SEC Filing | Arcturus Therapeutics, Inc.

Assumed initial public offering price per share

Pro forma net tangible book value per share before this offering, as of December 31, 2012

Increase in pro forma net tangible book value per share attributable to new investors in this offering

Pro forma net tangible book value per share after offering

Dilution in pro forma tangible book value per share to new investors

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As filed with the Securities and Exchange Commission on January 14, 2013

Registration No. 333 -

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form F-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Alcobra Ltd.

(Exact name of registrant as specified in its charter)

State of Israel	–––––––––-	Not Applicable
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

Dr. Yaron Daniely

Alcobra Ltd.

65 Rothschild Blvd.

Tel Aviv 65785 Israel

Tel: +972 (0) 72 220 4661

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Zysman, Aharoni, Gayer &

Sullivan & Worcester LLP

1633 Broadway
New York, NY 10019
Tel: 212.660.3000

(Name, address, including zip code, and telephone

number, including area code, of agent for service)

Copies to:

Edwin L. Miller Jr.

Oded Har-Even

Shy S. Baranov

ZAG/S&W LLP

1633 Broadway
New York, NY 10019
Tel: 212.660.3000

Eran Ben-Dor

Zysman, Aharoni, Gayer & Co.

41-45 Rothschild Blvd.

Beit Zion

Tel-Aviv, Israel 65784

Tel: +972.3.795.5555

Henry I. Rothman

Joseph Walsh

Troutman Sanders LLP
The Chrysler Building

405 Lexington Avenue

New York, NY 10174

Tel: 212.704.6000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date hereof.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)		Amount of Registration Fee
Ordinary shares, par value NIS 0.01 per share(2)(3)	$	17,250,000	$	2,352.90
Representative’s common stock purchase warrants(4)		–		–
Common stock underlying representative’s warrants at an exercise price that equals to 150% of the offering price(2)(5)		375,000		51.15
Common stock underlying representative’s warrants at an exercise price that equals to 200% of the offering price (2)(6)		500,000		68.20
Common stock underlying representative’s warrants at an exercise price that equals to 250% of the offering price (2)(7)		625,000		85.25
TOTAL	$	18,750,000	$	2,557.50

___________________

(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(2) Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional securities as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.

(3) Includes shares of common stock which may be issued upon exercise of a 45-day option granted to the underwriters to cover over-allotments, if any.

(4) In accordance with Rule 457(g) under the Securities Act, because the shares of the Registrant’s common stock underlying the Representative’s warrants are registered hereby, no separate registration fee is required with respect to the warrants registered hereby.

(5) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act. The warrants are exercisable at a per share exercise price equal to 150% of the public offering price. As estimated solely for the purpose of recalculating the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum aggregate offering price of the representative’s warrants is $375,000 (which is equal to 150% of $250,000 (1.666% of $15,000,000)).

(6) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act. The warrants are exercisable at a per share exercise price equal to 200% of the public offering price. As estimated solely for the purpose of recalculating the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum aggregate offering price of the representative’s warrants is $500,000 (which is equal to 200% of $250,000 (1.666% of $15,000,000)).

(7) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act. The warrants are exercisable at a per share exercise price equal to 250% of the public offering price. As estimated solely for the purpose of recalculating the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum aggregate offering price of the representative’s warrants is $625,000 (which is equal to 250% of $250,000 (1.666% of $15,000,000)).

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

SUBJECT TO COMPLETION

DATED JANUARY 14, 2013

Ordinary Shares

Alcobra Ltd. is offering its ordinary shares in an initial public offering. No public market currently exists for our ordinary shares. The estimated initial public offering price is between $__ and $__ per share.

We have applied to list our ordinary shares on The NASDAQ Capital Market under the symbol “ADHD”.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act) and will be subject to reduced public company reporting requirements.

Investing in our ordinary shares involves a high degree of risk. See “Risk Factors” beginning on page 7 of this prospectus for a discussion of information that should be considered in connection with an investment in our ordinary shares.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

		Per Share		Total
Initial public offering price	$		$
Underwriting discounts and commissions	$		$
Proceeds to us (before expenses)	$		$

The underwriters will receive compensation in addition to the underwriting discounts and commissions. See “Underwriting” for a description of compensation payable to the underwriters.

We have granted a 45-day option to the underwriters to purchase up to additional ordinary shares solely to cover over-allotments, if any.

The underwriters expect to deliver the shares to purchasers in the offering on or about , 2013.

Aegis Capital Corp.

The date of this prospectus is , 2013.

TABLE OF CONTENTS

	Page
Prospectus Summary	1
Risk Factors	5
Cautionary Note Regarding Forward-Looking Statements	25
Use of Proceeds	26
Dividend Policy	26
Capitalization	27
Dilution	28
Selected Financial Data	29
Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Business	36
Management	50
Principal Shareholders	65
Description of Share Capital	66
Shares Eligible for Future Sale	73
Taxation	75
Underwriting	81
Expenses	87
Legal Matters	87
Experts	87
Enforceability of Civil Liabilities	87
Where You Can Find Additional Information	88
Index of Financial Statements	F-1

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. We have not authorized anyone to provide you with information that is different. We are offering to sell our ordinary shares, and seeking offers to buy our ordinary shares, only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our ordinary shares.

Until and including _________, 25 days after the date of this prospectus, all dealers that buy, sell or trade our ordinary shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

In this prospectus, “we,” “us,” “our,” the “Company” and “Alcobra” refer to Alcobra Ltd. .

Our reporting currency and functional currency is the U.S. dollar.

This prospectus includes statistical, market and industry data and forecasts which we obtained from publicly available information and independent industry publications and reports that we believe to be reliable sources. These publicly available industry publications and reports generally state that they obtain their information from sources that they believe to be reliable, but they do not guarantee the accuracy or completeness of the information. Although we believe that these sources are reliable, we have not independently verified the information contained in such publications.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our ordinary shares. Before you decide to invest in our ordinary shares, you should read the entire prospectus carefully, including the “Risk Factors” section and the financial statements and related notes appearing at the end of this prospectus.

Our Company

We are an emerging biopharmaceutical company primarily focused on the development and commercialization of a proprietary drug, MG01CI, to treat Attention Deficit Hyperactivity Disorder, or ADHD. In September 2011, we completed a 120-patient double-blind Phase II study that demonstrated that MG01CI provides a well-tolerated, immediate and effective treatment for ADHD patients with impaired inattention and executive function symptoms. We plan to initiate regulatory discussions with the U.S. and E.U. regulatory agencies within six months from the date of this prospectus, and if these discussions are successful, we plan to conduct advanced clinical trials in order to obtain marketing approval for MG01CI for adults in these regions, followed by clinical trials in order to obtain marketing approval for pediatric use. If these discussions are not successful, we will have to re-design and conduct additional preliminary clinical trials.

ADHD is one of the most common behavioral disorders in the world. It is estimated that between 5% and 12% of children worldwide are affected by this condition. Once believed to only affect children, ADHD is now known to persist into adolescence and adulthood in a large number of cases, with approximately 46% of all adults who had ADHD as children continuing to have symptoms of the disorder as adults. Approximately 95% of these adults experience impaired inattention and executive function symptoms, of which approximately 35% also experience hyperactivity-impulsivity symptoms.

ADHD is a treatable condition. The most commonly used therapeutic drugs are stimulants (Schedule II, Controlled Substances), such as Ritalin, Adderall, Vyvanse and Concerta, which are all dopaminergic (related to dopamine) compounds with significant abuse and misuse potential because their use may lead to severe psychological or physical dependence. In addition, stimulants have numerous side effects, such as uncomfortable mental states, interference with sleep and appetite, development of nervous ticks and potential cardiovascular effects resulting from increased blood pressure. These side effects have limited effective treatment in those taking the drugs and have also dramatically limited medication adherence rates. Up to 30% to 50% of those who are prescribed stimulants for ADHD either do not respond or cannot tolerate these treatments, and only about 20% of those prescribed with stimulants renew their prescription the following month. There also is a non-stimulant drug on the market called Strattera (Atomoxetine), launched in 2003. This drug also has significant side effects, such as fatigue, decreased appetite, sexual problems, palpitations, increased heart rate and high blood pressure and also has regulatory warning labels relating to suicidal thoughts and liver damage. Moreover, Strattera takes 6-10 weeks to achieve full clinical effectiveness. More recently, two additional non-stimulant medications with similar safety and efficacy profiles were approved for use only in children (Guanfacine and Clonidine). These two drugs have not had significant commercial success and have not been proven effective in adults. All approved ADHD drugs need to be carefully monitored by the treating physician to optimize the dose, starting with a low dose and slowly escalating to the most effective and tolerable dose.

In contrast to the most common available treatments which involve the use of stimulants, MG01CI is a non-stimulant with a differentiated mechanism of action that is neither dopaminergic (related to dopamine) nor noradrenergic (related to norepinephrine). Our 120-patient Phase II study showed significant improvement in clinical symptoms with higher response rates, and a more rapid onset than available non-stimulants. The trial also demonstrated favorable tolerability with no significant side effects over a placebo. MG01CI therefore potentially represents a safer alternative to stimulant-based treatments and a more tolerable and effective treatment than the non-stimulants which are currently in the market. Additionally, because of its unique mechanism of action and specific clinical effect on inattention and executive function, we believe that MG01CI possibly may be useful in treating additional cognitive disorders.

Our Strategy

Our objective is to develop and commercialize proprietary pharmaceutical products for treatment of central nervous system disorders, and cognitive dysfunctions in particular. To this effect, we intend to conduct additional clinical trials for MG01CI and, if those trials are successful, seek marketing approval from the U.S. Food and Drug Administration, or FDA, and other worldwide regulatory bodies for MG01CI for the treatment of ADHD in adults and children. We also plan to advance clinical studies and commercialization plans for MG01CI in additional indications of cognitive dysfunction which present significant market opportunities such as mood disorders, memory impairment, autism, and shift work/jet lag. Finally, we intend to develop products other than MG01CI that we have invented or that may be acquired by the Company.

To achieve these objectives, we plan to:

Initiate and complete two parallel Phase III clinical trials of MG01CI for the treatment of ADHD in adults, and, if they are successful, file for marketing approval for adults initially in the United States and the European Union.

Initiate and complete clinical trials in a pediatric ADHD population, and, if successful, file for marketing approval for that use in the U.S. and EU.

Initiate and complete clinical trials in Japan for both adult and pediatric ADHD, and, if successful, file for marketing approval of such uses in that country.

Prepare to commercialize MG01CI for the treatment of patients with ADHD by establishing distribution capabilities primarily in conjunction with large pharmaceutical companies.

Conduct clinical investigations into the possible use of MG01CI to treat other cognitive disorders and impairments such as mood disorders, memory impairment, autism and shift work/jet lag.

Conduct development of additional new molecules in our pipeline that are protected by patents, or in-license products in similar therapeutic areas.

Corporate Information

We are an Israeli corporation based in Tel Aviv and were incorporated in 2008. Our principal executive offices are located at 65 Rothschild Blvd., Tel Aviv, Israel, and our telephone number is +972 (0)72 220 4661. Our website address is www.alcobra-pharma.com. The information contained on, or that can be accessed through, our website is not part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We have not made a decision whether to take advantage of any or all of these exemptions. We could remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenue exceeds $1 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three-year period.

Risks Associated with Our Business

Our business is subject to numerous risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. You should read these risks before you invest in our ordinary shares. In particular, our risks include, but are not limited to, the following:

We depend entirely on the success of our only current product candidate, MG01CI, for the treatment of ADHD and other cognitive disorders. We require additional and more complex clinical trials of MG01CI that must be successful if we are to seek regulatory clearances. Advanced clinical trials are often not successful, and even if our clinical trials are successful, we may not obtain regulatory approvals for MG01CI or we may be unable to successfully commercialize it even if we receive the necessary regulatory approvals.

Our data from future clinical trials may not satisfy the FDA, or the FDA may require additional time or studies to assess the safety and efficacy of MG01CI.

To date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue unless and until we obtain marketing approval of, and commercialize, MG01CI. We unable to predict the extent of future losses or when we will become profitable based on the sale of any product, if at all. Even if we succeed in developing and commercializing our product candidate, we may never generate sufficient revenue to sustain profitability. As of December 31, 2012, we had an accumulated deficit of $8.2 million.

We have no sources of revenue and may need to raise additional capital in order conduct some or all of the activities that we will require before commercialization, and such capital may not be available to us or available only on unfavorable terms.

Our current patent applications may not result in issued patents, and even if issued, those patents may be challenged by competitors. Any such challenge would be extremely expensive and distracting, and if we cannot successfully defend our intellectual property, competitors may be able to develop generic versions of MG01CI, which would have a material adverse effect on our business or even force us to cease operations.

THE OFFERING

Ordinary shares offered by us

ordinary shares

Ordinary shares to be outstanding after this offering

ordinary shares

Over-allotment option

The underwriters have an option for a period of 45 days to purchase up to additional ordinary shares to cover over-allotments, if any.

Use of proceeds

We expect to receive approximately $ million in net proceeds from the sale of ordinary shares offered by us in this offering (approximately $ million if the underwriters exercise their over-allotment option in full), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, assuming the shares are offered at $ per share, the midpoint of the estimated price range set forth on the cover of this prospectus. We currently expect to use the net proceeds from this offering for:

· completing a Phase II/III trial of MG01CI for adult ADHD, estimated at $6,000,000;

· preparing for our proposed Phase III clinical trials for MG01CI, including engaging US and EU regulatory agencies in discussions related to protocols for the trials, estimated at $1,000,000 to $3,000,000;

· evaluating MG01CI in additional disorders of cognitive function estimated at $1,000,000 to $2,000,000; and

· the remainder for working capital and general corporate purposes.

Risk factors

You should read the “Risk Factors” section starting on page 7 of this prospectus for a discussion of factors to consider carefully before deciding to invest in ordinary shares.

Proposed NASDAQ Capital Market Symbol

“ADHD"

The number of our ordinary shares to be outstanding immediately after this offering is based on 1,327,812 ordinary shares outstanding as of December 31, 2012. This number excludes:

130,229 shares issuable upon the exercise of share options outstanding as of December 31, 2012 under our equity incentive plan;

10,000 shares issuable upon the exercise of warrants outstanding as of December 31, 2012 with a nominal exercise price, which warrants are expected to remain outstanding upon completion of this offering;

22,020 shares issuable upon the exercise of warrants outstanding as of December 31, 2012 having a weighted average exercise price of $16.02 per share, which shall expire immediately prior to completion of this offering; and

1,194 shares reserved as of December 31, 2012 for future grants under our equity incentive plan.

Unless otherwise indicated, all information in this prospectus assumes or gives effect to:

the filing of our amended and restated articles of association, which will occur immediately prior to the completion of this offering; and

no exercise of the underwriters’ over-allotment option.

SUMMARY FINANCIAL DATA

The following table summarizes our financial data. We have derived the following statements of operations data for the years ended December 31, 2012 and 2011 and the balance sheet data as of December 31, 2012 from our audited financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. The following summary financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

(in thousands of U.S. dollars, except share and per share amounts)
	Years Ended December 31,
	2012		2011
Statements of Operations Data:

Research and development expenses	$	818	$	1,822

General and administrative expenses		683		2,084

Financial expense, net		78		23

Deemed dividend		-		180

Loss attributable to holders of ordinary shares		1,579		4,109

Weighted average number of ordinary shares used in computing basic and diluted net loss per share		1,327,416		1,336,182

_____________

(1)	See Note 2(m) to our financial statements for an explanation of the method used to calculate basic and diluted net loss per ordinary share and the weighted average number of shares used in computation of the per share amounts.

*(in U.S. dollars)*	As of December 31, 2012
	Actual				As Adjusted (unaudited)(1)
Balance Sheet Data:
	$			$
Total long-term assets		21

Total current liabilities		768

Shareholders equity (deficiency)		(567	)

The unaudited as adjusted column in the balance sheet data above gives effect to the sale of ordinary shares in this offering at the initial public offering price of $ per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as if the sale had occurred on December 31, 2012.

RISK FACTORS

An investment in our ordinary shares involves a high degree of risk. We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. The risks and uncertainties described below are not the only ones we face. Other risks and uncertainties, including those that we do not currently consider material, may impair our business. If any of the risks discussed below actually occur, our business, financial condition, operating results or cash flows could be materially adversely affected. This could cause the trading price of our ordinary shares to decline, and you may lose all or part of your investment.

Risks Related to Product Development, Regulatory Approval and Commercialization

We depend entirely on the success of our only current product candidate, MG01CI, and we may not obtain regulatory approval of MG01CI for the treatment of ADHD or we may be unable to successfully commercialize it.

We have invested almost all of our efforts and financial resources in the research and development of MG01CI, which is currently our only product candidate. As a result, our business is entirely dependent on our ability to complete the development of, obtain regulatory approval for, and successfully commercialize, MG01CI in a timely manner. The process to develop, obtain regulatory approval for, and commercialize MG01CI is long, complex, costly and uncertain of outcome.

The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drugs are subject to extensive regulation by the FDA in the United States and other regulatory agencies in other countries. These regulations differ from country to country. We are not permitted to market MG01CI or any other product candidate in the United States until we receive approval of a New Drug Application, or NDA, from the FDA, or in any foreign countries until we receive the requisite approval from regulatory agencies in such countries. We have not completed sufficient clinical trials to be able to submit an NDA to the FDA or comparable applications to other regulatory authorities in other countries or received marketing approval for MG01CI. The results of our additional clinical trials may be unsatisfactory, and even if we believe those clinical trials to be successful, there are many reasons why the FDA may not approve our NDA should we be in a position to file one.

Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The marketing approval process in other countries may include all of the risks detailed above regarding FDA approval in the United States as well as other risks. In particular, in many countries outside the United States, it is required that a product receive pricing and reimbursement approval before the product can be commercialized. This can result in substantial delays in such countries. In other countries, product approval depends on showing superiority to an approved alternative therapy. This can result in significant expense for conducting complex clinical trials. Finally, we do not have any products approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be harmed.

Marketing approval in one country does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one country may have a negative effect on the regulatory process in others. Failure to obtain marketing approval in other countries or any delay or setback in obtaining such approval would impair our ability to develop foreign markets for MG01CI. This would reduce our target market and limit the full commercial potential of MG01CI. Many countries are undertaking cost-containment measures that could affect pricing or reimbursement of a product.

The commencement and completion of clinical trials can be delayed or prevented for a number of reasons.

