A. Operating Results The information contained in this section should be read in conjunction with our consolidated financial statements for the year ended December 31, 2025 and related notes and the information contained elsewhere in this annual report. Our financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) as set forth in the Financial Accounting Standards Board (the FASB) Accounting Standards Codification (ASC). Company Overview We are a biopharmaceutical company with two complementary business units: (i) Scinai R&D, focused on the development of innovative therapeutics in inflammation and immunology, and (ii) our contract development and manufacturing organization (CDMO) business, which operates through our subsidiary, Scinai Biopharma Services Ltd. Our R&D activities are centered around two pillars: ● PC111 Program – In 2025, we entered into an option agreement, as amended on September 11, 2025 and February 28, 2026, to acquire Pincell S.r.l., an Italian biotechnology company and the owner of PC111, a fully human monoclonal antibody targeting pathways involved in keratinocyte cell death and inflammation, with potential applications in severe dermatological conditions. ● NanoAbs Platform – We are developing a pipeline of novel therapeutics based on NanoAbs (VHH antibody fragments), which possess unique physicochemical properties and are suitable for advanced mono- and multi-specific antibody formats. Our NanoAbs activities are conducted in collaboration with the Max Planck Society (MPG), including the Max Planck Institute for Multidisciplinary Sciences (MPI-MS), and the University Medical Center Göttingen (UMG) in Germany. We continue to evaluate and in-license or acquire additional therapeutic assets aligned with our focus areas. In addition, we are currently evaluating the development strategy for our IL-17 program in light of scientific, technical and market considerations, including the evolving competitive landscape for IL-17-targeting therapies. As part of this process, we are assessing alternative approaches and prioritization of our R&D programs. Our CDMO business provides integrated development and manufacturing services to small and emerging biotech companies, supporting clients from early-stage development through clinical-stage production. Following our acquisition of Recipharm Israel Ltd. on February 17, 2026 (subsequently renamed Scinai Biopharma Services Ltd.), we are in the process of consolidating our CDMO activities under this subsidiary. This includes the planned transfer of certain CDMO-related assets, operations and employees to Scinai Biopharma Services Ltd. pursuant to Section 104 of the Israeli Income Tax Ordinance, subject to applicable approvals and implementation. Development of I&I biological therapeutic products Since inception, we have executed eight clinical trials including a seven country, 12,400 participant phase 3 trial of its prior lead drug candidate, a universal influenza vaccine candidate (“M-001”) and have built a GMP biologics manufacturing facility for biopharmaceutical products. After receiving the phase 3 trial results in Q3 2020, indicating that M-001 did not meet its clinical endpoints, we performed a turnaround process that included raising fresh capital, hiring new talent (including a new CEO), signing a research collaboration agreement with and in-licensing new intellectual property from world leading academic research institutes. Since then, we are in the process of developing a pipeline of diversified and commercially viable products built around the licensed innovative nanosized antibodies (NanoAb). NanoAbs are nanosized antibodies derived from camelid animals and are also known as VHH-antibodies or Nanobodies. “Nanobody” is a trademark registered by ABLYNX N.V., a wholly owned subsidiary of Sanofi. SCINAI has no affiliation with and is not endorsed by Sanofi. 61 As part of the abovementioned turnaround, on December 22, 2021, the Company signed a definitive exclusive, worldwide, License Agreement (“LA”) with the Max Planck Society (“MPG”), the parent organization of the Max Planck Institute for Multidisciplinary Sciences (“MPI”), and the University Medical Center Göttingen (“UMG”), both in Gottingen, Germany, for the development and commercialization of innovative NanoAbs for the treatment of COVID-19. The agreement provides for an upfront payment, development and sales milestones and royalties based on sales and sharing of sublicense revenues. In addition, the Company signed an accompanying Research Collaboration Agreement (“aRCA”) with MPG and UMG in support of the abovementioned development of a COVID-19 NanoAb by MPI and UMG. This collaboration included monthly payments and was intended to continue until the earlier of two years or the initiation of first-in-human clinical trials. Following our decision to pursue partnering opportunities for the COVID-19 program, we agreed with MPG and UMG to terminate this research collaboration. On March 23, 