21 |
|  |  | 800 |  |  |  | 683 |  |  |  | 322 |

F-43

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 21:- | ADDITIONAL INFORMATION TO THE ITEMS OF PROFIT OR LOSS

|  |  | Year ended December 31, |
|  |  | 2024 |  |  | 2023 |  |  | 2022 |
a. | Research and development expenses: |  |  |  |  |  |  |  |  |
| Wages and related expenses |  | $ | 390 |  |  | $ | 392 |  |  | $ | 436 |
| Share-based payment |  |  | 45 |  |  |  | 34 |  |  |  | 264 |
| Regulatory, professional and other expenses |  |  | 681 |  |  |  | 719 |  |  |  | 750 |
| Research and preclinical studies |  |  | 211 |  |  |  | 101 |  |  |  | 703 |
| Clinical studies |  |  | 276 |  |  |  | 254 |  |  |  | 369 |
| Chemistry and formulations |  |  | 104 |  |  |  | 141 |  |  |  | 281 |
|  |  |  | 1,707 |  |  |  | 1,641 |  |  |  | 2,803 |
b. | Sales and marketing expenses: |  |  |  |  |  |  |  |  |  |  |  |
| Advertising |  | $ | 367 |  |  | $ | 576 |  |  | $ | 363 |
| Amazon fees |  |  | 495 |  |  |  | 1,042 | * |  |  | 454 | *
| Depreciation |  |  | 366 |  |  |  | 486 |  |  |  | 144 |
| Storage and shipping |  |  | 167 |  |  |  | 145 | * |  |  | 91 | *
| Management fees |  |  | 120 |  |  |  | 235 |  |  |  | 30 |
|  |  |  | 1,515 |  |  |  | 2,484 |  |  |  | 1,082 |
c. | General and administrative expenses: |  |  |  |  |  |  |  |  |  |  |  |
| Wages and related expenses |  |  | 507 |  |  |  | 415 |  |  |  | 437 |
| Share-based payment |  |  | 419 |  |  |  | 68 |  |  |  | 633 |
| Professional and directors’ fees |  |  | 3,009 |  |  |  | 2,594 |  |  |  | 2,468 |
| Business development expenses |  |  | 108 |  |  |  | 86 |  |  |  | 161 |
| Regulatory expenses |  |  | 158 |  |  |  | 202 |  |  |  | 162 |
| Office maintenance, rent and other expenses |  |  | 128 |  |  |  | 110 |  |  |  | 80 |
| Investor relations and business expenses |  |  | 197 |  |  |  | 369 |  |  |  | 1,486 |
|  |  |  | 4,526 |  |  |  | 3,844 | * |  |  | 5,427 |
d. | Other expenses (income): |  |  |  |  |  |  |  |  |  |  |  |
| Loss from sale of property and equipment |  |  | 17 |  |  |  | - |  |  |  | - |
| Gain on sale of patent license, net (net of Polyrizon Ltd. holdings sold) (See also Note 25b) |  |  | (1,287 | ) |  |  | - |  |  |  | - |
|  |  |  | (1,270 | ) |  |  | - |  |  |  | - |
e. | Finance income: |  |  |  |  |  |  |  |  |  |  |  |
| Net change in fair value of financial liabilities designated at fair value through profit or loss |  |  | (191 | ) |  |  | (2,205 | ) |  |  | (7,832 | )
| Interest from loans to related parties and deposits |  |  | (421 | ) |  |  | - |  |  |  | - |
| Exchange rate differences, net |  |  | - |  |  |  | (14 | ) |  |  | - |
|  |  |  | (612 | ) |  |  | (2,219 | ) |  |  | (7,832 | )
f. | Finance expenses: |  |  |  |  |  |  |  |  |  |  |  |
| Issuance expenses related to warrants |  |  | - |  |  |  | - |  |  |  | 1,204 |
| Exchange rate differences, net |  |  | 18 |  |  |  | - |  |  |  | 4 |
| Losses from remeasurement of investment in financial assets |  |  | 305 |  |  |  | 1,046 |  |  |  | 770 |
| Finance expense in respect of leases |  |  | 8 |  |  |  | 9 |  |  |  | 15 |
| Finance expenses from interest and commissions |  |  | 22 |  |  |  | - |  |  |  | 21 |
|  |  | $ | 353 |  |  | $ | 1,055 |  |  | $ | 2,014 |