We may not be able to commence or complete the clinical trials that would support our submission of an NDA to the FDA. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. Clinical trials can be delayed or prevented for a number of reasons, including:

difficulties obtaining regulatory approval to commence a clinical trial or complying with conditions imposed by a regulatory authority regarding the scope or term of a clinical trial;

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

insufficient or inadequate supply or quality of a product candidate or other materials necessary to conduct our clinical trials;

difficulties obtaining institutional review board, or IRB, approval to conduct a clinical trial at a prospective site; and

challenges recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including size and nature of patient population, proximity of patients to clinical sites, eligibility criteria for the trial, nature of trial protocol, the availability of approved effective treatments for the relevant disease and competition from other clinical trial programs for similar indications.

Clinical trials may also be delayed or terminated as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRBs at the sites where the IRBs are overseeing a trial, or a data safety monitoring board overseeing the clinical trial at issue, or other regulatory authorities due to a number of factors, including:

failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;

inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities;

unforeseen safety issues or lack of effectiveness; and

lack of adequate funding to continue the clinical trial.

Positive results in previous clinical trials of MG01CI may not be replicated in future clinical trials of MG01CI, which could result in development delays or a failure to obtain marketing approval.

Positive results in previous clinical studies of MG01CI may not be predictive of similar results in future clinical trials. Also, interim results during a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in early-stage development. Accordingly, the results from the completed preclinical studies and clinical trials for MG01CI may not be predictive of the results we may obtain in later stage trials. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials. Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain FDA approval for their products.

Obtaining approval of an NDA even after clinical trials that are believed to be successful is an uncertain process.

Even if we complete our planned clinical trials and believe the results to be successful, all of which are uncertain, obtaining approval of an NDA is an extensive, lengthy, expensive and uncertain process, and the FDA (and other regulatory agencies) may delay, limit or deny approval of MG01CI for many reasons, including:

we may not be able to demonstrate to the satisfaction of the FDA that MG01CI is safe and effective for any indication;

the results of clinical trials may not meet the level of statistical significance or clinical significance required by the FDA for approval;

the FDA may disagree with the number, design, size, conduct or implementation of our clinical trials;

the FDA may not find the data from preclinical studies and clinical trials sufficient to demonstrate that MG01CI’s clinical and other benefits outweighs its safety risks;

the FDA may disagree with our interpretation of data from preclinical studies or clinical trials;

the FDA may not accept data generated at our clinical trial sites;

the data collected from preclinical studies and clinical trials of MG01CI may not be sufficient to support the submission of an NDA;

the FDA may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against approval of our application or may recommend that the FDA require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling, or distribution and use restrictions;

the FDA may require development of a risk evaluation and mitigation strategy as a condition of approval;

the FDA may identify deficiencies in the manufacturing processes or facilities of third party manufacturers with which we enter into agreements for clinical and commercial supplies;

the FDA may change its approval policies or adopt new regulations; and

the FDA may require simultaneous approval for both adults and children delaying needed approvals, or we may have successful clinical trial results for adults but not children, or vice versa.

Before we can submit an NDA to the FDA, we must conduct at least two Phase III clinical trials that will be substantially broader than our Phase II trial. We will also need to agree on a protocol with the FDA for the clinical trials before commencing those trials. Phase III clinical trials frequently produce unsatisfactory results even though prior clinical trials were successful. Therefore, the results of the additional trials that we conduct may or may not be successful. The FDA may suspend all clinical trials or require that we conduct additional clinical, nonclinical, manufacturing validation or drug product quality studies and submit those data before it will consider or reconsider the NDA. Depending on the extent of these or any other studies, approval of any applications that we submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve the NDA. If any of these outcomes occur, we would not receive approval for MG01CI and may be forced to cease operations.

Even if we obtain FDA approval for MG01CI for the treatment of ADHD, the approval might contain significant limitations related to use restrictions for certain age groups, warnings, precautions or contraindications, or may be subject to significant post-marketing studies or risk mitigation requirements. If we are unable to successfully commercialize MG01CI, we may be forced to cease operations.

MG01CI may produce undesirable side effects after approval of an NDA.

Even if MG01CI receives marketing approval, we or others may later identify undesirable side effects caused by the product, and in that event a number of potentially significant negative consequences could result, including:

regulatory authorities may suspend or withdraw their approval of the product;

regulatory authorities may require the addition of labeling statements, such as warnings or contraindications or distribution and use restrictions;

regulatory authorities may require us to issue specific communications to healthcare professionals, such as “Dear Doctor” letters;

regulatory authorities may issue negative publicity regarding the affected product, including safety communications;

we may be required to change the way the product is administered, conduct additional preclinical studies or clinical trials or restrict the distribution or use of the product;

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 affected product candidate and could substantially increase commercialization costs or even force us to cease operations.

We have only minimal preliminary pre-clinical or clinical data that support the applicability of MG01CI to other cognitive conditions, and ultimate regulatory approval for any additional applications is speculative.

We intend to investigate the use of MG01CI to treat other cognitive disorders and impairments. These efforts have just commenced, and very little data regarding such uses have been obtained. The regulatory approval process for additional indications would be as complex, time consuming and expensive as that for MG01CI in ADHD. As a result, ultimate regulatory approval for one or more of such indications is speculative.

Changes in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, which may result in necessary changes to clinical trial protocols, which could result in increased costs to us, delay our development timeline or reduce the likelihood of successful completion of our clinical trials.

Changes in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, as a result of which we may need to amend clinical trial protocols. Amendments may require us to resubmit our clinical trial protocols to IRBs for review and approval, which may impact the cost, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for MG01CI would be harmed and our ability to generate product revenue would be delayed, possibly materially.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize MG01CI or any other product candidate that we develop and affect the prices we may obtain.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for MG01CI or any other product candidate that we develop, restrict or regulate post-approval activities and affect our ability to profitably sell MG01CI or any other product candidate for which we obtain marketing approval.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of MG01CI, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to limit the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

More recently, President Obama signed into law the Health Care Reform Law, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and the health insurance industry, impose new taxes and fees on the healthcare industry and impose additional health policy reforms. The Health Care Reform Law revises the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states once the provision is effective. Further, the new law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may require us to modify our business practices with healthcare practitioners. We will not know the full effects of the Health Care Reform Law until applicable federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the effect of the Health Care Reform Law, the new law appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

Even if MG01CI or any other product candidate that we develop receives marketing approval, we will continue to face extensive regulatory requirements and the product may still face future development and regulatory difficulties.

Even if marketing approval is obtained, a regulatory authority may still impose significant restrictions on a product’s indications, conditions for use, distribution or marketing or impose ongoing requirements for potentially costly post-market surveillance, post-approval studies or clinical trials. For example, any labeling ultimately approved by the FDA for MG01CI, if it is approved for marketing, may include restrictions on use, such as limitations on how ADHD is defined and diagnosed or limiting MG01CI to second-line or concomitant therapy. In addition, the labeling may include significant restrictions on use. MG01CI will also be subject to ongoing FDA requirements governing the labeling, packaging, storage, advertising, distribution, promotion, recordkeeping and submission of safety and other post-market information, including adverse events, and any changes to the approved product, product labeling, or manufacturing process. The FDA has significant post-market authority, including, for example, the authority to require labeling changes based on new safety information and to require post-market studies or clinical trials to evaluate serious safety risks related to the use of a drug. These risks include adverse drug—drug interactions and concomitant therapy with other medications. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current Good Manufacturing Practice, or cGMP, and other regulations.

If we, our drug products or the manufacturing facilities for our drug products fail to comply with applicable regulatory requirements, a regulatory agency may:

issue warning letters or untitled letters;

seek an injunction or impose civil or criminal penalties or monetary fines;

suspend or withdraw marketing approval;

suspend any ongoing clinical trials;

refuse to approve pending applications or supplements to applications;

suspend or impose restrictions on operations, including costly new manufacturing requirements;

seize or detain products, refuse to permit the import or export of products or request that we initiate a product recall; or

refuse to allow us to enter into supply contracts, including government contracts.

If we obtain approval to commercialize MG01CI outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

If MG01CI is approved for commercialization outside the United States, we will likely enter into agreements with third parties to market MG01CI outside the United States. We expect that we will be subject to additional risks related to entering into or maintaining international business relationships, including:

	·	different regulatory requirements for drug approvals in foreign countries;

	·	differing United States and foreign drug import and export rules;

	·	reduced protection for intellectual property rights in foreign countries;

	·	unexpected changes in tariffs, trade barriers and regulatory requirements;

	·	different reimbursement systems;

	·	economic weakness, including inflation, or political instability in particular foreign economies and markets;

	·	compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

	·	foreign taxes, including withholding of payroll taxes;

	·	foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

	·	workforce uncertainty in countries where labor unrest is more common than in the United States;

	·	production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;

	·	potential liability resulting from development work conducted by these distributors; and

business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters.

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 revenues from MG01CI. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. Additionally, if we are unable to generate revenues from the sale of Ravicti, and BUPHENYL and AMMONUL if purchased from Ucyclyd, our potential for achieving profitability will be diminished and the capital necessary to fund our operations will be increased.

If we receive marketing approval for MG01CI, sales will be limited unless the product achieves broad market acceptance.

The commercial success of MG01CI and any other product candidate for which we obtain marketing approval from the FDA or other regulatory authorities will depend upon the acceptance of the product by the medical community, including physicians, patients and healthcare payors. The degree of market acceptance of any approved product will depend on a number of factors, including:

demonstration of clinical safety and efficacy compared to other products;

the relative convenience and ease of administration;

the prevalence and severity of any adverse side effects;

limitations or warnings contained in the product’s approved labeling;

distribution and use restrictions imposed by the FDA or agreed to by us as part of a mandatory or voluntary risk management plan;

availability of alternative treatments, including, in the case of MG01CI, a number of competitive products already approved for the treatment of ADHD or expected to be commercially launched in the near future;

pricing and cost effectiveness;

the effectiveness of our or any future collaborators’ sales and marketing strategies;

our ability to obtain sufficient third-party coverage or reimbursement; and

the willingness of patients to pay for drugs out of pocket in the absence of third-party coverage.

If MG01CI is approved but does not achieve an adequate level of acceptance by physicians, healthcare payors and patients, we may not generate sufficient revenue from the product, and we may not become or remain profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of the product may require significant resources and may never be successful.

The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If we are found to have improperly promoted off-label uses, we may become subject to significant liability.

The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. In particular, any labeling approved by the FDA for MG01CI may include restrictions on use, such as limitations on how ADHD is defined and diagnosed or limiting MG01CI to second-line or concomitant therapy. The FDA may impose further requirements or restrictions on the distribution or use of MG01CI as part of a mandatory plan, such as limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll in a registry. If we receive marketing approval for MG01CI, physicians may nevertheless prescribe MG01CI to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.

It will be difficult for us to profitably sell MG01CI if reimbursement for the product is limited.

Market acceptance and sales of MG01CI will depend on reimbursement policies and may be affected by healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations (HMOs), decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that reimbursement will be available for MG01CI and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. In addition, third-party payors are likely to impose strict requirements for reimbursement in order to limit off label use of a higher priced drug. Reimbursement by a third-party payor may depend upon a number of factors including the third-party payor’s determination that use of a product candidate is:

	·	a covered benefit under its health plan;

	·	safe, effective, and medically necessary;

	·	appropriate for the specific patient;

	·	cost effective; and

neither experimental nor investigational.

Obtaining coverage and reimbursement approval for a product candidate from a government or other third-party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical, and cost effectiveness data for the use of our product candidates to the payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for any of our product candidates. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our product candidate. If reimbursement is not available or is available only to limited levels, we may not be able to commercialize certain of our product candidates profitably, or at all, even if approved.

If third-party manufacturers fail to comply with manufacturing regulations, our financial results and financial condition will be adversely affected.

Before they can begin commercial manufacture of MG01CI, contract manufacturers must obtain regulatory approval of their manufacturing facilities, processes and quality systems. In addition, pharmaceutical manufacturing facilities are continuously subject to inspection by the FDA and foreign regulatory authorities before and after product approval. Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, any potential third-party manufacturer may be unable to continue to pass or initially pass federal, state or international regulatory inspections in a cost effective manner.

If a third-party manufacturer with whom we contract is unable to comply with manufacturing regulations, we may be subject to fines, unanticipated compliance expenses, recall or seizure of our products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions would adversely affect our financial results and financial condition.

We intend to rely primarily on third parties to market and sell MG01CI.

To the extent we rely on third parties to commercialize MG01CI, if marketing approval is obtained, we may receive less revenue than if we commercialized the product ourselves. In addition, we would have less control over the sales efforts of any third parties involved in our commercialization efforts. In the event we are unable to collaborate with a third-party marketing and sales organization to commercialize MG01CI, particularly for broader patient populations, our ability to generate product revenue may be limited either in the U.S. or internationally.

Our market is subject to intense competition. If we are unable to compete effectively, MG01CI or any other product candidate that we develop may be rendered noncompetitive or obsolete.

There are a number of existing treatments for ADHD currently on the market, all of which are marketed by pharmaceutical companies that are far larger and more experienced than the Company. Patients and doctors are often unwilling to change medications, and this factor will make it difficult for MG01CI to penetrate the market. Further, our industry is highly competitive and subject to rapid and significant technological change. Our potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. All of these competitors currently engage in, have engaged in or may engage in the future in the development, manufacturing, marketing and commercialization of new pharmaceuticals, some of which may compete with MG01CI or other product candidates. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. These companies may have products in development that are superior to MG01CI. Key competitive factors affecting the commercial success of MG01CI and any other product candidates that we develop are likely to be efficacy, time of onset, safety and tolerability profile, reliability, convenience of dosing, price and reimbursement.

Many of our potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of drug candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining FDA and other marketing approvals for drugs and achieving widespread market acceptance. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and may render MG01CI or any other product candidate that we develop obsolete or non-competitive before we can recover the expenses of developing and commercializing the product. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Finally, the development of new treatment methods for the diseases we are targeting could render MG01CI or any other product candidate that we develop non-competitive or obsolete.

We face potential product liability exposure, and, if claims are brought against us, we may incur substantial liability.

The use of MG01CI or other drugs expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers or others selling or otherwise coming into contact with our products. If we cannot successfully defend ourselves against product liability claims, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in:

decreased demand for MG01CI or any other product candidate for which we obtain marketing approval;

impairment of our business reputation and exposure to adverse publicity;

increased warnings on product labels;

withdrawal of clinical trial participants;

costs of related litigation;

distraction of management’s attention from our primary business;

substantial monetary awards to patients or other claimants;

loss of revenue; and

the inability to successfully commercialize MG01CI or any other product candidate for which we obtain marketing approval.

If product liability lawsuits are successfully brought against us, our insurance may be inadequate.

We have obtained product liability insurance coverage for our clinical trials with a $5.0 million annual aggregate coverage limit. However, our insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If and when we obtain marketing approval for MG01CI or any other product candidate, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain this product liability insurance on commercially reasonable terms. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. The cost of any product liability litigation or other proceedings, even if resolved in our favor, could be substantial. A successful product liability claim or series of claims brought against us could cause our share price to decline and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

The product liability insurance we will need to obtain in connection with the commercial sales of our product candidates if and when they receive regulatory approval may be unavailable in meaningful amounts or at a reasonable cost. If we are the subject of a successful product liability claim that exceeds the limits of any insurance coverage we obtain, we would incur substantial charges that would adversely affect our earnings and require the commitment of capital resources that might otherwise be available for the development and commercial launch of our product programs.

Risks Related to Our Financial Position and Need for Additional Capital

We have a limited operating history and we have incurred significant operating losses since our inception, and anticipate that we will incur continued losses for the foreseeable future.

We are a emerging biopharmetical company with a limited operating history. To date, we have focused almost exclusively on developing our lead compound, MG01CI. We have funded our operations to date primarily through proceeds from the private placement of ordinary shares and convertible debt. We have only a limited operating history upon which you can evaluate our business and prospects. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical industry. We have not generated any revenue from product sales to date. We have incurred losses in each year since our inception in February 2008. Our loss attributable to holders of our ordinary shares for the years ended December 31, 2011 and 2012 was approximately $4.1 million and $1.6 million, respectively. As of December 31, 2012, we had an accumulated deficit of $8.2 million. Substantially all of our operating losses resulted from costs incurred in connection with our development program and from general and administrative costs associated with our operations.

We expect our research and development expenses to increase in connection with our planned expanded clinical trials. In addition, if we obtain marketing approval for MG01CI, we will likely incur significant sales, marketing and outsourced manufacturing expenses, as well as continued research and development expenses. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

We have not generated any revenue from MG01CI or any other product candidate and may never be profitable.

Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from our development stage product candidate, MG01CI, and we do not know when, or if, we will generate any revenue. We do not expect to generate significant revenue unless or until we obtain marketing approval of, and commercialize, MG01CI. Our ability to generate revenue depends on a number of factors, including our ability to:

	·	obtain favorable results from and progress the clinical development of MG01CI;

	·	develop and obtain regulatory approval for a protocol for a Phase III clinical trial of MG01CI;

	·	subject to successful completion of the a Phase III clinical trial and perhaps additional clinical trials of MG01CI, apply for and obtain marketing approval;

	·	contract for the manufacture of commercial quantities of MG01CI at acceptable cost levels if marketing approval is received; and

establish sales and marketing capabilities, both internal and external, to effectively market and sell MG01CI in the United States and other countries.

Even if MG01CI is approved for commercial sale for the treatment of ADHD, it may not gain market acceptance or achieve commercial success. In addition, we anticipate incurring significant costs associated with commercialization. We may not achieve profitability soon after generating product revenue, if ever. If we are unable to generate product revenue, we will not become profitable and would be unable to continue operations without continued funding.

We may need substantial additional capital in the future. If additional capital is not available, we will have to delay, reduce or cease operations.

We may need to raise additional capital to fund our operations and to develop and commercialize MG01CI. Our future capital requirements may be substantial and will depend on many factors including:

	·	our clinical trial results;

	·	the cost, timing and outcomes of seeking marketing approval of MG01CI;

	·	the cost of filing and prosecuting patent applications and the cost of defending our patents;

	·	the cost of prosecuting infringement actions against third parties;

	·	exploration and possible label expansion of MG01CI for the treatment of other conditions;

	·	the costs associated with commercializing MG01CI if we receive marketing approval, including the cost and timing of establishing sales and marketing capabilities to market and sell MG01CI;

	·	subject to receipt of marketing approval, revenue received from sales of approved products, if any, in the future;

	·	any product liability or other lawsuits related to our products;

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

the costs associated with being a public company;

Based on our current operating plan, we anticipate that the net proceeds of this offering, together with our existing resources, will be sufficient to enable us to maintain our currently planned operations, including our continued product development, at least through 2014. We believe that these available funds will allow us to complete a Phase III trial and begin the process of attempting to obtain seek marketing approval for MG01CI. However, changing circumstances may cause us to consume capital significantly faster than we currently anticipate. We have no committed external sources of funds. Additional financing may not be available when we need it or may not be available on terms that are favorable to us. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. If adequate funds are not available to us on a timely basis, or at all, we may be required to:

terminate or delay clinical trials or other development activities for MG01CI; or

delay our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize MG01CI, if we obtain marketing approval.