2022, we signed a five-year Research Collaboration Agreement (“RCA”; collectively, with the LA and aRCA, the “MPG/UMG Agreements”) with MPG and UMG covering the discovery, selection and characterization of NanoAbs for up to nine molecular targets across multiple indications, including plaque psoriasis, psoriatic arthritis, asthma and wet macular degeneration. These targets are clinically validated for antibody-based intervention, which we believe reduces discovery risk and may shorten development timelines. We believe that NanoAbs offer advantages such as strong binding affinity, thermal stability, and potential flexibility in routes of administration. Each NanoAb candidate is intended to represent a novel molecule, supported by patent filings, while collectively forming a pipeline based on a shared discovery, development and manufacturing platform. Under the RCA, we hold an exclusive option to enter into pre-negotiated worldwide license agreements for the development and commercialization of each NanoAb candidate. On June 5, 2023, we announced that as part of our ongoing broad-based collaboration with the Max Planck Society and the University Medical Center Gottingen (UMG), we signed an exclusive worldwide license agreement to develop and commercialize VHH antibodies (NanoAbs) targeting Interleukin-17 (IL-17) as treatments for all potential indications, starting with psoriasis and psoriatic arthritis. CDMO services On September 6, 2023, we announced the launch of a new business unit named Scinai Bioservices now renamed Scinai Biopharma Services), focused on providing contract development and manufacturing services for early-stage biopharmaceutical programs. Our CDMO activities are primarily focused on analytical method development, process development, and cGMP manufacturing of clinical-stage materials, including aseptic processing and biologic drug substance development, with an emphasis on supporting early-stage biotechnology companies. Our CDMO services are supported by advanced laboratory infrastructure and a cGMP pilot manufacturing facility in Jerusalem, designed to meet EMA and FDA regulatory requirements. Our capabilities include upstream and downstream process development, process optimization and scale-up, cGMP manufacturing, fill and finish operations, analytical method development and GMP quality control, all supported by a comprehensive quality management system. Our manufacturing infrastructure incorporates modular, single-use technologies that provide operational flexibility, reduce changeover time and associated costs, and support efficient clinical manufacturing. On February 17, 2026, we acquired 100% of the shares of Recipharm Israel Ltd. (subsequently renamed Scinai Biopharma Services Ltd.), which operates a cGMP manufacturing site in Yavne, Israel, and entered into a long-term strategic commercial collaboration with Recipharm. The Yavne site provides early chemistry development and small-scale manufacturing of active pharmaceutical ingredients (APIs), expanding our capabilities beyond biologics to include small-molecule development. The acquisition of the Yavne site and the collaboration with Recipharm expand our manufacturing footprint, enhance our technical capabilities, and broaden our service offering to include both biologics and small-molecule programs. This expanded platform is intended to support a wider range of customer needs and increase our ability to attract and retain clients. Key Components of Statements of Operations Revenues Sources of revenues. Since our inception, we have generated significant losses in connection with our research and development, clinical trials and general administrative expenses in support of our operations. We started to generate revenues only from 2024 from our CDMO business unit. 62 Cost of Revenues Our Cost of Revenues consist primarily of salaries and related personnel expenses. These expenses represent the allocation of the cost of our manufacturing facilities, which are utilized to generate our CDMO revenues, over their estimated useful lives, and constitute a significant portion of our operational costs. Operating Expenses Our operating expenses consist primarily of salary and related personnel expenses, Research Collaboration Agreement costs, depreciation and professional services. Research and development expenses. Our research and development expenses consist primarily of expenses related to our Research Collaboration Agreement, fees paid to consultants, patent-related legal fees, costs of preclinical studies and clinical studies, drug and laboratory supplies, and costs for facilities and equipment. We charge all research and development expenses to operations as they are incurred. We expect our research and development expenses to remain our primary expense in the near future. Increases or decreases in research and development expenditures are attributable to the number and/or duration of the clinical studies that we conduct. We expect that