| (*) | Reclassified

F-44

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 22:- | LOSS PER SHARE

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

|  | Year ended December 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Amounts used in the computation of basic and diluted loss |  | Weighted number of shares |  |  | Loss |  |  | Weighted number of shares |  |  | Loss |  |  | Weighted number of shares |  |  | Loss |
|  |  |  |  | USD |  |  |  |  |  | USD |  |  |  |  |  | USD |
Continuing operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic loss per share |  |  | 5,824,972 |  |  |  | (7,472 | ) |  |  | 407,681 |  |  |  | (5,883 | ) |  |  | 175,953 |  |  | $ | (2,592 | )
Effect of potential dilutive ordinary shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Diluted loss per share |  |  | 5,824,972 |  |  |  | (7,472 | ) |  |  | 407,681 |  |  |  | (5,883 | ) |  |  | 175,953 |  |  |  | (2,592 | )

| b. | The computation of diluted loss per share did not include the following convertible securities since their inclusion would decrease the loss per share (anti-dilutive effect):

| 1. | Share Options to employees, officers, directors and consultants; and

| 2. | Non-marketable warrants to investors.

F-45

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 23:- | OPERATING SEGMENTS

The Company applies the principles of IFRS 8, “Operating Segments” (“IFRS 8”), regarding operating segments. The segment reporting is based on internal management reports of the Company’s management, which are regularly reviewed by the Chief Operating Decision Maker (“CODM”) to make decisions about resources to be allocated and assess performance. According to the principles of IFRS 8, the Company’s management determined that it has two reportable segments – (1) development of drugs based on cannabinoid molecules to be approved by an official regulatory authority (the Company’s operation); and (2) online sales of a various range of hemp-based products including hemp gummies, hemp oil capsules, hemp gel, hemp cream, detox pills, height pills, antibacterial creams, and anti-aging creams, among other beauty and hair treatment products that are all manufactured in the United States.

Segment performance (segment income (loss)) is evaluated based on operating income (loss) in the financial statements. The segment results reported to the CODM include items that are allocated directly to the segments and items that can be allocated on a reasonable basis.

The review of the CODM is carried out according to the results of the segment’s performance. His review does not include certain expenses that are not related specifically to the activity of each of the segments. Those expenses are presented as reconciliation between segments operating results to total operating results in financial statements.

The Group’s CODM is the CEO of the Company.

|  | Year ended December 31, 2024 |
|  | Drug Development |  |  | Online Sales |  |  | Total |
Revenues |  |  |  |  |  |  |  |  |
External |  | $ | - |  |  | $ | 1,306 |  |  | $ | 1,306 |
Total |  |  | - |  |  |  | 1,306 |  |  |  | 1,306 |
Segment loss (gain) |  |  | 4,873 |  |  |  | 2,443 |  |  |  | 7,316 |
Equity losses from the investment in MitoCareX |  |  |  |  |  |  |  |  |  |  | 429 |
Finance expense (income), net |  |  |  |  |  |  |  |  |  |  | (259 | )
Tax income |  |  |  |  |  |  |  |  |  |  | (14 | )
Loss |  |  |  |  |  |  |  |  |  |  | 7,472 |

|  | Year ended December 31, 2023 |
|  | Drug Development |  |  | Online Sales |  |  | Total |
Revenues |  |  |  |  |  |  |  |  |
External |  | $ | - |  |  | $ | 2,879 |  |  | $ | 2,879 |
Total |  |  | - |  |  |  | 2,879 |  |  |  | 2,879 |
Segment loss (gain) |  |  | 5,359 |  |  |  | 1,456 |  |  |  | 6,815 |
Company’s share of losses of company accounted for at equity, net |  |  |  |  |  |  |  |  |  |  | 210 |
Finance expense (income), net |  |  |  |  |  |  |  |  |  |  | (1,164 | )
Tax expense |  |  |  |  |  |  |  |  |  |  | 22 |
Loss |  |  |  |  |  |  |  |  |  |  | 5,883 |