Raising additional capital would cause dilution to our existing shareholders, and may restrict our operations or require us to relinquish rights.

We may seek additional capital 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, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. 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, making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic alliance and 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.

Our recurring operating losses have raised substantial doubt regarding our ability to continue as a going concern.

As of December 31, 2012, we had an accumulated deficit of $8.2 million. Our recurring operating losses raise substantial doubt about our ability to continue as a going concern. Our financial statements include a note describing the conditions which raise this substantial doubt. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2012 with respect to this uncertainty. We have no current source of revenue to sustain our present activities, and we do not expect to generate revenue until, and unless, the FDA or other regulatory authorities approve MG01CI and we successfully commercialize MG01CI. Accordingly, our ability to continue as a going concern will require us to obtain additional financing to fund our operations. According to our estimates, based on our budget, if we are not successful in obtaining additional capital resources, there is a substantial doubt that we will be able to continue our activities after March 31, 2013. The perception of our ability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, suppliers and employees.

Risks Related to Our Reliance on Third Parties

We have no manufacturing capacity and anticipate reliance on third-party manufacturers for our products.

We do not currently operate manufacturing facilities for clinical production of MG01CI. We do not intend to develop facilities for the manufacture of products for clinical trials or commercial purposes in the foreseeable future. We will rely on third-party manufacturers to produce bulk drug products required for our clinical trials. We plan to continue to rely upon contract manufacturers and, potentially, collaboration partners to manufacture commercial quantities of our drug product candidates if and when approved for marketing by the applicable regulatory authorities. Our contract manufacturers have not completed process validation for the drug substance manufacturing process. If our contract manufacturers are not approved by the FDA, our commercial supply of drug substance will be significantly delayed and may result in significant additional costs. We purchase finished MG01CI drug product from a third party under a clinical supply agreement. We do not have an agreement in place for, and we have not identified, a secondary fill/finish supplier. If we need to identify an additional fill/finish manufacturer, we would not be able to do so without significant delay and likely significant additional cost.

Our contract manufacturer’s failure to achieve and maintain high manufacturing standards, in accordance with applicable regulatory requirements, or the incidence of manufacturing errors, could result in patient injury or death, product shortages, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business. Contract manufacturers often encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel.

Our existing manufacturer and any future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business. In the event of a natural disaster, business failure, strike or other difficulty, we may be unable to replace a third-party manufacturer in a timely manner and the production of MG01CI would be interrupted, resulting in delays and additional costs.

In addition, because our contract manufacturers of the bulk drug substance are located outside of the United States, we may face difficulties in importing our drug substances into the United States as a result of, among other things, FDA import inspections, incomplete or inaccurate import documentation or defective packaging.

Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our current and potential future product candidates.

We may seek collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of our current and potential future product candidates. We may enter into these arrangements on a selective basis depending on the merits of retaining commercialization rights for ourselves as compared to entering into selective collaboration arrangements with other pharmaceutical or biotechnology companies for each product candidate, both in the United States and internationally. We will face, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we so chose to enter into such arrangements. The terms of any collaborations or other arrangements that we may establish may not be favorable to us.

Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations.

Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision making authority.

Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business reputation.

We currently depend on third parties to conduct our clinical trials.

We rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to oversee some of the operations of our clinical trials and to perform data collection and analysis. As a result, we may face additional delays outside of our control if these parties do not perform their obligations in a timely fashion or in accordance with regulatory requirements. If these third parties do not successfully carry out their contractual duties or obligations and 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 or for other reasons, our financial results and the commercial prospects for MG01CI or any other potential product candidates could be harmed, our costs could increase and our ability to obtain regulatory approval and commence product sales could be delayed.

Risks Related to Our Intellectual Property

We have filed multiple patent applications but have no issued patents, and there can be no assurance that any of our patent applications will result in issued patents. As a result, we may not be able to protect our proprietary technology in the marketplace.

We have filed patent applications in many countries worldwide. These applications cover a range of areas including: different formulations of Metadoxine, the use of Metadoxine for all cognitive impairments, combination therapy including Metadoxine, new molecular derivatives of Metadoxine and the manufacturing and production of Metadoxine API. Unless and until our pending applications issue, their protective scope is impossible to determine. It is impossible to predict whether or how many of these applications will result in issued patents. Even if pending applications issue, they may issue with claims significantly narrower than we currently seek.

Even if we are issued patents, because the patent positions of pharmaceutical products are complex and uncertain, we cannot predict the scope and extent of patent protection for MG01CI.

Any patents that may issue to use will not ensure the protection of our intellectual property for a number of reasons, including without limitation the following:

· any issued patents may not be broad or strong enough to prevent competition from other products including identical or similar products;

· if we are not issued patents or if issued patents expire, there would be no protections against competitors making generic equivalents;

· there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim;

· there may be other patents existing in the patent landscape for MG01CI that will affect our freedom to operate;

· if our patents are challenged, a court could determine that they are not valid or enforceable;

· a court could determine that a competitor’s technology or product does not infringe our patents;

· our patents could irretrievably lapse due to failure to pay fees or otherwise comply with regulations, or could be subject to compulsory licensing; and

· if we encounter delays in our development or clinical trials, the period of time during which we could market our products under patent protection would be reduced.

We may not be able to enforce our intellectual property rights throughout the world. This risk is exacerbated for us because Metadoxine is manufactured and used in a number of foreign countries in other applications.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This risk is exacerbated for us because Metadoxine is manufactured and used in a number of foreign countries in other applications and is widely available. The manufacture of Metadoxine and its use in other indications will not infringe our IP rights, and will make it more difficult to monitor and enforce any patent rights that may be issued to us.

The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of any in-licensed patents we may acquire or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.

We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing our products.

Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties. For example, there could be issued patents of which we are not aware that our products infringe. There also could be patents that we believe we do not infringe, but that we may ultimately be found to infringe. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products infringe. For example, pending applications may exist that provide support or can be amended to provide support for a claim that results in an issued patent that our product infringes.

Third parties may assert that we are employing their proprietary technology without authorization. If a court held that any third-party patents are valid, enforceable and cover our products or their use, the holders of any of these patents may be able to block our ability to commercialize our products unless we obtained a license under the applicable patents, or until the patents expire. We may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative technology could result in delays in the introduction of our products or lead to prohibition of the manufacture or sale of products by us.

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

We rely on trade secrets to protect our proprietary know-how and technological advances, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection could enable competitors to use our proprietary information to develop products that compete with our products or cause additional, material adverse effects upon our competitive business position.

Any lawsuits relating to infringement of intellectual property rights necessary to defend ourselves or enforce our rights will be costly and time consuming.

Our ability to defend our intellectual property may require us to initiate litigation to enforce our rights or defend our activities in response to alleged infringement of a third party. In addition, we may be sued by others who hold intellectual property rights who claim that their issued patents are infringed by MG01CI or any future products or product candidates. These lawsuits can be very time consuming and costly. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries generally.

In addition, our patents and patent applications, or those of our licensors, could face other challenges, such as interference proceedings, opposition proceedings, and re-examination proceedings. Any of these challenges, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our patents and patent applications subject to challenge. Any of these challenges, regardless of their success, would likely be time consuming and expensive to defend and resolve and would divert our management’s time and attention.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity. Therefore, obtaining and enforcing pharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. The United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the U.S. PTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

Risks Related to Our Business Operations and Industry

We manage our business through a small number of employees and key consultants. We depend on them even more than similarly-situated companies.

Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees and key consultants. The loss of the services of our chief executive officer or any of our key consultants or the inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results.

Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific and technical consultants. In particular, the loss of one or more of our senior executive officers or key consultants could be detrimental to us if we cannot recruit suitable replacements in a timely manner. We do not currently carry “key person” insurance on the lives of members of senior management. 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.

Failure to build our finance infrastructure and improve our accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.

As a public company, we will operate in an increasingly challenging regulatory environment which requires us to comply with the Sarbanes-Oxley Act and the related rules and regulations of the Securities and Exchange Commission and securities exchanges, expanded disclosures, accelerated reporting requirements and more complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. We will be required to disclose material changes made in our internal controls and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the date we are no longer an “emerging growth company” as defined in the JOBS Act, because we are taking advantage of the exemptions contained in the JOBS Act. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

To date, we have never conducted a review of our internal control for the purpose of providing the reports required by these rules. During the course of our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall.

To build our finance infrastructure, we will need to hire additional accounting personnel and improve our accounting systems, disclosure policies, procedures and controls. We are currently in the process of:

initiating our plans to upgrade our computer systems, including hardware and software;

establishing written policies and procedures; and

enhancing internal controls and our financial statement review process.

If we are unsuccessful in building an appropriate accounting infrastructure, we may not be able to prepare and disclose, in a timely manner, our financial statements and other required disclosures, or comply with existing or new reporting requirements. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The NASDAQ Capital Market or other adverse consequences that would materially harm to our business. If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.

We will need to significantly increase the size of our organization, and we may experience difficulties in managing growth.

We currently have only one employee and in order to commercialize our products, we will need to substantially increase our operations, including expanding our employee base of managerial, operational and financial personnel. Any future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. To that end, we must be able to:

manage our clinical trials and the regulatory process effectively;

develop our administrative, accounting and management information systems and controls;

hire and train additional qualified personnel; and

integrate current and additional management, administrative, financial and sales and marketing personnel.

Our business may be affected by macroeconomic conditions.

A deterioration in global economic conditions and uncertainties may have an adverse effect on our business. For instance, interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the value of our investments and our ability to liquidate our investments in order to fund our operations.

Interest rates and the ability to access credit markets could also adversely affect the ability of patients and distributors to purchase, pay for and effectively distribute our products. Similarly, these macroeconomic factors could affect the ability of our contract manufacturers, sole-source or single-source suppliers to remain in business or otherwise manufacture or supply product. Failure by any of them to remain a going concern could affect our ability to manufacture products.

Risks Related to this Offering and Ownership of Our Ordinary Shares

The market price of our ordinary shares may be highly volatile, and you may not be able to resell your shares at or above the initial public offering price.

Prior to this offering, there has not been a public market for our ordinary shares. If an active trading market for our ordinary shares does not develop following this offering, you may not be able to sell your shares quickly or at the market price. The initial public offering price for the shares will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market.

The trading price of our ordinary shares is likely to be volatile. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our ordinary shares:

	·	inability to obtain the approvals necessary to commence further clinical trials;

	·	unsatisfactory results of clinical trials;

	·	announcements of regulatory approval or the failure to obtain it, or specific label indications or patient populations for its use, or changes or delays in the regulatory review process;

announcements of therapeutic innovations or new products by us or our competitors;

adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;

changes or developments in laws or regulations applicable to MG01CI;

any adverse changes to our relationship with manufacturers or suppliers;

any intellectual property infringement actions in which we may become involved;

announcements concerning our competitors or the pharmaceutical industry in general;

achievement of expected product sales and profitability or our failure to meet expectations;

our commencement of, or involvement in, litigation;

any major changes in our board of directors or management; and

legislation in the United States relating to the sale or pricing of pharmaceuticals.

In addition, the stock market in general, and The NASDAQ Stock Market in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of small companies. Broad market and industry factors may negatively affect the market price of our ordinary shares, regardless of our actual operating performance. Further, a systemic decline in the financial markets and related factors beyond our control may cause our share price to decline rapidly and unexpectedly.

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.

Our principal shareholders, chief executive officer and directors currently own over 80% of our outstanding ordinary shares and will own approximately % of our ordinary shares upon the closing of this offering. They will therefore be able to exert significant control over matters submitted to our shareholders for approval.

After this offering, our chief executive officer and directors, and shareholders who own more than 5% of our outstanding ordinary shares before this offering will, in the aggregate, beneficially own approximately % of our ordinary shares (assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding options). This significant concentration of share ownership may adversely affect the trading price for our ordinary shares because investors often perceive disadvantages in owning stock in companies with controlling shareholders. As a result, these shareholders, if they acted together, could significantly influence or even unilaterally approve matters requiring approval by our shareholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of these shareholders may not always coincide with our interests or the interests of other shareholders.

If you purchase our ordinary shares in this offering, you will incur immediate and substantial dilution in the book value of your shares.

The initial public offering price is substantially higher than the net tangible book value per share of our ordinary shares. Investors purchasing ordinary shares in this offering will pay a price per share that substantially exceeds the net tangible book value of our ordinary shares. As a result, investors purchasing ordinary shares in this offering will incur immediate dilution of $ per share, based on the initial public offering price of $ per share, and our pro forma net tangible book value as of December 31, 2012. In addition, as of that date, options to purchase 127,923 of our ordinary shares at a weighted average exercise price of $4.00 per share were outstanding. The exercise of these options would result in additional dilution. As a result of this dilution, investors purchasing shares in this offering may receive significantly less than the purchase price paid in this offering in the event of liquidation. For more information, please refer to the section of this prospectus entitled “Dilution.”

Sales of a substantial number of shares 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 shares 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. Substantially all of the shares owned by our existing shareholders and option holders are subject to lock-up agreements with the underwriters of this offering that restrict the shareholders’ ability to transfer our ordinary shares for at least six months from the date of this prospectus. Substantially all of our outstanding shares will become eligible for unrestricted sale upon expiration of the lockup period, as described in the section of this prospectus entitled “Shares Eligible for Future Sale.” In addition, shares issued or issuable upon exercise of options and warrants vested as of the expiration of the lock-up period will be eligible for sale at that time. Sales of shares by these shareholders could have a material adverse effect on the trading price of our ordinary shares.

Our management will have broad discretion in the use of the net proceeds from this offering and may allocate the net proceeds from this offering in ways that you and other shareholders may not approve.

Our management will have broad discretion in the use of the net proceeds, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure of our management to use these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our shareholders.

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, our share price and trading volume 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 shares, or provide more favorable relative recommendations about our competitors, our share price 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 our share price or trading volume to decline.

Because we do not intend to declare cash dividends on our ordinary shares in the foreseeable future, shareholders must rely on appreciation of the value of our ordinary shares for any return on their investment.

We have never declared or paid cash dividends on our ordinary shares. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. As a result, only appreciation of the price of our ordinary shares, if any, will provide a return to investors in this offering.

The requirements associated with being a public company will require significant company resources and management attention.

Following this offering, we will become subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, the listing requirements of the securities exchange on which our ordinary shares is traded, and other applicable securities rules and regulations. The Securities Exchange Act of 1934 requires that we file periodic reports with respect to our business and financial condition and maintain effective disclosure controls and procedures and internal control over financial reporting. In addition, subsequent rules implemented by the SEC and The NASDAQ Stock Market may also impose various additional requirements on public companies. As a result, we will incur additional legal, accounting and other expenses that we did not incur as a nonpublic company, particularly after we are no longer an “emerging growth company” as defined in the JOBS Act. Further, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our development plans. We have made changes to our corporate governance standards, disclosure controls and financial reporting and accounting systems to meet our reporting obligations. The measures we take, however, may not be sufficient to satisfy our obligations as a public company, which could subject us to delisting of our ordinary shares, fines, sanctions and other regulatory action and potentially civil litigation.

The recently enacted JOBS Act and our status as a foreign private issuer will allow us to postpone the date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence in our company and adversely affect the market price of our ordinary shares.

For so long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies” including:

the provisions of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;

the “say on pay” provisions requiring a non-binding shareholder vote to approve compensation of certain executive officers and the “say on golden parachute” provisions requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations of the Dodd-Frank Act and some of the disclosure requirements of the Dodd-Frank Act relating to compensation of our chief executive officer;

the requirement to provide detailed compensation discussion and analysis in proxy statements and reports filed under the Securities Exchange Act of 1934, and instead provide a reduced level of disclosure concerning executive compensation;

our ability not to comply with new accounting principles that do not apply to public companies until such accounting principles become applicable to private companies;

any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements; and

our ability to furnish two rather than three years of income statements and statements of cash flows in various required filings.

We intend to take advantage of these exemptions until we are no longer an “emerging growth company.” We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30^th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Our status as a foreign private issuer also exempts us from compliance with certain SEC laws and regulations and certain regulations of The NASDAQ Stock Market, including the proxy rules, the short-swing profits recapture rules, and certain governance requirements.

We cannot predict if investors will find our ordinary shares less attractive because we may rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares, and our share price may be more volatile and may decline.

Risks Related to Israeli Law and Our Operations in Israel

Our headquarters and other significant operations are located in Israel and, therefore, our results may be adversely affected by political, economic and military instability in Israel.

Our executive offices are located in Tel-Aviv, Israel. In addition, the majority of our officers and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. During November 2012, Israel was engaged in an armed conflict with a militia group and political party which controls the Gaza Strip, and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. These conflicts involved missile strikes against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.

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

Our operations may be disrupted as a result of the obligation of management or key personnel to perform military service.

Our male employees and consultants in Israel, including members of our senior management, may be obligated to perform one month, and in some cases longer periods, of annual military reserve duty until they reach the age of 45 (or older, for citizens who hold certain positions in the Israeli armed forces reserves), and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be similar large-scale military reserve duty call-ups in the future. Our operations could be disrupted by the absence of a significant number of our officers, directors, employees and consultants. Such disruption could materially adversely affect our business and operations.

Exchange rate fluctuations between the U.S. dollar and the New Israeli Shekel currencies may negatively affect our earnings.

We incur expenses both in U.S. dollars and New Israeli Shekels. Our functional currency is the U.S. dollar. As a result, we are exposed to the risks that the New Israeli Shekel may appreciate relative to the U.S. dollar, or, if the New Israeli Shekel instead devalues relative to the U.S. dollar, that the inflation rate in Israel may exceed such rate of devaluation of the New Israeli Shekel, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, the U.S. dollar cost of our operations in Israel would increase and our U.S. dollar-denominated results of operations would be adversely affected. We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the New Israeli Shekel against the U.S. dollar.