a large percentage of our research and development expenses in the future will be incurred in support of our future clinical development projects. Due to the inherently unpredictable nature of clinical development processes, we are unable to estimate with any certainty the costs we will incur. Clinical development timelines, the probability of success and development costs can differ materially from expectations. Our future research and development expenses will depend on any Company product candidate’s commercial potential. As we obtain results from clinical studies, we may elect to discontinue or delay clinical studies for any Company product candidate in certain indications in order to focus our resources on more promising product candidates. Completion of clinical studies may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate. The lengthy process of completing clinical studies and seeking regulatory approval for any Company product candidate requires the expenditure of substantial resources. Any failure or delay in completing clinical studies, or in obtaining regulatory approvals, could cause a delay in generating product revenue and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Because of the risk factors set forth above in “Risk Factors”, we are not able to estimate with any certainty when we will recognize any net cash inflows from our projects. Developing bio-pharmaceutical products, conducting clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. Our existing cash resources are not sufficient to fund our projected cash requirements at current monthly rates for at least the next 12 months, and we will require significant additional financing in the future to fund our operations, including if and when we conduct clinical trials, obtain regulatory approval and obtain commercial manufacturing capabilities for any Company product candidate and commercialize such product candidates. Our future capital requirements will depend on many factors, including: ● the progress and costs of our clinical trials and other research and development activities; 63 ● the scope, prioritization and number of our clinical trials and other research and development programs; ● the amount of revenues and contributions we receive under future licensing, collaboration, development and commercialization arrangements with respect to our Company product candidates; ● the costs of the development and expansion of our operational infrastructure; ● the costs and timing of obtaining regulatory approvals for our Company product candidates; ● the ability of us, or our collaborators, to achieve development milestones, marketing approvals and other events or developments under our potential future licensing agreements; ● the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; ● the costs and timing of building and securing manufacturing arrangements for clinical or commercial production; ● the costs of contracting with third parties to provide sales and marketing capabilities for us or establishing such capabilities ourselves; ● the costs of acquiring or undertaking development and commercialization efforts for any Company product candidate or platforms; ● the magnitude of our general and administrative expenses; and ● any cost that we may incur under future in- and out-licensing arrangements relating to one or more of our Company product candidates. Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through the net proceeds received from future private or public equity raising, grants from governmental agencies such as the IIA, debt or equity or other non-dilutive financings such as the loan from EIB, among other financing mechanisms. 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 any Company product candidate. Since 2006, we received $6.2 million in IIA grants and Euro 24 million ($25.6 million) in EIB loans. Marketing, General and Administrative Expenses Our marketing, general and administrative expenses consist primarily of salaries and expenses related to employee benefits, including share-based compensation, for our general and administrative staff. This group which includes employees in executive, operational, finance, and human resources roles. In addition, these expenses include consulting, legal, and other professional services related to general and administrative operations, business development, as well as costs associated with conferences and investor relations activities. Financial Income and Expenses Financial income consists primarily of interest income on our cash and cash equivalents, foreign currency exchange income, income in respect of EIB loan and warrants valuation. Financial expenses consist primarily of expenses related to bank charges, foreign currency exchange, SEPA expenses and issuance costs. 