Drug Development Segment

In the year ended December 31, 2024, the Company recognized other income in the amount of $1,288 as a result of a sale of an intangible asset.

Online Sales Segment

In the years ended December 31, 2023, and 2024, the Brand recorded significant losses. As of December 31, 2024, the Company has determined there are signs of decline in the value of the Brand and recognized a loss as a result of impairment to its intangible asset of $1,344 (as of December 31, 2023 - $1,042).

F-46

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 23:- | OPERATING SEGMENTS (CONT.)

|  | Year ended December 31, 2022 |
|  | Drug Development |  |  | Online Sales |  |  | Total |
Revenues |  |  |  |  |  |  |  |  |
External |  | $ | - |  |  | $ | 1,347 |  |  | $ | 1,347 |
Total |  |  | - |  |  |  | 1,347 |  |  |  | 1,347 |
Segment loss |  |  | 8,405 |  |  |  | (118 | ) |  |  | 8,287 |
Company’s share of losses of company accounted for at equity, net |  |  |  |  |  |  |  |  |  |  | 109 |
Finance expense (income), net |  |  |  |  |  |  |  |  |  |  | (5,818 | )
Tax expense |  |  |  |  |  |  |  |  |  |  | 14 |
Loss |  |  |  |  |  |  |  |  |  |  | 2,592 |

|  | As of December 31, 2024 |
|  | Drug Development |  |  | Online Sales |  |  | Total |
Segment Assets |  | $ | 8,407 |  |  | $ | 1,764 |  |  | $ | 10,171 |
Segment Liabilities |  | $ | 1,194 |  |  | $ | 226 |  |  | $ | 1,420 |

|  | As of December 31, 2023 |
|  | Drug Development |  |  | Online Sales |  |  | Total |
Segment Assets |  | $ | 7,069 |  |  | $ | 4,113 |  |  | $ | 11,182 |
Segment Liabilities |  | $ | 1,441 |  |  | $ | 154 |  |  | $ | 1,595 |

F-47

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 24:- | TRANSACTIONS AND BALANCES WITH RELATED PARTIES

| a. | Balances with related parties:

|  | December 31, 2024 |  |  | December 31, 2023 |
|  | Key management personnel |  |  | Other related parties |  |  | Key management personnel |  |  | Other related parties |
Current assets |  | $ | - |  |  | $ | 15 |  |  | $ | - |  |  | $ | 121 |
Current assets |  | $ | - |  |  | $ | 4,224 |  |  | $ | - |  |  | $ | - |
Non-current assets |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 108 |
Current liabilities |  | $ | 55 |  |  | $ | 245 |  |  | $ | 95 |  |  | $ | - |

| b. | Transactions with related parties (not including amounts described in Note 24c):

|  | Year ended December 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Research and development expenses |  | $ | 63 |  |  | $ | 40 |  |  | $ | 208 |
Sale of minority interest in subsidiary |  | $ | - |  |  | $ | 2,985 |  |  | $ | - |

| c. | Benefits to key management personnel (including directors):

|  | Year ended December 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Short-term benefits |  | $ | 765 |  |  | $ | 1,204 |  |  | $ | 1,940 |
Management fees (see also note 25a) |  | $ | 120 |  |  | $ | 220 |  |  | $ | - |
Cost of share-based payment |  | $ | 157 |  |  | $ | 84 |  |  | $ | 779 |