In the past, we received Israeli government grants for certain of our research and development activities. The terms of those grants may require us, in addition to payment of royalties, to satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel. We may be required to pay penalties in addition to repayment of the grants.

Our research and development efforts, during the period between May 1, 2009 and April 30, 2010, were financed in part through royalty-bearing grants, in an amount of $106,494 that we received from Israel's Office of the Chief Scientist of the Ministry of Industry, Trade and Labor, or OCS. With respect to such grants we are committed to pay royalties at a rate of 3% to 5% on sales proceeds from MG01CI, up to the total amount of grants received, linked to the dollar and bearing interest at an annual rate of LIBOR applicable to dollar deposits. Regardless of any royalty payment, we are further required to comply with the requirements of the Israeli Encouragement of Industrial Research and Development Law, 5744-1984, and related regulations, or the Research Law, with respect to those past grants. When a company develops know-how, technology or products using OCS grants, the terms of these grants and the Research Law restrict the transfer 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 OCS. Therefore, if aspects of our technologies are deemed to have been developed with OCS funding, the discretionary approval of an OCS committee would be required for any transfer to third parties outside of Israel of know how or manufacturing or manufacturing rights related to those aspects of such technologies. We may not receive those approvals. Furthermore, the OCS may impose certain conditions on any arrangement under which it permits us to transfer technology or development out of Israel.

The transfer of OCS-supported technology or know-how outside of Israel may involve the payment of significant amounts, depending upon the value of the transferred technology or know-how, the amount of OCS support, the time of completion of the OCS-supported research project and other factors. These restrictions and requirements for payment may impair our ability to sell 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 OCS funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the OCS.

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.

Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date on which a merger proposal is filed by each merging company with the Israel Registrar of Companies and at least 30 days have passed from the date on which the shareholders of both merging companies have approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, a tender offer for all of a company's issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98% of the Company's outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition, unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal rights.

Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. See “Taxation—Israeli Tax Considerations” for additional information.

Our amended and restated articles of association that will be in effect immediately prior to the consummation of this offering will also contain provisions that could delay or prevent changes in control or changes in our management without the consent of our board of directors. These provisions will include the following:

	·	no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; and

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors.

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 prospectus 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. Substantially all of our executive officers and directors reside outside of the United States, and all of our assets and most of the assets of these persons are located outside of the United States. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not necessarily be enforced by an Israeli court. It also may be difficult for you to effect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to United States securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of United States securities laws reasoning that Israel is not the most appropriate forum in which 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 United States law is applicable to the claim. If United States law is found to be applicable, the content of applicable United States law must be proven as a fact by expert witnesses, 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 that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a United States or foreign court. See "Enforceability of Civil Liabilities" for additional information on your ability to enforce a civil claim against us and our executive officers or directors named in this prospectus.

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

The rights and responsibilities of the holders of our ordinary shares are governed by our amended and restated articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has certain duties to act in good faith and fairness towards the Company and other shareholders, and to refrain from abusing its power in the Company. See "Management—Approval of Related Party Transactions under Israeli Law—Shareholder Duties" for additional information. There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements made under “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus constitute forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” “intends” or “continue,” or the negative of these terms or other comparable terminology.

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

FDA approval of, or other regulatory action with respect to, MG01CI;

the commercial launch and future sales of MG01CI or any other future products or product candidates;

our ability to achieve favorable pricing for MG01CI;

our expectations regarding the commercial supply of our ADHD products;

third-party payor reimbursement for MG01CI;

our estimates regarding anticipated capital requirements and our needs for additional financing;

the ADHD patient market size and market adoption of MG01CI by physicians and patients;

the timing, cost or other aspects of the commercial launch of MG01CI;

the timing and cost of Phase III trials for MG01CI or whether such trials will be conducted at all;

completion and receiving favorable results of Phase III trials for MG01CI;

the development and approval of the use of MG01CI for additional indications or in combination therapy; and

our expectations regarding licensing, acquisitions and strategic operations.

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. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors” and elsewhere in this prospectus. 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. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus.

USE OF PROCEEDS

We currently expect to use the net proceeds from this offering for:

completing a Phase II/III trial of MG01CI for adult ADHD, estimated at $6,000,000;

preparing for our proposed Phase III clinical trials for MG01CI, including engaging US and EU regulatory agencies in discussions related to protocols for the trials, estimated at $1,000,000 to $3,000,000;

evaluating MG01CI in additional disorders of cognitive function, estimated at $1,000,000 to $2,000,000; and

the remainder for working capital and general corporate purposes.

The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our development and commercialization efforts, the status of and results from our clinical trials, whether or not we enter into strategic collaborations or partnerships, and our operating costs and expenditures. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering.

We have no current understandings, commitments or agreements with respect to any material acquisition of or investment in any technologies, products or companies.

We do not expect that these funds will be adequate to complete our proposed Phase III trials, which will require us to raise additional funds for this purpose.

DIVIDEND POLICY

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 Israeli Companies Law imposes further restrictions on our ability to declare and pay dividends. See “Description of Share Capital—Dividend and Liquidation Rights” for additional information.

Payment of dividends may be subject to Israeli withholding taxes. See “Taxation—Israeli Tax Considerations” for additional information.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2012:

on an actual basis;

on a pro forma basis to give effect to the mandatory conversion of our Convertible Notes at the closing of this offering; and

on a pro forma, as adjusted, basis to also give effect to the sale of ordinary shares in this offering at the initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the conversion of Convertible Notes in the principal amount of $600,000 (as of December 31, 2012) at the closing of the offering, as if the sale of the shares in each case had occurred on December 31, 2012.

You should read this table in conjunction with the sections titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

	December 31, 2012
(in thousands, except share and per share data)	Actual			Pro Forma (unaudited)	Pro Forma as adjusted (unaudited)
Convertible Notes	$	662		$	$	–
Ordinary shares of NIS 0.01 par value - 10,000,000 shares authorized at December 31, 2012 and 2011; 1,379,656 and 1,379,235 issued shares at December 31, 2012 and 2011, respectively; 1,327,812 and 1,379,235 shares outstanding at December 31, 2012 and 2011, respectively		4
Additional paid-in capital		7,615
Deficit accumulated during the development stage		(8,186	)
Total shareholders’ equity (deficiency)		(567	)
Total capitalization	$	95		$	$

The outstanding share information above excludes:

130,229 shares issuable upon the exercise of share options outstanding as of December 31, 2012 under our equity incentive plan;

1,194 shares reserved as of December 31, 2012 for future grants under our equity incentive plan.

As of December 31, 2012, we had Convertible Notes outstanding in the aggregate redemption amount of $662,000. This debt will be converted into ordinary shares at the closing of the offering at a conversion price equal to 75% of the initial public offering price.

DILUTION

If you invest in our ordinary shares, you will experience immediate and substantial dilution to the extent of the difference between the initial public offering price of our ordinary shares and the pro forma as adjusted net tangible book value (deficit) per share of our ordinary shares immediately after the offering.

Our historical net tangible book value (deficit) per share is determined by dividing our total tangible assets, less total liabilities, by the actual number of outstanding ordinary shares. The historical net tangible book value (deficit) of our ordinary shares as of December 31, 2012 was $(567,000 ), or $(0.43) per share.

The pro forma as adjusted net tangible book value (deficit) of our ordinary shares as of December 31, 2012 was $_____, or $ per share. The pro forma as adjusted net tangible book value (deficit) gives effect to the sale of ordinary shares in this offering at the initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The difference between the initial public offering price and the pro forma as adjusted net tangible book value (deficit) per share represents an immediate dilution of $ per share to new investors purchasing ordinary shares in this offering.

The following table illustrates this dilution on a per share basis to new investors:

If the underwriters’ over-allotment option to purchase additional shares from us is exercised in full, and based on the initial public offering price of $ per share, the pro forma as adjusted net tangible book value (deficit) per share after this offering would be approximately $ per share, the increase in the pro forma net tangible book value (deficit) per share attributable to new investors would be approximately $ per share and the dilution to new investors purchasing shares in this offering would be approximately $ per share.

The table below summarizes as of December 31, 2012, on the pro forma as adjusted basis described above, the number of ordinary shares we issued and sold, the total consideration we received and the average price per share (1) paid by our existing shareholders and (2) to be paid by new investors purchasing our ordinary shares in this offering at the initial public offering price of $ per share, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

	Shares Purchased					Total Consideration					Average Price
	Number		Percent			Amount		Percent			Per Share
Existing shareholders		___		___	%	$	___		___	%	$
New investors					%
Total	$			100	%	$		$	100	%	$

The number of ordinary shares outstanding immediately after this offering is based on 1,327,812 ordinary shares outstanding as of December 31, 2012 and giving effect to the pro forma transactions described above. This number excludes:

130,229 shares issuable upon the exercise of share options outstanding as of December 31, 2012 under our equity incentive plan;

1,194 shares reserved as of December 31, 2012 for future grants under our equity incentive plan.

To the extent that new options are granted under our equity benefit plans, there will be further dilution to investors purchasing ordinary shares in this offering.

SELECTED FINANCIAL DATA

(in thousands of U.S. dollars, except share and per share amounts) (in of U.S. dollars, except share and per share amounts)
	Years ended December 31,
	2012		2011
Statements of Operations Data:

Research and development expenses	$	818	$	1,822

General and administrative expenses		683		2,084

Financial expense, net		78		23

Deemed dividend		-		180

Loss attributable to holders of ordinary shares		1,579		4,109

Weighted average number of ordinary shares used in computing basic and diluted net loss per share		1,327,416		1,336,182

*(in thousands of U.S. dollars)*		Year Ended December 31, 2012
		Actual			Pro forma (unaudited) (1)(2)		Pro forma, as adjusted (unaudited)

Balance Sheet Data:

Total long-term assets	$	21		$		$

Total current liabilities		768

Shareholders equity (deficiency)		(567	)

(1) Gives effect to the mandatory conversion of our outstanding Convertible Notes on the closing of this offering.

(2) Gives effect to the sale of ordinary shares in this offering at the initial public offering price of $ per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as if the sale had occurred on December 31, 2012.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of the prospectus 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 “Risk Factors” and elsewhere in this prospectus.

Introduction

We are an emerging biopharmaceutical company primarily focused on the development and commercialization of a proprietary drug, MG01CI, to treat Attention Deficit Hyperactivity Disorder, or ADHD. In September 2011, we completed a 120-patient double-blind Phase II study that demonstrated that MG01CI provides a well-tolerated, immediate and effective treatment for ADHD patients with impaired inattention and executive function symptoms. We plan to initiate regulatory discussions with the U.S. and EU regulatory agencies in within six months, and if these discussions are successful, we plan to conduct advanced clinical trials in order to obtain marketing approval for MG01CI for adults in these regions, followed by clinical trials in order to obtain marketing approval for pediatric use. If these discussions are not successful, we will have to re-design and conduct additional preliminary trials.

Our financing activities are described below under “Liquidity and Capital Resources.” We will need to raise additional funds to achieve our long-term strategic objectives, including at least two Phase III clinical trials. If the results of our Phase III trial will be successful, we plan to submit an NDA to the FDA. Obtaining approval of an NDA is an extensive, lengthy, expensive and uncertain process, and the FDA (and other regulatory agencies) may delay, limit or deny approval of MG01CI.

Financial Overview

Operating Expenses

Our current operating expenses consist of two components— research and development expenses, and general and administrative expenses.

Research and Development Expenses

Our research and development expenses consist primarily of payments to third party clinical consultants, expenses related to conducting clinical trials, salaries and related personnel expenses, travel expenses, and share-based compensation expenses to research and development employees.

We expect that our research and development expenses will increase as we conduct at least two Phase III clinical trials that are broader than our Phase II trial prior to submitting an NDA to the FDA. The Company plans to conduct two Phase III trials in adults with ADHD, each including 250 patients, in 2014, as well as a Phase I/II pediatric study in 2014.

General and Administrative Expenses

General and administrative expenses consist primarily of salary and compensation costs paid to our CEO, share- based compensation expenses, payments to our CFO, professional service fees for accounting, legal, bookkeeping and facilities costs (including rent expense for our facility in Tel Aviv Israel), and depreciation expenses.

We expect our general and administrative expenses to increase after we become a U.S. public company, such as accounting and legal fees, and expected increases in the number of our executive, accounting and administrative personnel due to the expected growth of our company.

Financial Expense and Income

Financial expense and income consist of bank fees and other transactional costs, exchange rate differences, financial expenses related to our outstanding convertible notes and interest earned on our cash, cash equivalents and short-bank deposits.

Critical Accounting Policies and Estimate

We describe our significant accounting policies more fully in Note 2 to our financial statements for the year ended December 31, 2012. 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 accounting principles generally accepted in the United States ("U.S. GAAP").

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. Our management believes that the estimates, judgments 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 and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

JOBS Act

On April 5, 2012, the U.S. Congress enacted the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are electing to delay such adoption of new or revised accounting standards. Additionally, we are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act.

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company”, we intend to rely on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an “emerging growth company,” whichever is earlier.

Stock-Based Compensation and Fair Value of Ordinary Shares

We account for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation,” which requires companies to estimate the fair values of equity-based payments awards on the date of grant using an option-pricing model. The value of the stock options is recognized as an expense over the requisite service periods in our statement of operations. We recognize compensation expenses for the value of our awards granted based on the straight-line method over the requisite service period of each of the awards.

We selected the Black-Scholes-Merton ("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 - Since the Company is not traded on any stock exchange market, quoted prices of our shares are unavailable. According to ASC 718-10-30-20, in case of no historical data for a company, the expected volatility was based on similar companies' stock volatility.

Risk free interest rate - The risk free interest rate is based on the yield of U.S. Treasury bonds with equivalent terms.

Expected term - ASC 718 provides the factors to consider when estimating the expected term of an option: An option’s expected term must at least include the vesting period and the Employees’ historical exercise and post-vesting employment termination behavior for similar grants. It also determines that if the amount of past exercise data is limited, that data may not represent a sufficiently large sample on which to base a robust conclusion on expected exercise behavior. In that circumstance, it may be appropriate to consider external data or the SEC staff’s “simplified” method to the expected term. Accordingly, we used the "simplified" method, meaning the expected life is set as the average of the vesting period for each vested tranche of options and the contractual term for those options.

Share price - Because there has been no public market for our ordinary shares, the fair value of the ordinary shares underlying the options had been determined by the Company's management, using the assistance of an independent valuation firm.

We did not grant options to employees or directors in 2011 and 2012 (other than two grants as stated in Note 9(c) to the financial statements included herein, for which no compensation expense was recorded). For options granted up until December 31, 2010, the fair value of the ordinary shares was based on the application of Option-Pricing Method ("OPM"). The first step in performing a valuation using OPM involves estimating the present value of the total shareholders’ equity (preferred and Ordinary). As part of our analysis, we used recent investment rounds, respectively to the option valuation dates; in the Company shares in order to evaluate the Company's present value of the total shareholders' equity.

Under the option-pricing method, we estimated the fair value of the ordinary shares as the net value of a series of call options, representing the present value of the expected future returns to the Ordinary shareholders. Essentially, the rights of the Ordinary shareholders are equivalent to a call option on any value of the Company above the respective preferred shareholders’ liquidation preferences, with adjustment to account for the rights retained by the preferred shareholders related to their share in any value above the values at which they would convert to ordinary shares. Thus, the ordinary shares were valued by estimating the value of its share in each of these call option rights.

Results of Operations

	December 31, 2012
	2012		2011
	(in thousands US$)

Research and development expenses	$	818	$	1,822

General and administrative expenses		683		2,084

Operating loss		1,501		3,906

Financial Expense, net		78		23

Net Comprehensive loss	$	1,579	$	3,929

Deemed dividend		-		180

Net loss attributable to holders of ordinary shares	$	1,579	$	4,109

Comparison of the Year Ended December 31, 2012 to the Year Ended December 31, 2011

Research and development expenses

Our research and development expenses amounted to $818,000 for the year ended December 31, 2012, representing a decrease of $1,004,000, or 55%, compared to $1,822,000 for the year ended December 31, 2011. The decrease resulted primarily from an decrease in payroll related expenses of $105,000, reflecting a decrease in the number of employees engaged in research and development related activities from four to one, a decrease in cost of third party clinical constantans and expenses related to conducting clinical trials of $801,000 due to an decrease in our clinical trials, and a decrease of $60,000 in travel expenses.

General and administrative expenses

Our general and administrative expenses totaled $683,000 for the year ended December 31, 2012, a decrease of $1,401,000, or 67%, compared to $2,084,000 for the year ended December 31, 2011. In 2011, we recorded share based compensation expenses in the amount of $1,535,000. This reduction was offset by an increase of $50,000 in professional services and an additional increase of $40,000 in travel expenses.

Operating loss

As a result of the foregoing, our operating loss for the year ended December 31, 2012 was $1,501,000, as compared to an operating loss of $3,906,000 for the year ended December 31, 2011, an decrease of $2,405,000, or 62%.

Financial expense

We recognized financial expenses of $78,000 for the year ended December 31, 2012, representing an increase of $55,000, or 239%, compared to financial expenses of $23,000 for the year ended December 31, 2011.

Loss

As a result of the foregoing, our loss for the year ended December 31, 2012 was $1,579,000, as compared to $3,929,000 for the year ended December 31, 2011, a decrease of $2,350,000, or 62%.

Liquidity and Capital Resources

Overview

Since our inception through December 31, 2012, we have funded our operations principally with $5.8 million from the sale of ordinary shares, preferred shares and convertible loans. As of December 31, 2012, we had $97,000 in cash and cash equivalents.

	Years Ended, December 31,
	2012			2011
	(in thousands US$)

Operating activities	$	(1,585	)	$	(2,361	)

Investing activities		1,026			(1,041	)

Financing activities		601			2,620

Net increase (decrease) in cash and cash equivalents		42			(782	)

Operating Activities

Net cash used in operating activities of $2.4 million during the year ended December 31, 2011 was primarily a result of our $3.9 million net loss, offset by non-cash expenses of $1.6 million for stock-based compensation. Net cash used in operating activities of $1.6 million during the year ended December 31, 2012 was primarily a result of our $1.6 million net loss.

Investing Activities

Net cash used in investing activities during 2011 was $1 million primarily reflected our use of cash to invest in short-term bank deposits, and increase in restricted bank deposits. In 2012, we withdrew these deposits into cash.