64 Participation by Third Parties Our research and development expenses are net of certain participations by third parties. Research and development grants received from the IIA are recognized upon receipt as a liability if future economic benefits are expected from the project that will result in royalty-bearing sales. The amount of the liability for the grant is first measured at fair value using a discount rate that reflects a market rate of interest that reflects the appropriate degree of risks inherent in our business. If no economic benefits are expected from the research activity, the grant receipts are recognized as a reduction of the related research and development expenses. At the end of each reporting period, we evaluate whether there is reasonable assurance that the received grants will not be repaid based on its best estimate of future sales and, if so, no liability is recognized and the grants are recorded against a corresponding reduction in research and development expenses. As a result of the failure of the Phase 3 clinical trial, the Company’s management estimates that there will be no future revenues from M-001. Therefore, most likely, there will be no future royalty payments to the IIA. The loan from the European Investment Bank (“EIB”) was recorded in the Company’s financial statements for the year ended December 31, 2024 as a liability in the amount of $0.3 million and as of December 31, 2023 as a liability in the amount of $19.4 million. On August 21, 2024, we announced that we had closed a Restructuring Agreement with EIB, which included an amendment to the amended Finance Contract with EIB. In connection with the EIB Restructuring Transaction, an amount equal to approximately EUR 26.6 million (equal to approximately $29 million), including interest accrued to date, owed by us to the EIB under the Finance Contract was converted into 1,000 of our preferred shares, no par value per share. Following such conversion, the total outstanding amount owed by us to the EIB is EUR 250,000 (equal to approximately $260,000). The outstanding amount has a maturity date of December 31, 2031, is not prepayable in advance, and no interest accrues or is due and payable on such amount. Research and development grants received from the European Union and from the IIA are recorded against a corresponding reduction in research and development expenses. Taxes on Income Israeli resident companies, such as the Company, are generally subject to corporate tax at the rate of 23% as of 2025. Capital gains derived by an Israeli resident company are generally subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will be considered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercised in Israel. Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 Revenues Revenues. Our revenues for the year ended December 31, 2025 were $1.3 million, compared to $0.7 million for the year ended December 31, 2024. The increase reflects continued expansion of our CDMO activities and growing customer engagement. Research and Development Expenses, net Research and development expenses. Our research and development expenses for the year ended December 31, 2025 amounted to $2.4 million, compared to $5.6 million for the year ended December 31, 2024. The decrease was primarily due to a decrease in the allocation of employees and facilities to the R&D business unit. Marketing, General and Administrative Expenses Our marketing, general and administrative expenses for the year ended December 31, 2025 amounted to $2.6 million, compared to $2.6 million for the year ended December 31, 2024. 65 Financial Income, Net Our financial income, net for the year ended December 31, 2025 amounted to $ 1million, primarily from exchange rate differences, SEPA commitment fees. Our financial income, net for the year ended December 31, 2024 amounted to $13.5 million primarily from financial income from loan conversion of $14.8 million offset principally by exchange rate differences of approximately $1.5 million. Net Income (Loss) Our net loss for the year ended December 31, 2025 was $8.3 million, compared to our net income for the year ended December 31, 2024 of $4.8 million. The decrease was primarily due to financial income from loan conversion of $14.8 million recognized in 2024, which did not recur in 2025. Year Ended December 31, 2025 Compared to Year Ended December 31, 2024. See Item 5 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2024. Liquidity and Capital Resources Since our inception, we have funded our operations primarily through public and private offerings of our equity securities in Israel and the U.S., grants from the IIA, grants received by the Israeli Ministry of Economy and European grants under the UNISEC consortium and the loan from the EIB. Information regarding the outstanding loan from the EIB is set forth above in “Research and other Grants: Finance Contract - European Investment Bank.” As of December 31, 2025, we had cash and cash equivalents and short-term deposits of $1.6 million as compared to $1.9 million as of December 31, 2024. Our cash and cash equivalents are denominated in U.S. dollars. Net cash used in operating