| d. | On February 23, 2023, the Company entered into an agreement with Jeffs’ Brands and Jeffs’ Brands Holdings Inc. (“NewCo Inc.”), a newly-formed wholly owned subsidiary of Jeffs’ Brands, pursuant to which, at the closing and upon the terms and conditions set forth in the Agreement, NewCo Inc. acquired from the Company a number of shares of stock equal to approximately a 49% interest in the Company’s wholly owned subsidiary, SciSparc US which owns Wellution, for $2,500 in cash, and additional deferred cash payments of approximately $489 accounting for price adjustments related to inventory and working capital, which was paid in five equal monthly installments beginning in May 2023 (the “Price Adjustment”). As collateral for the payment in full of the Price Adjustment, SciSparc held back such number of shares of common stock of SciSparc US, equal to the outstanding due amount of the Price Adjustment (the “Holdback Shares”). Following the closing of the transaction on March 22, 2023, which included an equity conversion of financing amounts previously provided to SciSparc US. by the Company for working capital, and the release of the Holdback Shares on January 31, 2024, upon the payment in full of the Price Adjustment by Jeffs’ Brands, the Company holds approximately 51% of the share capital of SciSparc US. Pursuant to the agreement, at the closing of the transaction, Jeffs’ Brands and SciSparc US. entered into a consulting agreement, pursuant to which Jeffs’ Brands provides management services to SciSparc US for the Wellution brand for a monthly fee of $20 and Jeffs’ Brands received a one-time signing bonus in the amount of $51. The consulting agreement is for an undefined period of time and may be terminated by either party with 30 days advance notice. On November 2023 the monthly fee reduced to $10 thousand. For the year ended December 31, 2024, the Company has recorded management services expenses in the amount of $120 (for the year ended December 31, 2023 - $220).

F-48

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 24:- | TRANSACTIONS AND BALANCES WITH RELATED PARTIES (CONT.)

|  | In addition, in connection with the closing of the transaction, the Company and Jeffs’ Brands, engaged in a mutual share exchange in the amount of $288 of ordinary shares from each of the Company and Jeffs’ Brands. The number of shares in the share exchange was calculated based on the average closing price of the relevant company’s shares for 30 consecutive trading days ending on the third trading day immediately prior to the closing. Accordingly, the Company acquired 35,345 ordinary shares of Jeffs’ Brands and Jeffs’ Brands acquired 13,858 ordinary shares of the Company having an aggregate value of $288 which was adjusted from $300 according to the 4.99% ownership limit included in the definitive agreements. As of December 31, 2024, the listed share price of Jeff’s Brands on Nasdaq was $ 2.57, and the Company has recorded a loss in its statements of comprehensive loss of $17 on its investment (for the year ended December 31, 2023 -$180). Mr. Oz Adler, the Company’s Chief Executive Officer and Chief Financial Officer, is the chairman of the board of directors of Jeffs’ Brands.
| e. | On March 7, 2022, the Company entered into the Cooperation Agreement with Clearmind, a company in which Dr. Adi Zuloff-Shani, the Company’s Chief Technologies Officer, Mr. Weiss, the Company’s President, and Mr. Adler, the Company’s Chief Executive Officer and Chief Financial Officer serve as officers and directors (the “Cooperation Agreement”). During the years ended December 31, 2024 and 2023, the Company recognized expenses in respect of the Cooperation Agreement in the amount of $63 and $40, respectively. On November 17, 2022, the Company invested $1.5 million in Clearmind in connection with its initial public offering on the Nasdaq Capital Market, in exchange for 7,692 common shares of Clearmind, representing 9.33% of the outstanding share capital of Clearmind (see also Note 8).

| f. | Mr. Amitai Weiss, the Company’s chairman of the Board, is the chairman of the board of directors of AutoMax (see Note 8b).