Financing Activities

Net cash provided by financing activities in the year ended December 31, 2011 consisted of $2.1 million of net proceeds from issuance of ordinary shares, and $0.5 million proceeds from loan. Net cash provided by financing activities in the year ended December 31, 2012 consisted of $0.6 million of net proceeds from convertible notes.

Current Outlook

Our independent registered public accounting firm’s report to our financial reports for the fiscal year ended December 31, 2012, states that there is a substantial doubt that we will be able to continue as a going concern. Furthermore, according to our estimates, based on our budget, if we are not successful in obtaining additional capital resources, there is a substantial doubt that we will be able to continue our activities after March 31, 2013. Even if we are able to raise funds in the offering contemplated herein, we believe that we will need to raise additional funds before we have any cash flow from operations.

We believe that our existing cash resources and the net proceeds from the current offering will be sufficient to fund our projected cash requirements approximately through the conclusion of 2014. Nevertheless, we will require significant additional financing in the future to fund our operations if and when we obtain regulatory approval of MG01CI and commercialize the drug. We currently anticipate that, assuming consummation of the current offering, we will utilize approximately $6 million for clinical trial activities over the course of the next 18 months. We also anticipate utilizing approximately between $1 million to $3 million for capital expenditures over such 18-month period, which consists primarily of expenditures for the manufacture of our drug candidate for use in clinical trials and supporting pre-clinical studies required for obtaining approval to conduct such clinical studies. Our future capital requirements will depend on many factors, including:

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

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

the costs and timing of obtaining regulatory approval for our drug candidate;

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

the costs of, and timing for, strengthening our manufacturing agreements for production of sufficient clinical and commercial quantities of our drug candidate;

the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally;

the costs of acquiring or undertaking the development and commercialization efforts for additional, future therapeutic applications of our drug candidate;

the magnitude of our general and administrative expenses;

any cost that we may incur under current and future in- and out-licensing arrangements relating to our drug candidate; and

payments that are owed to the OCS.

Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through the net proceeds from the current offering, debt or equity financings, or by out-licensing applications of our drug candidate. 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, one or more applications of our drug candidate. This may raise substantial doubts about the Company’s ability to continue as a going concern.

Contractual Obligations

The following table summarizes our significant contractual obligations at December 31, 2012:

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in thousands US$)
Operating leases:
Facility		4		4		-		-		-
Motor Vehicles		17		14		3		-		-

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

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 market risk exposure is primarily a result of foreign currency exchange rates.

Foreign Currency Exchange Risk

Our results of operations and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. Certain of our expenses are denominated in New Israeli Shekels. Our results of operations and cash flow are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. 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.

BUSINESS

ADHD is a treatable condition. The most commonly used therapeutic drugs are stimulants (Schedule II, Controlled Substances), such as Ritalin, Adderall, Vyvanse and Concerta, which are all dopaminergic (related to dopamine) compounds with significant abuse and misuse potential because their use may lead to severe psychological or physical dependence. In addition, stimulants have numerous side effects, such as uncomfortable mental states, interference with sleep and appetite, development of nervous ticks and potential cardiovascular effects resulting from increased blood pressure. These side effects have limited effective treatment in those taking the drugs and have also dramatically limited medication adherence rates. Up to 30% to 50% of those who are prescribed stimulants for ADHD either do not respond or cannot tolerate these treatments, and only about 20% of those prescribed with stimulants renew their prescription the following month. There also is a non-stimulant drug on the market called Strattera (Atomoxetine), launched in 2003. This drug also has significant side effects, such as fatigue, decreased appetite, sexual problems, palpitations, increased heart rate and high blood pressure and also has regulatory warning labels relating to suicidal thoughts and liver damage. Moreover, Strattera takes 6-10 weeks to achieve full clinical effectiveness. More recently, two additional non-stimulant medications with similar safety and efficacy profiles were approved for use only in children (Guanfacine and Clonidine). These two drugs have not had significant commercial success. All approved ADHD drugs need to be carefully monitored by the treating physician to optimize the dose, starting with a low dose and slowly escalating to the most effective and tolerable dose.

In contrast to the most common available treatments which involve the use of stimulants, MG01CI is a non-stimulant with a differentiated mechanism of action that is neither dopaminergic (related to dopamine) nor noradrenergic (containing norepinephrine). Our 120-patient Phase II study showed significant clinical improvement in clinical symptoms with higher response rates, and a more rapid onset than available non-stimulants. The trial also demonstrated favorable tolerability with no significant side effects over a placebo. MG01CI therefore potentially represents a safer alternative to stimulant-based treatments and a more tolerable and effective treatment than the non-stimulants which are currently in the market . Additionally, because of its unique mechanism of action and specific clinical effect on inattention and executive function, we believe that MG01CI possibly may be useful in treating additional cognitive disorders, such as schizophrenia, mild cognitive impairment in Alzheimer’s disease, Tourette’s syndrome and cognitive impairment in mood disorders.

Market Overview

About ADHD

The U.S. ADHD market size in 2011 has been estimated to be $3.8 billion, which accounted for approximately 90% of the global ADHD market. The difference in market sizes between US and non-US sales does not stem from a difference in sales volumes, but simply the lack of significant sales of innovative ADHD drugs outside the US (non-US markets are dominated by generic drugs). Global prevalence rates of the disease are estimated to be approximately 8-10% of school-aged children and approximately 4-5% of the adult population. Adult diagnosis and treatment is forecast to grow in the near future due to increased disease awareness and less sociological stigmatization towards the condition. In the United States, the diagnosis rate is approximately 51% in children and 31% in adults with consequent treatment rates of approximately 70% in children and 49% in adults. Overall, the U.S. market is forecast to grow at a compound annual growth rate (CAGR) of 7.3% per annum and reach $6.2 billion by 2018. The global ADHD market is forecast to grow at a CAGR of 8.0% in part because higher disease recognition is expected in Japan and Europe due to the adoption of the broader diagnostic criteria prevalent in the U.S. Further, these predominant criteria are expected to broaden further in 2013. Also, the estimated growth for the non-US markets is higher due to prospective approval dates for major ADHD drugs that have already been marketed in the U.S., such as Vyvanse, Intuniv and Kapvay. Despite upcoming patent expiration dates and the entry of several generic compounds, the market size is expected to grow further as new drugs enter the market and compensate for the generic erosion.

Development of ADHD Symptoms

Once perceived to only affect children, ADHD is now known to persist into adolescence and adulthood in a sizeable number of cases. The following graphic illustrates how the nature of ADHD symptoms change with age:

Children

Adolescents

Adults

Hyperactive

Aggressive

Low frustration tolerance

Impulsive

Easily distracted

Inattentive

Shifts activities

Easily bored

Impatient

Restless

A recent study showed that approximately 46% of adults who suffered from ADHD as children continue to have symptoms of the disorder as adults, with approximately 95% experiencing attention deficit symptoms and about 35% of them experiencing hyperactivity- impulsivity symptoms. As the majority of sufferers of ADHD age, their symptoms tend toward impatience, restlessness, boredom and low concentration levels from the more aggressive hyperactivity and impulsive behavior evident in children.

Although the definitive causes of ADHD are still unclear, current research suggests that ADHD is caused by an interaction between environmental factors and genetic predispositions. Biologic factors that reportedly increase the risk of having ADHD include maternal smoking, drug or alcohol abuse during pregnancy, brain injury and exposure to toxins. Furthermore, diet may play a role in ADHD.

Impact of Untreated and Undertreated ADHD

ADHD is believed to be one of the most under-diagnosed and under-treated mental health conditions facing children and adults. ADHD increases health risks, adverse social externalities and economic costs as illustrated in the following table. Despite the disorder being highly treatable, most adults with ADHD remain undiagnosed and untreated.

The following illustrates the effects on society when ADHD remains untreated:

Healthcare System

ñ 50% in bicycle accidents

ñ 33% in ER visits

2-4x more car accidents

Patient

ñ criminal activity

ñ incarceration

Family

3-5x more divorce/separation

2-4x more sibling fights

School and Occupation

46% expelled

35% drop out

Lower occupational status

Society

Substance use disorders:

2x risk and earlier onset

Less likely to quit in adulthood

Employer

Increased parental absenteeism and lower productivity

Diagnosis of ADHD

The diagnosis of ADHD is obtained by a psychiatric assessment which is intended to eliminate other potential causes. A formal diagnosis is completed by a qualified physician and is based on a number of set criteria. The DSM-IV diagnostic criteria are most widely used to diagnose ADHD in North America.

· DSM-IV criteria. The American Psychiatric Association provides a set of standardized criteria for classifying mental disorders known as the Diagnostic and Statistical Manual of Mental Disorders (DSM). These criteria are based on the premise that attention deficits are distinct and differentiated conditions that are abnormalities resulting from biological origins that can be reliably and objectively measured. The diagnostic criteria include:

Inattention – the patient makes careless mistakes in activities and is easily distracted

Hyperactivity – the patients fidgets, squirms, talks excessively or displays restless behavior

Impulsiveness – the patient interrupts others and cannot wait for a turn

There must be clear evidence of significant impairment in social, school, or work functioning

Signs of impairment present before 7 years of age and present in two or more settings (school/work and home)

Signs are not better accounted for by another mental disorder

The DSM-IV criteria are becoming more prevalent as the diagnostic measure for ADHD in Europe and Japan. If the DSM-IV criteria are used, rather than an alternative measure in declining use, a diagnosis of ADHD is 3–4 times more likely. Consequently, the size of the market in Europe and Japan is set to grow with improved diagnosis rates driven by adoption of the DSM-IV criteria.

Key Products and Market Participants

The principal pharmaceutical companies marketing drugs to treat ADHD are shown in the following table, together with the drug brand name, patent expiration date, class/method of action and reported 2011 sales.

Brand Name	Company	Patent Expires	Class/Method of Action	2011 Sales
Vyvanse	Shire	June 2023	Stimulant (Dopamine reuptake inhibitor)	$1272 million

Concerta	J&J	May 2011	Stimulant (Dopamine reuptake inhibitor)	$682 million

Adderall XR	Shire	2012	Stimulant (Dopamine reuptake inhibitor)	$953 million

Strattera	Eli Lilly	August 2010	Non-Stimulant (NE reuptake inhibitor)	$620 million

Focalin	Novartis	December 2015	Stimulant (Dopamine reuptake inhibitor)	$340 million

Ritalin/ Ritalin LA	Novartis	2015	Stimulant (Dopamine reuptake inhibitor)	$490 million

Intuniv	Shire	September 2015	Non-Stimulant (NE receptor agonist)	$223 million

Dextro- amphetamine ER	Teva	N/A	Stimulant (Dopamine reuptake inhibitor)	$269 million

Adderall IR	Teva	N/A	Stimulant (Dopamine reuptake inhibitor)	$29 million

In addition to the foregoing drugs, neuropsychological tools are being used in the diagnosis of ADHD, and there are exploratory studies being conducted to assess the potential efficacy of neurofeedback in the treatment of ADHD.

Limitations of Current Treatment Options for ADHD

Because of the significant side effects and abuse potential associated with current stimulant treatment options for ADHD which are narcotics, there is a significant need to develop safe and effective non-stimulant/non-narcotic treatment alternatives.

Historically, the first line treatment for ADHD was stimulants, such as methylphenidate and amphetamine. These are classified as Schedule II controlled substances that can cause dependence and abuse. The danger of prescription drug abuse is one of the main causes of low treatment rates, particularly by primary care physicians (PCPs) who are the largest group of prescribers. All but one of the current drugs on the market to treat adult ADHD are stimulants. Strattera is the only drug currently on the market for adults that is a non-stimulant. Strattera has been effective, but it also has serious side effects, such as fatigue, decreased appetite, sexual problems, palpitations, increased heart rate, blood pressure, and regulatory warning labels on suicidal thoughts and liver damage. Moreover, Strattera also takes 6-10 weeks to achieve full clinical effects. New non-stimulant therapies, such as MG01CI, will not have the risk of abuse and do not have significantly delayed effect, and we believe that their market entry should increase treatment rates and drive market growth.

While stimulants have been shown to be effective for the treatment of ADHD, up to 30% to 50% of those who are prescribed stimulants for ADHD either do not respond or cannot tolerate these treatments. Consequently, medication adherence rate for these ADHD therapies is poor, with less than 20% of prescriptions re-filled beyond the first month. Therefore, there is a significant need to develop safe and effective non-stimulant treatment alternatives, particularly ones devoid of abuse potential and significant side effects.

Our Strategy

Our objective is to develop and commercialize proprietary pharmaceutical products for treatment of central nervous system disorders, and cognitive dysfunctions in particular. To this effect, we intend to conduct additional clinical trials for our most advanced product (MG01CI) and, if those trials are successful, seek marketing approval from the U.S. Food and Drug Administration, or FDA, and other worldwide regulatory bodies for MG01CI for the treatment of ADHD in adults and children. We also plan to advance clinical studies and commercialization plans for MG01CI in additional indications of cognitive dysfunction which present significant market opportunities such as mood disorders, memory impairment, autism, and shift work/jet lag. Finally, we intend to develop products other than MG01CI that we have invented or that may be acquired by the Company. To achieve these objectives, we plan to:

Initiate and complete clinical trials in a pediatric ADHD population, and, if successful, file for marketing approval for that use in the U.S. and EU.

Initiate and complete clinical trials in Japan for both adult and pediatric ADHD, and, if successful, file for marketing approval of such uses in that country.

Prepare to commercialize MG01CI for the treatment of patients with ADHD by establishing distribution capabilities primarily in conjunction with large pharmaceutical companies.

Conduct clinical investigations into the possible use of MG01CI to treat other cognitive disorders and impairments such as mood disorders, memory impairment, autism and shift work/jet lag.

Conduct development of additional new molecules in Alcobra's pipeline that are protected by patents, or in-license products in similar therapeutic areas.

MG01CI Overview and Mechanism of Action

MG01CI is a proprietary, combined rapid onset/extended release formulation of the chemical Pyridoxine Pyroglutamate, which is more broadly known as Metadoxine. Our internal studies suggest that, in technical terms, Metadoxine is a specific antagonist of a 5-hydroxytryptamine receptor of the 2b subtype, implicated genetically in ADHD and molecularly in control of dopamine outflow. This particular receptor has been implicated in control of neurological pathways that are involved in ADHD dysregulation, but no approved or investigational drug has yet to display this profile other than ours. MG01CI consists of a single oral tablet, which includes both a rapid onset release Metadoxine formulation and an extended release Metaxdoxine formulation together providing the desired dual release profile. The new extended-release formulation prolongs the serum levels of Metadoxine for up to 12 hours, which results in enhanced efficacy benefits.

Metadoxine has been available since the 1980’s in immediate release forms for the acute treatment of alcohol intoxication and the chronic treatment of alcoholic liver disease. Metadoxine was approved for these indications in Italy, Portugal, Hungary, Russia, India, China, Mexico and Thailand. A literature survey covering over 20 years of post-marketing surveillance identifies only a few cases of minor adverse events. To our knowledge, no drug-related serious adverse events have ever been reported. We have multiple claims in our pending patent applications that, if issued, would prevent the use by others of Metadoxine to treat ADHD and all other cognitive disorders.

Normally, the level of neurotransmitters in the brain, such as dopamine, norepinephrine and serotonin, are fully regulated in order to ensure proper neurological function and neuron-to-neuron communication. Communication between neurons is achieved by the controlled release of neurotransmitters from one neuron, their transport by a dedicated transporter across the synapse (the gap between two neurons) to another neuron, and their binding and internalization into the target neuron using a unique, designated receptor. One of the purported causes of the symptoms of ADHD is low levels in the brain of these neurotransmitters causing the lack of regulation of neuronal networks. In the design of pharmacological treatments for ADHD, low neurotransmitter levels can be modulated through blocking the release, delivery and/or the uptake of neurotransmitters by their respective plasma transporters/receptors. All stimulants work through modulating the dopaminergic pathway, affecting the dopamine neurotransmitter. Atomoxetine (Strattera), the only non-stimulant approved for adults, works through modulating the norepinephrine pathway. MG01CI has the potential to be the first product to affect the serotonergic pathway.

In investigating the proposed mechanism of action for MG01CI, over 80 different central nervous system receptors and transporters were tested in the laboratory for binding with Metadoxine. Tested targets included muscarinic, dopaminergic, serotonergic, gabaergic, noradrenergic, opioid and cannabinoid receptors and transporters. Metadoxine displayed extensive and highly specific receptor binding to only one of the serotonin receptors named 5-HT2B. The binding had approximately 50-fold selectivity over all other 5-HT receptor subtypes and a variety of other receptors. Therefore, MG01CI displays a novel mechanism of action because it is the only ADHD drug candidate which exclusively affects the 5-HT2b serotonin receptor. No binding was detected to any of the dopaminergic or noradrenergic receptors or transporters.

Other published studies suggest that the 5-HT2B serotonin receptor may be involved ADHD molecular pharmacology, but neither show the benefit of direct modulation of the 5-HT2B serotonin receptor in ADHD treatment as the MG01CI clinical trials demonstrated.

In summary, we believe that MG01CI is the first drug candidate to affect the serotonergic pathway and is currently the only drug candidate that shows exclusive binding to the 5-HT2B serotonin receptor. Moreover, the 5-HT2B receptor is implicated genetically and physiologically as a possible etiologic factor in the development of ADHD, creating the potential for MG01CI to be an effective treatment for ADHD.

Clinical Data

Symptom and Clinical Efficacy Measurement

There are various methodologies for evaluating and measuring changes in the symptoms of ADHD patients, including behavior rating scales, computer-based cognitive tests and verbal and pictorial performance tests. The key approved and widely accepted methodologies used to test the clinical efficacy of ADHD pharmacotherapies include:

· Conners’ Adult ADHD Rating Scales (CAARS). CAARS measure the presence and severity of ADHD symptoms to determine whether or not ADHD is a contributing factor to a patient’s symptoms. The scales quantitatively measure the frequency and severity of ADHD symptoms across clinically significant areas using a 30-item questionnaire. The scale has been used extensively in clinical trials including pivotal Phase III studies of approved pharmacotherapies for ADHD. Modified versions of the CAARS measure are used for diagnostics in children, with a different emphasis on the type of symptoms.

· Adult ADHD Quality of Life Questionnaire (AAQoL). AAQoL provides a validated disease-specific measure of the impact of ADHD on the quality of life. It is measured as an overall score (totaling 29 items) and four subscale scores including: life productivity (11 items), psychological health (6 items), life outlook (7 items) and relationships (5 items). It has been validated in clinical trials and used in the Phase III study of Atomoxetine (Strattera) in adults.