activities was $6.0 million for the year ended December 31, 2025, compared with net cash used in operating activities of $6.3 million for the year ended December 31, 2024. Net cash used by investing activities for the year ended December 31, 2025 was $0.024 million, consisting primarily of purchase of property, plant and equipment compared with net cash used by investing activities of $0.012 million for the year ended December 31, 2024. Net cash provided by financing activities for the year ended December 31, 2025 was $5.7 million, primarily from proceeds from issuance of ADSs under the Standby Equity Purchase Agreement with Yorkville Advisors compared to $3.4 million as of December 31, 2024. Our current cash position is not sufficient to fund our planned operations for at least one year from the date of the issuance of our financial statements. Accordingly, there is substantial doubt about our ability to continue as a going concern. While we generate revenues from our CDMO activities, these revenues are not currently sufficient to fund our operations. Our ability to continue as a going concern is dependent on our ability to obtain additional financing, reduce costs and manage our liabilities as they become due. There can be no assurance that we will be able to obtain such financing on acceptable terms, or at all, particularly in light of current market conditions and our market capitalization. We will require substantial additional financing not only to continue our operations but also to support the growth of our CDMO business and advance our therapeutic development programs. We expect to continue to incur significant operating and capital expenditures, including costs related to expanding our CDMO capabilities, research and development activities, manufacturing and regulatory compliance. If we are unable to obtain sufficient financing, we may be required to delay, limit, reduce or terminate certain of our activities, implement additional cost-saving measures, or cease operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty 66 The Company’s financial statements have been 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. The financial statements for the year ended December 31, 2025, 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. In February 2021, we closed an underwritten offering in which we sold 24,712 ADSs at a public offering price of $495 per ADS resulting in gross proceeds of approximately $13.8 million. In December 29, 2021, we closed an underwritten offering in which we sold 41,440 ADSs at a public offering price of $236 per ADS resulting in total proceeds of approximately $9.780 million. On December 20, 2022, we closed an underwritten offering in which we sold 160,000 units and pre-funded units resulting in gross proceeds of $7.3 million and a net sum of $7.2 million after deduction of issuance expenses. Each unit consisted of one ADS and two warrants, , and each pre-funded unit consisted of one pre-funded warrant to purchase one ADS and two warrants. Each ADS (or pre-funded warrant) was sold together with two warrants at a combined purchase price of $50.00 per unit (or $49.99 per pre-funded unit after reducing $0.001 attributable to the exercise price of the pre-funded warrant). All the warrants have since expired. We received gross proceeds of $7.3 million and a net sum of $7.2 million after deduction of issuance expenses. On September 19, 2023, we closed an offering in which we issued (i) in a registered direct offering, 40,000 ADSs and pre-funded warrants to purchase up to 74,655 ADSs, at an exercise price of $0.01 per ADS, at a purchase price of $11.6 per ADS and $11.59 per pre-funded warrant, and (ii) in a concurrent private placement, unregistered warrants to purchase up to 114,655 ADSs. The warrants have an exercise price of $11.6 per ADS and are exercisable for a period of five and one-half years from issuance. We received gross proceeds of approximately $1.33 million and a net sum of approximately $1.0 million after deduction of placement agent fees and issuance expenses. On January 4, 2024, we closed an offering in which we issued new unregistered warrants to purchase up to 521,310 ADSs in consideration for the immediate exercise of certain outstanding warrants to purchase up to an aggregate of 260,655 ADSs, issued by us in September 2023 and December 2022, at a reduced exercise price of $6.50 per ADS. The new warrants have an exercise price of $6.50 per ADS and have a term of exercise equal to three years or five and one-half years, as applicable, based on the term of the exercised warrants, from the date of issuance. We received gross proceeds of approximately $1.69 million and a net sum of approximately $1.42 million, after deduction of underwriter discount and issuance expenses of $275. On August 20, 2024, we announced that we had entered into a $2.0 million Investment Commitment Agreement with RK Stone Miami LLC (“RK Stone”), an affiliate of Mr. Daniel Stone, the largest