| g. | On August 13, 2024, the Company entered into the license agreement (the “License Agreement”) of the out-licensing of its SCI-160 program (the “Assets”), with Polyrizon Ltd. (the “Licensee” or “Polyrizon”). According to the License Agreement, the Company granted the Licensee a royalty-bearing, exclusive, sub-licensable right and license to the Assets (the “License”). In consideration for the License, the Company received and will receive certain shares of the Licensee, reflecting an issue price of $805, and royalties from sales related to and income generated from the Assets. Further, the Licensee will pay the Company pre-determined fees upon the completion of certain development milestones relating to the Assets. Pursuant to the terms of the License Agreement, the Company is entitled to up to $3,320 based on the achievement of certain milestones, including (i) $50 upon a successful preclinical safety test, (ii) $100 upon first patient enrolled in phase I clinical trial, (iii) $120 upon first patient enrolled in Phase 2a clinical trial, (iv) $150 upon first patient enrolled in Phase 2b clinical trial, (v) $500 upon first patient enrolled in Phase 3 clinical trials, (vi) $800 upon approval by the U.S. Food and Drug Administration, (vii) $800 upon approval by an EU regulatory body, and (viii) $800 upon regulatory approval in any additional jurisdiction. Additionally, the Company is eligible to receive royalties, on a country-by-country and product-by-product basis, at a rate of 5%, on aggregate net sales of a product that comprises, contains and/or incorporates and/or is based on the Licensed Patent Rights, or a Licensed Product (as these are defined in the License Agreement), and sublicense income that we may receive until the longer of (i) fifteen years from the date of the first sale of a Licensed Product (on a country-by-country basis), and (ii) the last to expire valid claim of any licensed patents with respect to a Licensed Product in such country. On October 31, 2024, following an initial public offering of the Licensee, the Company received 684,931 units, of which (i) 320,000 units, with each unit consisting of one ordinary share of the Licensee and three warrants, each to purchase one additional ordinary share of the Licensee at a purchase price of $4.38 (960,000 warrants in total); and (ii) 364,931 units consisting of one pre-funded warrant to purchase one ordinary share of the Licensee, and three warrants, each to purchase one additional ordinary share of the Licensee at a purchase price of $4.38 (1,094,793 warrants in total). Altogether, the Company received 320,000 ordinary shares, 364,931 pre-funded warrants to purchase one ordinary share of the Licensee, and 2,054,793 warrants to purchase one additional ordinary share of the Licensee at a purchase price of $4.38. On December 30, 2024, pursuant to a share transfer agreement, the Company sold all of the Licensee ordinary shares and pre-funded warrants held by it to a third party, as well as an aggregate of 1,541,096 Licensee common warrants to third parties, for aggregate consideration of $771. In addition, in consideration for the License, the Company will receive royalties from sales related to the Assets and income generated from it. As of December 31, 2024, the Company holds 513,698 warrants to purchase one additional ordinary share of the Licensee at a purchase price of $4.38. The warrants expire on October 31, 2029. The value of the warrants on December 31, 2024, is $517. Mr. Oz Adler, the Company’s Chief Executive Officer, is a director of the Licensee.

F-49

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 24:- | TRANSACTIONS AND BALANCES WITH RELATED PARTIES (CONT.)

General Overview of Valuation Approaches used in the Valuation:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Economic methodology:

The warrants’ fair value was calculated using the Black–Scholes OPM, which takes into account the parameters as disclosed below for each period valuated, in which a valuation was performed at (i) the issuance date, and (ii) each reporting date with the following assumptions:

|  | December 31, 2024 |  |  | October 31, 2024 |
Dividend yield (%) |  |  | 0 |  |  |  | 0 |
Expected volatility (%) |  |  | 72 |  |  |  | 72 |
Risk-free interest rate (%) |  |  | 2.17 |  |  |  | 4.15 |
Underlying Share Price of Polyrizon Ltd. ($) |  |  | 0.36 |  |  |  | 4.38 |
Exercise price ($) |  |  | 4.38 |  |  |  | 4.38 |
Warrants fair value ($) |  |  | 517 |  |  |  | 1,399 |