· Test of Variables of Attention (TOVA). TOVA is a computerized test that assists in the screening, diagnosis, and treatment monitoring of attention disorders such as ADHD. The test provides an objective, quantitative neurological measure of attention. The test consists of a 20-minute, simple "computer game" that measures responses to either visual or auditory stimuli. These measurements are then compared to the measurements of a group of people without attention disorders who complete the same test. The test provides information about a subject’s response style, such as the tendency to make impulsive errors or errors due to inattention, distraction or reaction time.

Clinical Results

We have conducted several clinical trials in adult ADHD patients testing the safety and efficacy of its novel non-stimulant drug candidate. These trials included:

A Phase IIa proof of concept study of 38 adult ADHD patients, followed by two extension studies to determine length of efficacy and optimized dosages; and

A six-week, randomized, double-blind, placebo-controlled, parallel-group, multi-center Phase IIb study of 120 adult ADHD patients, in which ADHD subjects were randomly assigned in a 1:1 ratio to one of two treatment groups : a 1,400mg dose of MG01CI and a matching placebo.

The Phase IIa study was designed to evaluate the effect on cognitive function of a single oral administration of MG01CI in subjects ranging from ages 18-45 who had been diagnosed as having ADHD. The study was performed at the ADHD unit of the Geha Mental Health Hospital (Israel). The primary outcome measures in the trial were the one-hour post-medication ADHD Score, TOVA Omission Score, TOVA Commission Score, TOVA Response Time (RT) Score and TOVA RT Variability Score. Secondary outcome measures were subtests from the Weschler (WAIS-R) test which assess primarily working memory and intelligence.

Results of this clinical study showed clinically and highly statistically significant improvement in all the TOVA parameters that were abnormal at baseline. Furthermore, results of the Wechsler subtests confirmed the ability of MG01CI to improve cognitive functions in adults with ADHD, with clinical and statistically significant improvement seen in both working memory and spatial memory tests. A significant correlation was found between the drug response measured by the TOVA and the response measured by the WISC subtests.

In a small extension study to study the duration of drug benefits, subjects were evaluated using TOVA immediately before, and 90 minutes, 4 hours and 7 hours after, taking a single 1400mg dose of MG01CI. Data below show the mean TOVA scores in these patients at the specified time points, showing an extended effect of the drug on cognitive functions. A TOVA score of -1.8 or less is considered abnormal.

Mean ADHD Scores Following Single MG01CI Dosing

In another extension study designed to identify the most effective dose for MG01CI, 10 subjects were evaluated using TOVA 90 minutes after blindly taking either 700mg 1400mg or 2100mg doses of MG01CI on separate occasions. TOVA results following these treatments were compared to the baseline and data obtained before any treatment in these patients. Data below show the mean ADHD score in these patients at baseline and following each of the three evaluated drug doses, establishing the likely effective dose range for MG01CI to be 700-1400mg.

Mean ADHD Scores Before and 90 Minutes Following One of Three MG01CI Doses

Importantly, MG01CI was well tolerated in these studies with no serious adverse events reported except for a slight headache reported by less than 5% of the patients enrolled in the studies.

We recently completed a six-week randomized, double-blind, placebo-controlled, parallel-group, multi-center Phase IIb study in adult subjects with ADHD that was performed in two centers in Israel: the ADHD unit at Geha Mental Health Hospital and the Cognitive Neurology unit at Rambam Healthcare Campus. ADHD subjects were randomly assigned in a 1:1 ratio to one of two treatment groups : 1,400mg MG01CI and matching placebo.

The primary efficacy measure was the CAARS test, and the secondary efficacy measures were the TOVA and the AAQoL tests.

Significant improvements in CAARS scores (p<0.02), TOVA ADHD scores (p<0.02), and AAQoL scores. Total scores (p<0.01) were observed in the MG01CI treated group versus the placebo group. Improvements in CAARS and TOVA scores were statistically significant over the placebo after as little as two weeks of treatment. Sub-analysis of subjects with ADHD inattentive type (n=48) showed an even greater improvement in CAARS scores over the placebo (p<0.05), as well as a larger response rate (p<0.01).

Physical examination, laboratory parameters, vital signs, and ECGs showed no consistent differences between treatment groups or cumulative changes over time. The most commonly reported adverse events were nausea, fatigue and headache. Nausea was the only adverse event to occur exclusively in the MG01CI group and should be considered an anticipated event in future MG01CI research; fatigue occurred in similar numbers in both groups, and headache occurred notably less frequently in the MG01CI group.

Summary of Clinical Data and Key Conclusions

	·	Subjects treated with MG01CI showed statistically significant improvement in CAARS Total ADHD Symptoms Score (P=.019), as well as higher response rates on the CAARS Total ADHD Symptom Score (P=.03) over subjects treated with placebo

	·	Improvement in inattention symptoms was statistically significant and clinically profound with a calculated effect size of 0.9

	·	Statistically significant findings were found using the TOVA neuropsychological test, as well as the Quality of Life questionnaire

Improvements in ADHD symptoms (scored by CAARS) were significantly different in subjects treated with MG01Cl vs. placebo as early as 2 weeks following treatment initiation

We intend to initiate discussions with FDA on the Phase III program for MG01CI in adults and children with ADHD. These discussions, planned for 2013, will establish and confirm the clinical development plan proposed by the Company, which is derived from the Agency's clear track record and guidance on ADHD drug development in the last decade. The Company will likely execute two Phase III trials in adults with ADHD, each including 250 patients, in 2014, as well as a Phase I/II pediatric study. The inclusion/exclusion profile for patients in these studies, the general study design and selection of endpoints, and the follow-up period should be similar to Phase III studies conducted in recent years. It should be noted that our Phase IIb trial was modeled based on these regulatory requirements and on trial characteristics that have been acceptable to FDA in recent ADHD development programs.

Commercialization

We do not have any internal sales, marketing or distribution infrastructure. In the event we receive regulatory approval for MG01CI, we intend, where appropriate, to pursue commercialization relationships with pharmaceutical companies and other strategic partners providing for distribution through their sales and marketing organizations in order to gain access to global markets. Over the longer term, we may ultimately build an internal commercial infrastructure.

Third-Party Reimbursement

Sales of pharmaceutical products depend in significant part on the availability of coverage and adequate reimbursement by third-party payors, such as state and federal governments, including Medicare and Medicaid, managed care providers, and private insurance plans. Decisions regarding the extent of coverage and amount of reimbursement to be provided for MG01CI will be made on a plan by plan, and in some cases, patient by patient, basis.

Within the Medicare program, as a self-administered drug, MG01CI would be reimbursed under the expanded prescription drug benefit known as Medicare Part D. This program is a voluntary Medicare benefit administered by private plans that operate under contracts with the federal government. These Part D plans negotiate discounts with drug manufacturers, which may be passed on to each of the plan’s enrollees. Historically, Part D beneficiaries have been exposed to significant out-of-pocket costs after they surpass an annual coverage limit and until they reach a catastrophic coverage threshold. However, changes made by recent legislation will reduce this patient coverage gap, known as the donut hole, by reducing patient responsibility in that coverage range.

An ongoing trend has been for third-party payors, including the United States government, to apply downward pressure on the reimbursement of pharmaceutical products. Also, the trend towards managed health care in the United States and the concurrent growth of organizations such as health maintenance organizations tends to result in lower reimbursement for pharmaceutical products. We expect that these trends will continue as these payors implement various proposals or regulatory policies, including various provisions of the recent health reform legislation that affect reimbursement of these products. There are currently, and we expect that there will continue to be, a number of federal and state proposals to implement controls on reimbursement and pricing, directly and indirectly.

Research and Development

We are conducting development activities to expand the commercial potential of MG01CI. We sponsor and conduct clinical research activities with investigators and institutions to measure key clinical outcomes that are necessary in order for us to be able to file an NDA with the FDA and equivalent filings with other regulatory authorities. For the years ended December 31, 2012 and 2011, we incurred $818,000 and $1,822,000, respectively, of research and development expense.

Former Strategic Relationship with Teva Pharmaceuticals

Following our successful proof of concept trials in 2010, Teva Pharmaceuticals, the large Israeli generic drug company, made an equity investment in us, negotiated the right to acquire us should MG01CI reach the market, and funded the next stage of clinical development of MG01CI. All of Teva’s rights to the product terminated when it failed to timely exercise an option to continue development of MG01CI in November 2011 after requesting an extension of the deadline.

Manufacturing

We currently have no manufacturing facilities and no personnel with commercial-scale manufacturing experience. We currently rely on one third-party manufacturer to produce bulk drug substance and drug products required for our clinical trials. We plan to continue to rely upon contract manufacturers and, potentially, collaboration partners to manufacture commercial quantities of our drug product candidates if and when we receive approval for marketing by the applicable regulatory authorities.

We have not identified a secondary fill/finish supplier. We do not have a long-term commercial supply arrangement in place with any of our contract manufacturers. If we need to identify an additional fill/finish manufacturer, we would not be able to do so without significant delay and likely significant additional cost.

Our third-party manufacturers, their facilities and all lots of drug substance and drug products used in our clinical trials are required to be in compliance with current Good Manufacturing Practices, or cGMP. The cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports, and returned or salvaged products. The manufacturing facilities for our products must meet, and continue to meet, cGMP requirements and FDA satisfaction before any product is approved and we can manufacture commercial products. Contract manufacturers often encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel. For example, we recently discovered a contaminated lot of MG01CI, which we believe was caused by a failure in a filtration step by one of our third-party drug substance manufacturers. As a result, we have a limited commercial supply of MG01CI, and we have to manufacture another lot, which could cause a delay in the commercial launch of MG01CI.

Competition

We face competition from established pharmaceutical and biotechnology companies that currently market a wide range of drugs to treat ADHD. All of these competitors have far greater marketing and research capabilities than us. We also face potential competition from academic institutions, government agencies and private and public research institutions, among others, which may in the future develop products to treat ADHD. All of these companies and institutions may have products in development that are superior to MG01CI. Our commercial opportunity would be reduced significantly if our competitors develop and commercialize products that are safer, more effective, more convenient, have fewer side effects or are less expensive than MG01CI. Public announcements regarding the development of competing drugs could adversely affect the commercial potential of MG01CI.

Intellectual Property

We seek patent protection in the United States and internationally for MG01CI and any other products that we may develop. Our policy is to pursue, maintain and defend patent rights developed internally and to protect the technology, inventions and improvements that are commercially important to the development of our business. Our portfolio of patent applications that cover the release formulations and pharmacokinetic profile of Metadoxine, including our special sustained release, combined release and burst release formulations and the associated methods of treatment.

No patents have yet been issued on any of our patent applications. We cannot be sure that any 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. There is also a significant risk that any issued patents will have substantially narrower claims than those that are currently sought. Even with respect to any patents that may be issued to us, we cannot be sure that any such patents will be commercially useful in protecting our technology. Any patents issued with respect to our current patent applications would expire from 2028 to 2030. We also rely on trade secrets to protect our product candidates. Our commercial success also depends in part on our non-infringement of the patents or proprietary rights of third parties. For a more comprehensive discussion of the risks related to our intellectual property, please see “Risk Factors — Risks Related to Our Intellectual Property.”

Our success depends in part on our ability to:

· preserve trade secrets;

· prevent third parties from infringing upon our proprietary rights; and

· operate our business without infringing the patents and proprietary rights of third parties, both in the United States and internationally.

We also protect our proprietary technology and processes, in part, by confidentiality and invention assignment agreements with our employees, consultants, scientific advisors and other contractors. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our employees, consultants, scientific advisors or other contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Regulatory Matters

Clinical trials, the drug approval process, and the marketing of drugs is intensively regulated in the United States and in all major foreign countries.

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and related regulations. Drugs are also subject to other federal, state and local statutes and regulations. Failure to comply with the applicable United States regulatory requirements at any time during the product development process, approval process or after approval may subject an applicant to administrative or judicial sanctions. These sanctions could include the imposition by the FDA or an Institutional Review Board, or IRB, of a clinical hold on trials, the FDA’s refusal to approve pending applications or supplements, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution. Any agency or judicial enforcement action could have a material adverse effect on us.

The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical products. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, distribution, record keeping, approval, advertising and promotion of our products.

The FDA’s policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of MG01CI or any future product candidates or approval of new disease indications or label changes. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.

Marketing Approval

The process required by the FDA before drugs may be marketed in the United States generally involves the following:

nonclinical laboratory and animal tests;

· submission of an Investigational New Drug, or IND, application which must become effective before clinical trials may begin;

· adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use or uses;

· pre-approval inspection of manufacturing facilities and clinical trial sites; and

· FDA approval of a new drug application (NDA) which must occur before a drug can be marketed or sold.

The testing and approval process requires substantial time and financial resources, and we cannot be certain that any approvals for MG01CI will be granted on a timely basis if at all.

We will need to successfully complete extensive additional clinical trials in order to be in a position to submit a new drug application to the FDA. Our planned future clinical trials for MG01CI may not begin or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays in:

· obtaining regulatory approval to commence a study;

· reaching agreement with third-party clinical trial sites and their subsequent performance in conducting accurate and reliable studies on a timely basis;

· obtaining institutional review board approval to conduct a study at a prospective site;

· recruiting patients to participate in a study; and

· supply of the drug.

We must reach agreement with the FDA on the proposed protocols for our future clinical trials in the United States. A separate submission to our existing IND application must be made for each successive clinical trial to be conducted during product development. Further, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that site. Informed consent must also be obtained from each study subject. Regulatory authorities, an IRB, a data safety monitoring board or the sponsor, may suspend or terminate a clinical trial at any time on various grounds, including a finding that the participants are being exposed to an unacceptable health risk.

Our objective is to conduct additional clinical trials for MG01CI and, if those trials are successful, seek marketing approval from the FDA and other worldwide regulatory bodies. To achieve this objective, we plan to initiate and complete two parallel Phase III clinical trials of MG01CI for the treatment of ADHD in adults, and, if it is successful, file for marketing approval for adults initially in the United States and the European Union. We completed a Phase II trial in 2011 and plan to begin a Phase II/III trial in 2013.

For purposes of NDA approval, human clinical trials are typically conducted in phases that may overlap.

· Phase I. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.

· Phase II. This phase involves trials in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

· Phase III. This phase involves trials undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population, often at geographically dispersed clinical trial sites. These trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labeling.

All of these trials must be conducted in accordance with good clinical practice requirements in order for the data to be considered reliable for regulatory purposes.

Typically, if a drug product is intended to treat a chronic disease, as is the case with MG01CI, safety and efficacy data must be gathered over an extended period of time, which can range from six months to three years or more. Government regulation may delay or prevent marketing of product candidates or new drugs for a considerable period of time and impose costly procedures upon our activities. We cannot be certain that the FDA or any other regulatory agency will grant approvals for MG01CI or any future product candidates on a timely basis, if at all. Success in early stage clinical trials does not ensure success in later stage clinical trials. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.

The NDA Approval Process

In order to obtain approval to market a drug in the United States, a marketing application must be submitted to the FDA that provides data establishing to the FDA’s satisfaction the safety and effectiveness of the investigational drug for the proposed indication. Each NDA submission requires a substantial user fee payment unless a waiver or exemption applies. The application includes all relevant data available from pertinent non-clinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators.

The FDA will initially review the NDA for completeness before it accepts it for filing. The FDA has 60 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 the application is sufficiently complete to permit substantive review. After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity. The FDA may refer applications for novel drug products or drug products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and, if so, under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Based on pivotal Phase III trial results submitted in an NDA, upon the request of an applicant, the FDA may grant a priority review designation to a product, which sets the target date for FDA action on the application at six months, rather than the standard ten months. Priority review is given where preliminary estimates indicate that a product, if approved, has the potential to provide a significant improvement compared to marketed products or offers a therapy where no satisfactory alternative therapy exists. Priority review designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.

After the FDA completes its initial review of an NDA, it will communicate to the sponsor that the drug will either be approved, or it will issue a complete response letter to communicate that the NDA will not be approved in its current form and inform the sponsor of changes that must be made or additional clinical, nonclinical or manufacturing data that must be received before the application can be approved, with no implication regarding the ultimate approvability of the application.

Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications.

Additionally, before approving an NDA, the FDA may inspect one or more clinical sites to assure compliance with good clinical practices (GCPs). If the FDA determines the application, manufacturing process or manufacturing facilities are not acceptable, it typically will outline the deficiencies and often will request additional testing or information. This may significantly delay further review of the application. If the FDA finds that a clinical site did not conduct the clinical trial in accordance with GCP, the FDA may determine the data generated by the clinical site should be excluded from the primary efficacy analyses provided in the NDA. Additionally, notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

The testing and approval process for a drug requires substantial time, effort and financial resources, and this process may take several years to complete. Data obtained from clinical activities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all. We may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals, which could delay or preclude us from marketing our products.

The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These so-called Phase IV studies may be made a condition to be satisfied for continuing drug approval. The results of Phase IV studies can confirm the effectiveness of a product candidate and can provide important safety information. In addition, the FDA now has express statutory authority to require sponsors to conduct post-market studies to specifically address safety issues identified by the agency.

Any approvals that we may ultimately receive could be withdrawn if required post-marketing trials or analyses do not meet the FDA requirements, which could materially harm the commercial prospects for MG01CI.

The FDA also has authority to require a Risk Evaluation and Mitigation Strategy, or REMS, from manufacturers to ensure that the benefits of a drug or biological product outweigh its risks. A sponsor may also voluntarily propose a REMS as part of the NDA submission. The need for a REMS is determined as part of the review of the NDA. Based on statutory standards, elements of a REMS may include “dear doctor letters,” a medication guide, more elaborate targeted educational programs, and in some cases restrictions on distribution. These elements are negotiated as part of the NDA approval, and in some cases if consensus is not obtained until after the PDUFA review cycle, the approval date may be delayed. Once adopted, REMS are subject to periodic assessment and modification.

Even if a product candidate receives regulatory approval, the approval may be limited to specific disease states, patient populations and dosages, or might contain significant limitations on use in the form of warnings, precautions or contraindications, or in the form of onerous risk management plans, restrictions on distribution, or post-marketing study requirements. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Delay in obtaining, or failure to obtain, regulatory approval for MG01CI, or obtaining approval but for significantly limited use, would harm our business. In addition, we cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action.