shareholder of the Company. Pursuant to the agreement, we had the right to issue and sell ADSs to RK Stone, from time to time through December 31, 2024, for an aggregate purchase price of up to $2 million. Each such sale of ADSs was to be initiated (at the Company’s discretion) by the Company providing an advance notice to RK Stone of the sale of ADSs in a minimum- amount of $200,000 and a maximum amount of $500,000, provided that we were not able to provide advance notices for an aggregate amount greater than $1.5 million prior to December 1, 2024. The price of the ADSs was to be calculated based on the lower of (i) the volume weighted average price (the “VWAP”) of the daily VWAP of the ADSs for the ten trading days prior to the Company providing the advance notice or (ii) the VWAP of the daily VWAP of the ADSs for the three trading days following the delivery of the advance notice (provided the Company may impose a minimum market price for such three day period, and in the event the market price for such period is less than the minimum market price the Company has the right to rescind the advance notice and not issue the ADSs), in either case subject to a discount of 5%. Pursuant to the agreement, we issued 28,698 ADSs to RK Stone as a commitment fee. In addition, we issued pre-funded warrants to RK Stone to acquire an aggregate of 602,826 ADSs for an aggregate purchase price of $2.0 million, which was the entire amount we were able to raise under the agreement. 67 In June 2025, we raised $1.5 million in gross proceeds through drawdowns under the Standby Equity Purchase Agreement, dated as of March 3, 2025, with YA II PN, Ltd. and issued 511,690 ADSs. The funding was executed at a volume-weighted average price of approximately $2.90 per ADS. See “– March 2025 Standby Equity Purchase Agreement” below. In July and August 2025, we raised $4.2 million in proceeds through drawdowns under such facility and issued 1,638,062 ADSs. The capital raising was executed at a volume-weighted average price of approximately $2.57 per ADS. In February 2026, we were awarded a non-dilutive grant of approximately NIS 966,000 (about $310,000) from the Israel Innovation Authority (IIA). The grant will fund approximately 66% of a NIS 1.46 million ($468,000) project aimed at acquiring and installing an advanced fill-and-finish system, for sterile manufacturing. We expect that we will incur additional losses as our CDMO Business Unit currently operates at a loss because revenue does not yet cover base operating expenses and related costs required to provide CDMO services. In parallel, we continue to advance our research and development programs, which require continued investment and are not supported by product revenue at this stage. As a result, we expect to continue to incur operating losses, and we may be required to obtain additional funds to additional funding to support CDMO scale-up to breakeven and to continue our research and development activities. March 2025 Standby Equity Purchase Agreement On March 3, 2025, we entered into a Standby Equity Purchase Agreement (the “March 2025 SEPA”) with YA II PN, Ltd. (“YA”), pursuant to which YA has committed to purchase up to $10.0 million of ADSs, or the First Commitment Amount, at our direction from time to time, subject to the restrictions and satisfaction of the conditions in the March 2025 SEPA, during the period commencing on the date of execution of the March 2025 SEPA until the earlier of (i) the 36-month anniversary of the date of execution of the March 2025 SEPA, and (ii) YA’s purchase of the total First Commitment Amount under the March 2025 SEPA, such period the First Commitment Period. Pursuant to the terms of the March 2025 SEPA, we issued 28,784 ADSs (the “Commitment Shares”) to YA as consideration for its irrevocable commitment to purchase the Advance Shares under the March 2025 SEPA. We filed a registration statement on Form F-1 to register the resale of up to 3,022,796 ADSs issuable to YA under the March 2025 SEPA from time to time during the First Commitment Period (including the Commitment Shares), subject to the restrictions and satisfaction of the conditions in the March 2025 SEPA, if and when we determine to sell additional ADSs to YA under the March 2025 SEPA. YA has no right to require us to sell any ADSs to YA, but YA is obligated to make purchases of the ADSs as directed by us, subject to the restrictions and satisfaction of conditions set forth in the March 2025 SEPA upon receipt of a notice sent by us to YA setting forth the number of ADSs that we desire to issue and sell to YA, or an Advance Notice. The purchase price of the ADSs that we may direct YA to purchase from time to time under the March 2025 SEPA will be equal to 97% of the lowest daily volume weighted average price (VWAP) during the three consecutive trading day period commencing on the date that we deliver any Advance Notice to YA. We have the right to set a floor price in the Advance Notice that