| h. | On April 10, 2024, the Company entered into an Agreement and plan of merger, as amended (the “Merger Agreement”) with AutoMax and SciSparc Merger Sub Ltd., an Israeli limited company and wholly-owned subsidiary of the Company (“Merger Sub”). Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, including approval of the transaction by the Company’s shareholders and AutoMax’s shareholders, Merger Sub will be merged with and into AutoMax, with AutoMax surviving the Merger as a wholly-owned subsidiary of the Company (the “Merger”). On August 14, 2024, SciSparc and AutoMax entered into the Merger Agreement addendum, pursuant to which the right to terminate the Merger Agreement if the Merger was not consummated by August 30, 2024, was deferred to November 30, 2024. On November 26, 2024, SciSparc and AutoMax entered into the Merger Agreement second addendum, pursuant to which the right to terminate the Merger Agreement if the Merger was not consummated by November 30, 2024, was deferred to March 31, 2025. On March 27, 2025, SciSparc and AutoMax entered into the Merger Agreement third addendum, pursuant to which the right to terminate the Merger Agreement if the Merger was not consummated by March 31, 2025, was deferred to September 30, 2025. At the effective time of the Merger (the “Effective Time”, as further defined in the Merger Agreement): (a) each outstanding share of AutoMax’s share capital will be converted into the right to receive ordinary shares of the Company, equal to the exchange ratio set forth in the Merger Agreement (the “Exchange Ratio”). Under the Exchange Ratio, following the Effective Time, the former AutoMax shareholders immediately before the Merger (other than the Company) are expected to hold together approximately 49.99% (minus the Finder Fee, as defined in the Merger Agreement) of the aggregate number of the outstanding ordinary shares of the Company on a fully diluted basis (subject to certain exceptions). The shareholders of the Company, together with the holders of the Company’s convertible securities, immediately before the Merger are expected to hold together approximately 50.01% of the aggregate number of the outstanding ordinary shares of the Company on fully diluted basis (subject to certain exceptions); (b) subject to the consummation of the Merger (as defined in the Merger Agreement, the “Closing”), and immediately after the Effective Time, AutoMax shall have the right to (i) designate two members to the Board if the Board is comprised of five or six directors; or (ii) designate three members if the Board is comprised of seven directors. At least one such designee shall be an independent director, as defined under the Nasdaq Stock Market listing rules. (See also Note 26b).

F-50

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 25:- | SIGNIFICANT EVENTS DURING THE REPORTING PERIOD

|  | On July 8, 2024, the Company announced that it signed a non-binding letter of intent with Miza III Ventures Inc. (“Miza”), a publicly traded company on the Toronto Stock Exchange Venture in Canada, which references a proposed asset and share purchase agreement, to spin off its advanced clinical stage pharmaceutical portfolio and its equity stake in SciSparc Nutraceuticals. (collectively, the “Target Assets”) The agreement is based on the approximate total $3,300 (CAD 4.5 million) enterprise value of Miza, when including its $1,000 cash position, and an approximate $11,600 (CAD 15.8 million) value of the Company’s assets. Pursuant to the LOI, the Company will sell, assign, convey and transfer to Miza the Target Assets in consideration for 63,300,000 common shares of Miza and up to 48,000,000 Miza contingent rights based on pre-determined milestones. Following the closing of such transaction, the Company would hold a controlling interest in Miza, the exact percentage of which is contingent on agreeing definitive terms between the parties. The resulting entity, of which SciSparc will hold a stake in the resulting entity ranging from a minimum of approximately 75% to a maximum of 84.53%, will be active in both the pharmaceutical and supplement sectors. On March 28, 2025, the Company entered into a second amendment (the “Miza Amendment”) to the non-binding letter of intent, as amended by the first amendment on December 16, 2024, with Miza. According to the Miza Amendment, the deadline to enter into definitive agreements was extended from March 31, 2025 to June 30, 2025, provided that such date may be further extended by mutual written agreement of the parties, and to close the proposed transaction by no later than July 31, 2025, which was extended from April 30, 2025.