FDA Post-Approval Requirements

Any products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including requirements for record-keeping and reporting of adverse experiences with the drug. Drug manufacturers are required to register their facilities with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs, which impose certain quality processes, manufacturing controls and documentation requirements upon us and our third-party manufacturers in order to ensure that the product is safe, has the identity and strength, and meets the quality and purity characteristics that it purports to have. Certain states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. We cannot be certain that we or our present or future suppliers will be able to comply with the cGMP and other FDA regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, fail to approve any NDA or other application, require us to recall a drug from distribution, shut down manufacturing operations or withdraw approval of the NDA for that drug. Noncompliance with cGMP or other requirements can result in issuance of warning letters, civil and criminal penalties, seizures and injunctive action.

Labeling, Marketing and Promotion

The FDA closely regulates the labeling, marketing and promotion of drugs. While doctors are free to prescribe any drug approved by the FDA for any use, a company can only make claims relating to safety and efficacy of a drug that are consistent with FDA approval, and the Company is allowed to actively market a drug only for the particular use and treatment approved by the FDA. In addition, any claims we make for our products in advertising or promotion must be appropriately balanced with important safety information and otherwise be adequately substantiated. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising, injunctions and potential civil and criminal penalties. Government regulators recently have increased their scrutiny of the promotion and marketing of drugs.

Pediatric Research Equity Act

The Pediatric Research Equity Act, or PREA, amended the FDCA to authorize the FDA to require certain research into drugs used in pediatric patients. The intent of PREA is to compel sponsors whose drugs have pediatric applicability to study those drugs in pediatric populations, rather than ignoring pediatric indications for adult indications that could be more economically desirable. The Secretary of Health and Human Services may defer or waive these requirements under specified circumstances.

Anti-Kickback and False Claims Laws

In the United States, the research, manufacturing, distribution, sale and promotion of drug products and medical devices are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice, state Attorneys General, and other state and local government agencies. For example, sales, marketing and scientific/educational grant programs must comply with the Medicare-Medicaid Anti-Fraud and Abuse Act, as amended (the “Anti-Kickback Statute”), the False Claims Act, as amended, the privacy regulations promulgated under the Health Insurance Portability and Accountability Act, or HIPAA, and similar state laws. Pricing and rebate programs must comply with the Medicaid Drug Rebate Program requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and the Veterans Health Care Act of 1992, as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws.

In the United States, we are subject to complex laws and regulations pertaining to healthcare “fraud and abuse,” including, but not limited to, the Anti-Kickback Statute, the federal False Claims Act, and other state and federal laws and regulations. The Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf) to knowingly and willfully solicit, receive, offer, or pay any remuneration that is intended to induce the referral of business, including the purchase, order, or prescription of a particular drug, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid.

The federal False Claims Act prohibits anyone from knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services.

There are also an increasing number of state laws that require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. In addition, as discussed below, beginning in 2013, a similar federal requirement will require manufacturers to track and report to the federal government certain payments made to physicians and teaching hospitals made in the previous calendar year. These laws may affect our sales, marketing, and other promotional activities by imposing administrative and compliance burdens on us. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state, and soon federal, authorities.

Patient Protection and Affordable Health Care Act

In March 2010, the Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively PPACA, was enacted, which includes measures that have or will significantly change the way health care is financed by both governmental and private insurers. The fees, discounts and other provisions of this law are expected to have a significant negative effect on the profitability of pharmaceuticals.

Many of the details regarding the implementation of PPACA are yet to be determined, and at this time, it remains unclear the full effect that PPACA would have on our business.

Other Regulations

We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.

Employees

Our company uses a cost-effective business model, only retaining top management as company employees or dedicated consultants, and drawing upon other consultants globally to advance our development programs. As of December 31, 2012, our management consisted of our chief executive officer, our chief financial and accounting officer, as well as Ms. Hanna Ron, who is a key employee and an expert in chemistry, manufacturing and controls, and has been providing full-time services to the Company since 2011. We further have service agreements with US-based regulatory consultants as well as additional US-based clinical consultants who are members of our clinical advisory board. We believe that we maintain good relations with all of them.

Property and Facilities

Our headquarters is currently located in Tel Aviv, Israel and consists of approximately 1600 square feet of leased office space under a lease for an indefinite period of time, subject to each party’s right to terminate it within 30 days. We may require additional space and facilities as our business expands.

Legal Proceedings

We are not currently subject to any material legal proceedings.

MANAGEMENT

Executive Officers, Key Employees and Directors

Executive Officers and Directors

The following table sets forth information regarding our executive officers and directors as of December 31, 2012:

Name	Age	Position
Dr. Aharon Schwartz	70	Chairman of the Board of Directors
Dr. Yaron Daniely	37	Chief Executive Officer, President and Director
Ehud (Udi) Gilboa	46	Chief Financial Officer, Chief Accounting Officer and Director
Dr. Dalia Megiddo	61	Director

The Company intends to add additional members to its Board of Directors prior to the closing of this offering. These directors will be “independent directors” and “external directors” as contemplated by the NASDAQ Stock Market rules and Israeli law. The Company will also establish an Audit Committee and a Compensation Committee.

Dr. Aharon Schwartz joined our Board as Chairman in January 2013. He retired from Teva Pharmaceutical Industries Ltd where he served in a number of positions from 1957 through 2011, the most recent being Vice President, Head of Teva Innovative Ventures from 2008. He is also a member of the board of directors of Clal Biotechnology Industries Ltd. and the chairman of the board of directors of BioLineRx Ltd., BioCancell Therapeutics Inc., and several other biotechnology companies. He also serves as the chairman of Yissum Research Development Company of the Hebrew University of Jerusalem. Dr. Schwartz received his Ph.D. in organic chemistry from the Weizmann Institute, his M.Sc. in organic chemistry from the Technion Institute of Technology and a B.Sc. in chemistry and physics from the Hebrew University of Jerusalem.

Dr. Yaron Daniely became our President and Chief Executive Officer and a Director in March 2010. Immediately prior to joining us and since 2007, Dr. Daniely was the President and Chief Executive Officer of NanoCyte, Inc., a company that develops transdermal delivery technologies based in Caesarea, Israel. Before NanoCyte and from 2004, Dr. Daniely was a/the General Manager of Gamida Cell—Teva Joint Venture Ltd. , a joint venture company that acquired an exclusive license to develop and commercialize a Phase III-stage cell therapy product for treatment of Leukemia and Lymphoma based in Jerusalem, Israel. From 2003-2007, Dr. Daniely also served as the Vice President of Business Development of Gamida Cell Ltd., and engaged in several licensing and financial transactions for the Company. Dr. Daniely holds a B.Sc. degree in Biological Sciences from Florida International University, and holds a Ph.D. from the Sackler Institute of Graduate Biomedical Sciences at the New York University School of Medicine. Following his doctoral program, Dr. Daniely served as an NIH Visiting Fellow in its Cell Biology section and a Postdoctoral Fellow in the Department of Molecular Cell Biology at The Weizmann Institute for Science in Israel. Subsequently, he received an Executive M.B.A. from the Technion, Israel Institute of Technology.

Udi Gilboa co-founded the Company in February 2008 and became a director at that time. He has served as our Chief Financial Officer and Chief Accounting Officer since inception. Mr. Gilboa is the founder and managing partner of Top-Notch Capital, a prominent Israeli life sciences investment bank. He is also the founder of a number of medical device and pharmaceutical companies. Mr. Gilboa holds a Bachelor’s degree and M.B.A. from Tel Aviv University. Mr. Gilboa serves as a director of Insuline Medical Ltd. and served, until 2010, as a director and chairman of the board of directors of Topspin Medical Inc., two public companies whose shares are listed for trading on the Tel Aviv Stock Exchange. In addition, he is a director of the following private companies: Bioblast Ltd., Samson Neurosciences Ltd. and Endospan Ltd.

Dr. Dalia Megiddo co-founded the Company in February 2008 and became a Director at that time. She is an entrepreneur and a medical doctor in family medicine. Since 2000, Dr. Megiddo has been a manager of InnoMed Ventures, an Israeli venture capital fund focused on life sciences. From 2006 to 2010, she was also a manager of 7 Health Ventures, an Israeli venture capital fund. Dr, Megiddo is also the founder of a number of life science companies. Dr. Megiddo received her M.D. degree from Hebrew University Hadassah Medical School and also holds an M.B.A. from the Kellogg-Recanati School of Business. She is a director of Bioblast Ltd. and served as a director of Tulip Medical Ltd., Chiasma Inc. and Angioscore Inc.

Hanna Ron is a key employee of the Company. She has over 26 years of experience in the pharmaceutical industry and is an expert in chemistry, manufacturing and controls. She has been providing full-time services to the Company since 2011 and has been a consultant to the pharmaceutical industry since 2009. From 2004 to 2009, she was the Vice President of Chemistry, Manufacturing and Controls at Biolin Innovations, an Israeli biotechnology company. She has held other positions in biotechnology and pharmaceutical companies, including being a research and development manager and a pharmaceutical product development manager at Teva Pharmaceuticals.

Arrangements Concerning Election of Director; Family Relationships

There are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our directors or members of senior management were selected as such. In addition, there are no family relationships among our executive officers and directors.

Clinical Advisory Board

The Company has a Clinical Advisory Board of 12 experts in ADHD. The chairman is Lenard A. Adler, M.D. Dr. Adler has been the Director of the Adult ADHD Program in the Department of Psychiatry at New York University (NYU) School of Medicine in New York since 1995. He is also Professor of Psychiatry and Child and Adolescent Psychiatry at the NYU School of Medicine. Dr. Adler has been a principal contributor to numerous new treatment trials in ADHD and in the development of new scales to diagnose and evaluate symptoms of adult ADHD. He is also author of a book on adult ADHD titled “Scattered Minds.”

Corporate Governance Practices

As an Israeli company we are subject to various corporate governance requirements under Israeli law relating to such matters as external directors, the audit committee, the compensation committee and an internal auditor. These requirements are in addition to the corporate governance requirements imposed by the Listing Rules of the NASDAQ Stock Market and other applicable provisions of U.S. securities laws to which we will become subject upon consummation of this offering and the listing of our ordinary shares on the NASDAQ Capital Market. Under the Listing Rules of the NASDAQ Stock Market, a foreign private issuer may generally follow its home country rules of corporate governance in lieu of the comparable requirements of the Listing Rules of the NASDAQ Stock Market, except for certain matters, including (among others) the composition and responsibilities of the audit committee and the independence of its members within the meaning of the rules and regulations of the SEC. For further information, see "Risk factors" and "NASDAQ Listing Rules and Home Country Practices."

Board Practices

Board of Directors

Under the Israeli Companies Law, setting up the Company's policy and oversight over 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, subject to the employment agreement that we have entered into with him. All other executive officers are appointed by our Chief Executive Officer, and are subject to the terms of any applicable employment agreements that we may enter into with them.

Under our amended and restated articles of association, which will be effective upon the consummation of this offering, our Board of Directors must consist of at least five and not more than eleven directors, including at least two external directors required to be appointed under the Israeli Companies Law. Accordingly, at any time, the minimum number of directors (other than the external directors) may not fall below three. Our Board of Directors will consist of ______ directors upon the consummation of this offering, which will include ____ new directors and two external directors whose service will commence upon the consummation of this offering and, in the case of the external directors, subject to ratification at a meeting of our shareholders to be held no later than three months following the completion of this offering. We have only one class of directors.

Other than external directors, for whom special election requirements apply under the Israeli Companies Law as detailed below, our directors are each elected at a general meeting of our shareholders and serve for a term of one year. Directors shall nevertheless be removed prior to the end of their term by the majority of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, all in accordance with the Israeli Companies Law and our amended and restated articles of association.

In addition, our amended and restated articles of association allow our Board of Directors to appoint directors, other than external directors, to fill vacancies on our Board of Directors, for a term of office equal to the remaining period of the term of office of the director(s) whose office(s) have been vacated. External directors are elected for an initial term of three years and may be elected for up to two additional three-year terms (or more) under the circumstances described below. External directors may be removed from office only under the limited circumstances set forth in the Israeli Companies Law. See "—External directors."

In accordance with the exemption available to foreign private issuers under NASDAQ rules, we do not intend to follow the requirements of the NASDAQ rules with regard to the process of nominating directors, and instead, will follow Israeli law and practice, in accordance with which our Board of Directors (or a committee thereof) is authorized to recommend to our shareholders director nominees for election. Under the Israeli Companies Law and our amended and restated articles of association, nominations for directors may also be added to the agenda of future general meetings, which has yet to have been summoned, upon the request of any shareholder holding at least one percent (1%) 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 chairman of the board (or, if we have no chairman of the board, our chief executive officer). Any such notice must include certain information we are required under the Israeli Companies Law to provide to our shareholders, 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 Israeli Companies Law preventing their election and that all of the information that is required under the Israeli Companies Law to be provided to us in connection with such election has been provided.

In addition to its role in making director nominations, under the Israeli Companies Law, our Board of Directors must determine the minimum number of directors who are required to have accounting and financial expertise. Under applicable regulations, a director with accounting and financial expertise is a director who, by reason of his or her education, professional experience and skill, has a high level of proficiency in and understanding of business accounting matters and financial statements, sufficient to be able to thoroughly comprehend the financial statements of the Company and initiate debate regarding the manner in which financial information is presented. In determining the number of directors required to have such expertise, our Board of Directors must consider, among other things, the type and size of our company and the scope and complexity of its operations. Our Board of Directors has determined that our company requires one director with such expertise.

External Directors

Under the Israeli Companies Law, the boards of directors of companies whose shares are publicly traded, including companies with shares listed on the NASDAQ Capital Market, are required to include at least two members elected to serve as external directors. _______ and ______ have agreed to serve as our external directors following the consummation of this offering, subject to ratification at a meeting of our shareholders to be held no later than three months following the completion of this offering.

The Israeli Companies Law provides that external directors must be elected by a majority vote of the shares present and voting at a shareholders meeting, provided that either:

the majority voted in favor of election includes a majority of the shares held by non-controlling shareholders who do not have a personal interest in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding for such purpose any abstentions, which we refer to as a disinterested majority; or

the total number of shares held by non-controlling disinterested shareholders (as described in the previous bullet-point) that voted against the election of the director does not exceed two percent (2%) of the aggregate voting rights in the Company.

The term controlling shareholder is defined in the Israeli Companies Law as a shareholder with the ability to direct the activities of the Company, other than by virtue of being an office holder. A shareholder is in any case deemed to be a controlling shareholder if the shareholder holds 50% or more of the means of control, which include the right to vote at a shareholders meeting and the right to appoint the directors of the Company or its general manager.

After an initial term of three years, external directors may be reelected to serve in that capacity for up to two additional three year terms, provided that either (i) his or her service for each such additional term is recommended by one or more shareholders holding in aggregate at least one percent (1%) of the Company's voting rights and is approved at a shareholders meeting by a majority of the shares held by non-controlling shareholders who do not have a personal interest in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding for such purpose any abstentions, where the total number of shares held by non-controlling, disinterested shareholders voting for such reelection exceeds two percent (2%) of the aggregate voting rights in the Company; or (ii) his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same disinterested majority required for the initial election of an external director (as described above). The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including the NASDAQ Capital Market, may be further extended, indefinitely, in increments of additional three-year terms, in each case provided that, in addition to reelection in such manner described above, (i) the audit committee and subsequently the board of directors of the Company confirm that, in light of the external director's expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period is beneficial to the Company, and (ii) prior to the approval of the reelection of the external director, the Company's shareholders have been informed of the term previously served by such nominee and of the reasons why the board of directors and audit committee recommended the extension of such nominee’s term.

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

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

The Israeli Companies Law provides that a person is not qualified to serve as an external director if (i) the person is a relative of the controlling shareholder of the Company, or (ii) if that person or his or her relative, partner, employer, another person to whom he or she was directly or indirectly subject, or any entity under the person's control, has or had, during the two years preceding the date of appointment as an external director: (a) any affiliation or other prohibited relationship with the Company, with any person or entity who is a controlling shareholder of the Company at the date of appointment or a relative of such person, or with any entity controlled, during the two years preceding the date of appointment as an external director, by the Company or a controlling shareholder of the Company; or (b) in the case of a company with no controlling shareholder, any affiliation or other prohibited relationship with a person serving, at the date of appointment as external director, as chairman of the board, chief executive officer, a substantial shareholder or the most senior office holder in the Company's finance department.

The term relative is defined as a spouse, sibling, parent, grandparent or descendant; spouse's sibling, parent or descendant; and the spouse of each of the foregoing persons. The term affiliation and the similar types of prohibited relationships include (subject to certain exemptions):

· an employment relationship;

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

· control; and

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

The term office holder is defined under the Israeli Companies Law as the general manager (chief executive officer), chief business manager, deputy general manager, vice general manager, any other person assuming the responsibilities of any of these positions regardless of that person's title, a director, or a manager directly subordinate to the general manager.

In addition, no person may serve as an external director if that person's position or professional or other activities create, or may create, a conflict of interest with that person's responsibilities as a director or otherwise interfere with that person's ability to serve as an external director or if the person is an employee of the Israel Securities Authority or of an Israeli stock exchange. A person may furthermore not continue to serve as an external director if he or she received direct or indirect compensation for his or her role as a director, other than compensation paid or given in accordance with Israeli Companies Law regulations or amounts paid pursuant to indemnification and/or exculpation contracts or commitments and insurance coverage. Following the termination of an external director's service on a board of directors, such former external director and his or her spouse and children may not be provided with direct or indirect benefit by the Company, its controlling shareholder or any entity under its controlling shareholder's control. This includes appointment as an office holder of the Company or a company controlled by its controlling shareholder, employment as an employee, or receipt of professional services for consideration, either directly or indirectly, including through a corporation in his or her control. This restriction extends for a period of two years with regard to the former external director and his or her spouse or child, and for one year with respect to other relatives of the former external director.

If at the time at which an external director is appointed all members of the board of directors, who are not controlling shareholders or relatives thereof, are of the same gender, the external director must be of the other gender. A director of one company may not be appointed as an external director of another company if a director of the other company is acting as an external director of the first company at such time.

According to regulations promulgated under the Israeli Companies Law, a person may be appointed as an external director only if he or she has professional qualifications or if he or she has accounting and financial expertise (each, as defined below). In addition, at least one of the external directors must be determined by our Board of Directors to have accounting and financial expertise. However, if at least one of our other directors (i) meets the independence requirements under the Exchange Act, (ii) meets the standards of the NASDAQ Listing Rules for membership on the audit committee, and (iii) has accounting and financial expertise as defined under Israeli law, then neither of our external directors is required to possess accounting and financial expertise as long as both possess other requisite professional qualifications.