sets a lower limit of the ADS price at which we are willing to sell ADSs to YA. On March 24, 2025, we delivered an Advance Notice for 31,746 ADSs and thereafter delivered the ADSs, and on March 27, 2025, the Company received gross proceeds of approximately $104,000. September 2025 Standby Equity Purchase Agreement On September 10, 2025, we entered into a Standby Equity Purchase Agreement (the “September 2025 SEPA”) with YA. Pursuant to the September 2025 SEPA, we have the right, but not the obligation, to sell to YA from time to time during the 36 months following the execution of the September 2025 SEPA (each such occurrence, an “Advance”) up to $15.0 million (the “Second Commitment Amount”) of ADSs, subject to the restrictions and satisfaction of the conditions in the September 2025 SEPA. Pursuant to the terms of the September 2025 SEPA, any ADSs sold and issued by us to YA will be sold at a purchase price equal to 97% of the lowest of the three daily VWAPs of the ADSs during the three consecutive trading days commencing on the trading day of the Company’s delivery of an Advance Notice to YA (the “Advance ADSs”). We may also specify a certain minimum acceptable price per ADS in each Advance. As consideration for YA’s irrevocable commitment to purchase the ADSs up to the Second Commitment Amount, we agreed to pay a commitment fee of $108,000 (the “Commitment Fee”) as follows: 50% on or about the date of execution of the September 2025 SEPA by the issuance by us to YA of 35,461 ADSs and (ii) 50% in cash on the earlier of (i) the date of the first issuance of Advance ADSs under the September 2025 SEPA (in which event the amount due may be paid from the cash proceeds of the first Advance) and (ii) 90 calendar days following the date on which the registration Statement registering the offer and sale by YA of the ADSs is declared effective by the SEC, which has occurred. Pursuant to the Purchase Agreement, YA is not obligated to purchase or acquire any ADSs under the September 2025 SEPA which, when aggregated with all other ADSs and Ordinary Shares beneficially owned by YA and its affiliates, would result in the beneficial ownership of YA and its affiliates (on an aggregated basis) to exceed 9.99% of the then-outstanding voting power or number of the Company’s Ordinary Shares. 68 Trend Information We are a development stage company with no significant revenues to date. Accordingly, it is not possible for us to predict with any degree of accuracy the outcome of our research, development or commercialization efforts, or identify any significant trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect in the future on our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources. However, to the extent possible, certain trends, uncertainties, demands, commitments and events are identified above. E. Critical Accounting Policies The preparation of financial statements and the related notes thereto included elsewhere in this annual report in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities at the dates of the financial statements, and the reported amount of expenses during the reporting periods. Actual results could differ from those estimates. We believe that the following accounting policies involve a substantial degree of judgment and complexity, and accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. See also note 2 to our financial statements included elsewhere in this annual report. Impairment of long-lived assets The Company’s long-lived assets are reviewed for impairment in accordance with ASC No. 360 “Property, Plant and Equipment,” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist and the undiscounted future cash flows that the assets are expected to generate are less than the carrying value of the assets, the Company reduces the carrying amount of the assets through an impairment charge, to their estimated fair values. The majority of our fixed assets are concentrated in our CDMO facility in Jerusalem. Our ability to generate positive cashflows from such facility may impact the recoverability of such assets and may trigger future impairment to such facility. During the years ended December 31, 2025 and 2024, no impairment indicators were recognized. Fair value of financial instruments The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows: ● Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. ● Level 2: Observable inputs that are based on inputs not quoted on active markets but corroborated by market data. ● Level 3: Unobservable inputs are used when little or no market data are available. The Company measures warrants liability at fair value classified within Level 3. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value (note 4) The carrying amounts of cash and cash equivalents, restricted cash, trade receivables, prepaid expenses and other receivables, trade payables and other current payables approximate their fair value due to the short-term maturity of such instruments. 69