F-51

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 26:- | EVENTS AFTER THE REPORTING DATE

| a. | On February 18, 2025, the Company announced that it has reached a settlement agreement (the “Settlement”) regarding a lawsuit it filed in February 2022 with the Economic Division of the Tel Aviv-Jaffa District Court against six of the Company’s former directors (the “Defendants”) case number 34426-02-22 (the “Suit”). The Suit included allegations of breaches of fiduciary duties of the Defendants under the Israeli Companies Law, 1999, relating to a prior acquisition of a pain clinic network through a subsidiary of the Company (See Note 17a). As part of the Settlement, which was facilitated through mediation and approved by the court, SciSparc will be entitled to a $411 cash payment from the Defendants, in exchange for the full dismissal by SciSparc of the alleged claims brought against the Defendants in the Suit. The Settlement also includes the termination, effective as of February 5, 2024 of a disputed licensing agreement with Dekel, entered into on May 21, 2015 and amended from time to time (the “License Agreement”). As part of the Settlement, Dekel clarified, to SciSparc’s full satisfaction, that SciSparc will retain its exclusive global rights to its extensive intellectual property portfolio, patents, know-how and technologies and is released from all alleged commitments, claims and royalties related or arising out of the License Agreement, including those related to claimed core technologies, ensuring a continued focus on SciSparc’s core development programs. Dekel will assume full and exclusive ownership of the patent application for compositions and methods for treating inflammatory disorders and all such underlying intellectual property, which are not related whatsoever to the Company’s pipeline and development program.

| b. | On February 24, 2025, the Company announced that it has entered into a loan agreement with AutoMax to provide a $2,000 loan (the “New Loan”). The funding will support AutoMax’s business expansion following its entry into the direct import of Anhui Jianghuai Automobile Group Corp., Ltd. electric vehicles. The New Loan is in addition to previous bridge loans in an aggregate amount of $4,250 (the “Previous Loans”). The Previous Loans were provided in lieu of SciSparc’s obligation to provide a $4,250 closing financing, in accordance with the merger agreement signed between the parties. On March 27, 2025, SciSparc and AutoMax entered into a third addendum to the Merger Agreement, pursuant to which the right to terminate the Merger Agreement if the Merger was not consummated by March 31, 2025, was deferred to September 30, 2025. The loan, bearing an 8% annual interest rate, will be repaid in equal monthly installments of $50 and interest, commencing on March 24, 2025,with AutoMax retaining the option for early repayment without penalties. The interest on the loan will be cancelled as of the consummation of the merger agreement, and thereafter AutoMax shall continue to make monthly payments towards the principal amount of the loan. As collateral, AutoMax has pledged a first-ranking fixed charge on its subsidiary’s shares.

| c. | On February 25, 2025, the Company entered into securities purchase agreements (the “Securities Purchase Agreements”) with certain investors, pursuant to which the Company agreed to sell and issue to the investors convertible debentures (the “Debentures”) in the aggregate principal amount of $4,200 (the “Subscription Amount”), which are convertible into the Company’s ordinary shares, no par value per share (the “Ordinary Shares” and, as converted, the “Conversion Shares”), at a purchase price equal to 95% of the Subscription Amount. The issuance and sale of the Debentures is subject to certain conditions and limitations. The Debentures, when issued, will mature on the one-year anniversary of the issuance date of the Debentures. Further, interest will accrue on the outstanding principal balance of the Debentures at an annual rate of 8%, which will increase to an annual rate of 18% upon an Event of Default (as defined in the Debentures) for so long as such Event of Default remains uncured. The investors will have the right to convert the Debentures into Ordinary Shares at the lower of (i) 110% of volume weighted average price of the Ordinary Shares the trading day immediately preceding the closing or (ii) 95% of the lowest daily volume weighted average price of the Ordinary Shares during the twenty (20) consecutive trading days immediately preceding the conversion date or other date of determination (the “Market Price”); provided that the Market Price may not be lower than the floor price, which will be equal to 20% of the volume weighted average price of the Ordinary Shares on the day prior to the closing. At the closing of the transaction, the Company issued to the investors 3,615,656 warrants which are exercisable into a number of Ordinary Shares equal to the Subscription Amount applicable to the investors divided by a price equal to 130% of the volume weighted average price of the Ordinary Shares immediately prior to the closing date, or $0.5532 per warrant. The warrants are exercisable for a term of five years from the issuance date.
| d. | On April 1, 2025, we entered into a securities purchase agreement with Polyrizon, pursuant to which we participated in a private placement of Polyrizon and invested $100,000 (out of an aggregate investment of approximately $17 million), in exchange for ordinary shares and Series A warrants to purchase ordinary shares, of Polyrizon. In addition, we entered into an exchange agreement with Polyrizon, pursuant to which we exchanged existing ordinary share warrants of Polyrizon held by us for Series A warrants to purchase ordinary shares of Polyrizon.

F-52

SCISPARC LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USD in thousands (except share data)

NOTE 26:- | EVENTS AFTER THE REPORTING DATE (CONT.)

|  | The Company entered into a global guaranty agreement (the “Global Guaranty Agreement”) with one of the investors (the “Investor”) through certain of the Company’s subsidiaries, pursuant to which such subsidiaries will guaranty the Company’s obligations under the Debenture with the Investor and other instruments, agreements or other items executed or delivered pursuant to the Global Guaranty Agreement. The Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Investor, pursuant to which the Company subsidiaries, pursuant to which the Company has agreed to provide to the Investor registration rights under the Securities Act of 1933, as amended (the “Act”) and the rules and regulations promulgated thereunder, and applicable state securities laws. In connection with the transaction, on February 25, 2025, the Company entered into a Deed of Assignment (the “Deed”) with AutoMax, and three of the investors. Pursuant to the Deed, the Company assigned part of the Subscription Amount in the amount of $2,000 to AutoMax in lieu of making the payment under the Loan Agreement (the “Loan Agreement”) to which the Company entered into with AutoMax on February 24, 2025.

| d. | On February 25, 2025, the Company announced it has signed a definitive agreement to sell its entire ownership interest in MitoCareX to N2Off, Inc., a publicly-traded company in the United States (Nasdaq: NITO) (“N2OFF”). The Company has entered into a Securities Purchase and Exchange Agreement with N2OFF, under which the Company and other sellers, including Dr. Alon Silberman and Prof. Ciro Leonardo Pierri, will transfer full ownership of MitoCareX to N2OFF. As part of the agreement, the Company will sell 4,961 shares of MitoCareX to N2OFF for $700 and exchange its remaining shares for common stock in N2OFF. In total, the Company and the other sellers will receive N2OFF common stock equivalent to 40% of the company’s fully diluted capital stock. The transaction is subject to certain conditions, including approval of N2OFF’s shareholders. Upon closing, MitoCareX will become a wholly owned subsidiary of N2OFF, with its board restructured under N2OFF’s control. In addition, the Company and the other sellers will be entitled to receive additional N2OFF stock based on milestone achievements, representing up to 25% of N2OFF’s fully diluted capital stock. As part of the financial terms, the Company, along with the other sellers, will collectively receive 30% of N2OFF’s financing proceeds over five years, up to a maximum of $1,600. N2OFF has also committed to investing $1,000 in MitoCareX post-closing. Dr. Silberman will continue as CEO of N2OFF under a revised employment agreement, which includes a restricted stock grant of 5% of N2OFF’s capital stock, vesting over three years. The agreement contains customary representations, warranties, and provisions for termination if the closing does not occur within 30 days. Mr. Amitay Weiss, who serves as the chairman of the Board, also serves as the chairman of the board of directors of N2OFF. In addition, Ms. Liat Sidi, who also serves as a member of the Board, also serves as a member of the board of directors of N2OFF.

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F-53

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