A director with accounting and financial expertise is a director who, due to his or her education, experience and skills, possesses an expertise in, and an understanding of, financial and accounting matters and financial statements, in such a manner which allows him or her to understand the financial statements of the Company and initiate a discussion about the presentation of financial data. A director is deemed to have professional qualifications if he or she has any of (i) an academic degree in economics, business management, accounting, law or public service, (ii) an academic degree or has completed other higher education, in the main field of business of the Company or a field relevant for the position, or (iii) at least five years of experience as one of the following, or at least five years accumulated experience as two or more of the following – (a) a senior officer in the business management of a company with a significant volume of business, (b) a senior public officer or senior position in the public service, and (c) a senior position in the Company's main line of business.

Our Board of Directors has determined that _______ has accounting and financial expertise and ______ possesses professional qualifications as required under the Israeli Companies Law.

Leadership Structure of the Board

In accordance with the Israeli 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 Dr. Aharon Schwartz to serve as Chairman of the Board of Directors.

Role of Board in Risk Oversight Process

Risk assessment and oversight are an integral part of our governance and management processes. 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 during the year that include a focused discussion and analysis of the risks facing us. Throughout the year, senior management reviews these risks with the board of directors at regular board meetings as part of management presentations that focus on particular business functions, operations or strategies, and presents the steps taken by management to mitigate or eliminate such risks.

Board Committees

Audit Committee

Under the Israeli Companies Law, the board of directors of a public company must appoint an audit committee. The audit committee must be comprised of at least three directors, including all of the external directors, one of whom must serve as chairman of the committee. The audit committee may not include the chairman of the board, any director employed by or otherwise providing services on a regular basis to the Company, to a controlling shareholder or to any entity controlled by a controlling shareholder, any director whose main livelihood is dependent on a controlling shareholder, nor a controlling shareholder or a relative thereof.

Under the Israeli Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. An "unaffiliated director" is defined as either an external director or as a director, classified as an “unaffiliated director” by the Company, who meets the following criteria:

· he or she meets the qualifications for being appointed as an external director, except for (i) the requirement that the director be an Israeli resident (which in any event does not apply to companies such as ours whose securities have been offered outside of Israel or are listed outside of Israel) and (ii) the requirement for accounting and financial expertise or professional qualifications; and

· he or she has not served as a director of the Company for a period exceeding nine consecutive years. For this purpose, a break of less than two years in the service shall not be deemed to interrupt the continuation of the service.

Our Board of Directors intends to adopt an audit committee charter that will set forth the responsibilities of the Audit Committee consistent with the rules of the SEC and the Listing Rules of the NASDAQ Stock Market, as well as the requirements for such committee under the Israeli Companies Law, as described below.

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

Under the Israeli Companies Law, our Audit Committee is responsible for (i) determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or the independent auditor, and making recommendations to the Board of Directors to improve such practices, (ii) determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest) and whether such transaction should be deemed as material or extraordinary (according to certain criteria set by our Audit Committee on an annual basis) (see "—Approval of related party transactions under Israeli Law"), (iii) where the Board of Directors approves the working plan of the internal auditor, to examine such working plan before its submission to the Board and propose amendments thereto, (iv) examining our internal controls and internal auditor's performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities, (v) examining the scope of our auditor's work and compensation and submitting a recommendation with respect thereto to our Board of Directors or shareholders, depending on which of them is considering the appointment of our auditor, and (vi) establishing procedures for the handling of employees' complaints as to the management of our business and the protection to be provided to such employees. In compliance with regulations promulgated under the Israeli Companies Law, our Audit Committee will also approve our financial statements, thereby fulfilling the requirement that a board committee provide such approval. Our Audit Committee may not approve an action or a related party transaction, or take any other action required under the Israeli Companies Law, unless at the time of approval a majority of the committee's members are present, which majority consists of unaffiliated directors including at least one external director, and it further complies with the committee composition set forth above.

Compensation Committee

We intend to rely upon the exemption available to foreign private issuers under the Listing Rules of the NASDAQ Stock Market with respect to the determination of the compensation of our Chief Executive Officer and other executive officers in lieu of forming a compensation committee consisting entirely of independent directors (or the determination of such compensation solely by the independent members of our Board of Directors), and rather form a compensation committee in compliance with the Israeli Companies Law. See "—NASDAQ Listing Rules and home country practices."

Under a recent amendment to the Israeli Companies Law, effective December 12, 2012, the board of directors of a public company must appoint a compensation committee. The compensation committee must be comprised of at least three directors, including all of the external directors, which shall be a majority of the members of the compensation committee and one of whom must serve as chairman of the committee. The rest of the members of the compensation committee shall be directors who do not receive direct or indirect compensation for their role as directors (other than compensation paid or given in accordance with Israeli Companies Law regulations or amounts paid pursuant to indemnification and/or exculpation contracts or commitments and insurance coverage).

The compensation committee may not include the chairman of the board, any director employed by or otherwise providing services on a regular basis to the Company, to a controlling shareholder or to any entity controlled by a controlling shareholder, any director whose main livelihood is dependent on a controlling shareholder, nor a controlling shareholder or a relative thereof.

The members of our compensation committee, which will be formed prior to the consummation of this offering, will be ______, along with our two external director nominees, Messrs. ____ and ________.

Under the Israeli Companies Law, our compensation committee is responsible for (i) proposing an office holder compensation policy to the Board of Directors, (ii) propose necessary revisions to the compensation policy and examine its implementation, (iii) determining whether to approve transactions with respect to compensation of office holders, and (iv) determining, in accordance with our office holder compensation policy, whether to exempt an engagement with an unaffiliated nominee for the position of chief executive officer from requiring shareholders’ approval.

Under the amendment to the Israeli Companies Law, we are required to adopt an office holder compensation policy no later than September 12, 2013.

Nominating Committee

Our Board of Directors does not currently have a nominating committee, as director nominees are presented by our Board of Directors to our shareholders based upon the nominations made by the Board of Directors itself. We intend to rely upon the exemption available to foreign private issuers under the Listing Rules of the NASDAQ Stock Market from the NASDAQ listing requirements related to independent director oversight of nominations to our Board of Directors and the adoption of a formal written charter or board resolution addressing the nominations process. See "—NASDAQ Listing Rules and home country practices."

We do not have service contracts with any of our directors, except for Ehud Gilboa, Dr. Dalia Megiddo and Dr. Yaron Daniely. Dr. Aharon Schwartz’s compensation has been approved by our shareholders, and the Company expects to enter into a service contract with him shortly. Please see "Certain Relationships and Related Party Transactions—Agreements and Arrangements with, and Compensation of, Directors and Executive Officers" for a summary of these agreements.

Internal auditor

Under the Israeli Companies Law, the board of directors of an Israeli public company must appoint an internal auditor recommended by the audit committee and nominated by the board of directors. An internal auditor may not be:

· a person (or a relative of a person) who holds more than 5% of the Company's outstanding shares or voting rights;

· a person (or a relative of a person) who has the power to appoint a director or the general manager of the Company;

· an office holder (including a director) of the Company (or a relative thereof); or

· a member of the Company's independent accounting firm, or anyone on his or her behalf.

The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures.

NASDAQ Listing Rules and Home Country Practices

The Sarbanes-Oxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with various corporate governance practices. In addition, upon the contemplated listing of our ordinary shares on the NASDAQ Capital Market, we will need to comply with the Listing Rules of the NASDAQ Stock Market. Under those Listing Rules, we may elect to follow certain corporate governance practices permitted under the Israeli Companies Law in lieu of compliance with corresponding corporate governance requirements otherwise imposed by the Listing Rules of the NASDAQ Stock Market for U.S. domestic issuers.

In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the Listing Rules of the NASDAQ Stock Market, if we list on the NASDAQ Capital Market we intend to follow the provisions of the Israeli Companies Law, rather than the Listing Rules of the NASDAQ Stock Market, with respect to the following requirements:

· Distribution of periodic reports to shareholders; proxy solicitation. As opposed to the Listing Rules of the NASDAQ Stock Market, which require listed issuers to make such reports available to shareholders in one of a number of specific manners, Israeli law does not require us to distribute periodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders but to make such reports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statements available to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt from the SEC's proxy solicitation rules.

· Nomination of our directors. With the exception of our external directors and directors elected by our Board of Directors due to vacancy, our directors are elected by an annual meeting of our shareholders to hold office until the next annual meeting following one year from his or her election. See "Management—Board Practices—Board of Directors." The nominations for directors, which are presented to our shareholders by our Board of Directors, are generally made by the Board of Directors itself, in accordance with the provisions of our amended and restated articles of association and the Israeli Companies Law. Nominations need not be made by a nominating committee of our Board of Directors consisting solely of independent directors, as required under the Listing Rules of the NASDAQ Stock Market.

· Compensation of officers. Israeli law and our amended and restated articles of association do not require that the independent members of our Board of Directors (or a compensation committee composed solely of independent members of our Board of Directors) determine an executive officer’s compensation, as is generally required under the Listing Rules of the NASDAQ Stock Market with respect to the Chief Executive Officer and all other executive officers.

Instead, compensation of executive officers is determined and approved by our Board of Directors and our Compensation Committee, either in consistency with our office holder compensation policy or, in special circumstances, taking into account certain considerations stated in the Israeli Companies Law.

Shareholder approval shall be further required in the event (i) approval by our Board of Directors and our Compensation Committee is not consistent with our office holders compensation policy, or (ii) compensation required to be approved is that of our chief executive officer or an executive officer who is also the controlling shareholder of our company (including an affiliate thereof). Such shareholder approval shall require a majority vote of the shares present and voting at a shareholders meeting, provided either (i) such majority includes a majority of the shares held by non-controlling shareholders who do not have a personal interest in the compensation arrangement that are voted at the meeting, excluding for such purpose any abstentions disinterested majority, or (ii) the total shares held by non-controlling disinterested shareholders voted against the arrangement does not exceed two percent (2%) of the voting rights in our company.

Additionally, approval of the compensation of an executive officer, who is also a director, shall require a simple majority vote of the shares present and voting at a shareholders meeting, if consistent with our office holders compensation policy. Our Compensation Committee may, in special circumstances, approve the compensation of an executive officer (other than a director, a chief executive officer or a controlling shareholder) despite shareholders objection, based on specified arguments and taking shareholders’ objection into account. Our Compensation Committee may further exempt an engagement with a nominee for the position of chief executive officer, who meets the non-affiliation requirements set forth for an external director, from requiring shareholders’ approval, if such engagement is consistent with our office holders compensation policy and our Compensation Committee determines based on specified arguments that presentation of such engagement to shareholders’ approval is likely to prevent such engagement. To the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval is required once every three years.

A director or executive officer may not be present when the compensation committee or board of directors of a company discusses or votes upon the terms of his or her compensation, unless the chairman of the compensation committee or board of directors (as applicable) determines that he or she should be present to present the transaction that is subject to approval.

· Independent directors. Israeli law does not require that a majority of the directors serving on our Board of Directors be "independent," as defined under NASDAQ Listing Rule 5605(a)(2), and rather requires we have at least two external directors who meet the requirements of the Israeli Companies Law, as described above under "Management—Board Practices—External Directors." We are required, however, to ensure that all members of our Audit Committee are "independent" under the applicable NASDAQ and SEC criteria for independence (as we cannot exempt ourselves from compliance with that SEC independence requirement, despite our status as a foreign private issuer), and we must also ensure that a majority of the members of our Audit Committee are "unaffiliated directors" as defined in the Israeli Companies Law. Furthermore, Israeli law does not require, nor do our independent directors conduct, regularly scheduled meetings at which only they are present, which the NASDAQ Listing Rules otherwise require.

· Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Israeli Companies Law, rather than seeking approval for corporation actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval is generally required for: (i) an acquisition of shares/assets of another company that involves the issuance of 20% or more of the acquirer's shares or voting rights or if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leading to a change of control; (iii) adoption/amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights (including securities convertible into, or exercisable for, equity) of a listed company via a private placement (and/or via sales by directors/officers/5% shareholders) if such equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Israeli Companies Law, shareholder approval is required for, among other things: (i) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for any other position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (ii) extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described below under "Approval of related party transactions under Israeli Law — Disclosure of personal interests of controlling shareholders", and (iii) terms of employment or other engagement of the controlling shareholder of the Company or such controlling shareholder's relative, which require the special approval described below under "Approval of related party transactions under Israeli Law — Disclosure of personal interests of controlling shareholders". In addition, under the Israeli Companies Law, a merger requires approval of the shareholders of each of the merging companies.

Approval of Related Party Transactions under Israeli Law

Fiduciary duties of directors and executive officers

The Israeli Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under "Management—Executive officers and directors" is an office holder under the Israeli Companies Law.

An office holder's fiduciary duties consist of a duty of care and a duty of loyalty. 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 loyalty requires that an office holder act in good faith and in the best interests of the Company. The duty of care includes a duty to use reasonable means to obtain:

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

· all other important information pertaining to these actions.

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

· refrain from any conflict of interest between the performance of his or her duties to the Company and his or her other duties or personal affairs;

· refrain from any activity that is competitive with the Company;

· refrain from exploiting any business opportunity of the Company to receive a personal gain for himself or herself or others; and

· disclose to the Company any information or documents relating to the Company's affairs which the office holder received as a result of his or her position as an office holder.

Disclosure of Personal Interests of an Office Holder

The Israeli Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may have concerning any existing or proposed transaction with the Company, as well as any substantial information or document with respect thereof. An interested office holder's disclosure must be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest of any person in an act or transaction of a company, including a personal interest of one's relative or of a corporate body in which such person or a relative of such person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, but excluding a personal interest stemming from one's ownership of shares in the Company. A personal interest furthermore includes the personal interest of a person for whom the office holder holds a voting proxy or the interest of the office holder with respect to his or her vote on behalf of the shareholder for whom he or she holds a proxy even if such shareholder itself has no personal interest in the approval of the matter. An office holder is not, however, obliged to disclose a personal interest if it derives solely from the personal interest of a relative of such office holder in a transaction that is not considered an extraordinary transaction. Under the Israeli Companies Law, an extraordinary transaction is defined as any of the following:

· a transaction other than in the ordinary course of business;

· a transaction that is not on market terms; or

· a transaction that may have a material impact on a company's profitability, assets or liabilities.

If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless the Company's articles of association provide for a different method of approval. Further, so long as an office holder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemed a breach of duty of loyalty. However, a company may not approve a transaction or action that is adverse to the Company's interest or that is not performed by the office holder in good faith. Approval first by the Company's audit committee and subsequently by the board of directors is required for an extraordinary transaction in which an office holder has a personal interest. Arrangements regarding the compensation, indemnification or insurance of an office holder require the approval of the compensation committee, board of directors and, in certain circumstances, the shareholders, in that order, as described above under "—NASDAQ Listing Rules and home country practices—Compensation of officers" and "—NASDAQ Listing Rules and home country practices—Shareholder approval."

Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be present at such a meeting or vote on that matter unless a majority of the directors or members of the audit committee have a personal interest in the matter, or unless the chairman of the audit committee or board of directors (as applicable) determines that he or she should be present in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee and/or the board of directors has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee and/or the board of directors on such transaction and the voting on approval thereof, but shareholder approval is also required for such transaction.

Disclosure of Personal Interests of Controlling Shareholders

Pursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controlling shareholder of a public company. In the context of a transaction involving a shareholder of the Company, a controlling shareholder also includes any shareholder who holds 25% or more of the voting rights if no other shareholder holds more than 50% of the voting rights. Two or more shareholders with a personal interest in the approval of the same transaction are deemed to be a single shareholder and may be deemed a controlling shareholder for the purpose of approving such transaction. Extraordinary transactions, including private placement transactions, with a controlling shareholder or in which a controlling shareholder has a personal interest, and engagements with a controlling shareholder or his or her relative, directly or indirectly, including through a corporation in his or her control, require the approval of the audit committee, the board of directors and the shareholders of the Company, in that order. In addition, the shareholder approval must fulfill one of the following requirements:

· a disinterested majority; or

· the votes of shareholders who have no personal interest in the transaction and who are present and voting, in person, by proxy or by voting deed at the meeting, and who vote against the transaction may not represent more than two percent (2%) of the voting rights of the Company.

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

Arrangements regarding the terms of engagement and compensation of a controlling shareholder who is an office holder, and the terms of employment of a controlling shareholder who is an employee of the Company, require the approval of the compensation committee, board of directors and the shareholders, in that order, as described above under "NASDAQ Listing Rules and home country practices—Compensation of officers".

Shareholder Duties

Pursuant to the Israeli Companies Law, a shareholder has a duty to act in good faith and in a customary manner 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 and at class shareholder meetings with respect to the following matters:

· an amendment to the Company's articles of association;

· an increase of the Company's authorized share capital;

· a merger; or

· approval of interested party transactions and acts of office holders that require shareholder approval.

In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.

Certain shareholders have a further duty of fairness toward the Company. These shareholders include any controlling shareholder, any shareholder who knows that it has the power to determine the outcome of a shareholder vote or a shareholder class vote and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the Company or other power towards the Company. The Israeli Companies Law does not define the substance of this duty of fairness, 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.

Exculpation, Insurance and Indemnification of Directors and Officers

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

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

· financial liability incurred by or imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator's award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the 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 shall detail the abovementioned foreseen events and amount or criteria;

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

· reasonable litigation expenses, including attorneys' fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the Company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of a conviction for an offense that does not require proof of criminal intent.

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

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

· a breach of duty of care to the Company or to a third party; and

· a financial liability imposed on the office holder in favor of a third party.

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

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

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

· an act or omission committed with intent to derive unlawful personal benefit; or

· a fine, monetary sanction, penalty or forfeit levied against the office holder.

Under the Israeli Companies Law, exculpation, indemnification and insurance of office holders require the approval of the compensation committee, board of directors and, in certain circumstances, the shareholders, as described above under "—NASDAQ Listing Rules and home country practices—Compensation of officers."

Our amended and restated articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted by the Israeli Companies Law.

We have obtained directors' and officers' liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay all premiums thereunder to the fullest extent permitted by the Israeli Companies Law. In addition, we have entered into agreements with each of our office holders undertaking to indemnify them to the fullest extent permitted by Israeli law, including with respect to liabilities resulting from this offering to the extent that these liabilities are not covered by insurance.

Code of Business Conduct and Ethics

We have adopted, effective upon the consummation of this offering, a Code of Business Conduct and Ethics applicable to all of our directors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similar functions, which is a "code of ethics" as defined in Item 16B of Form 20-F promulgated by the SEC. Upon the effectiveness of the registration statement of which this prospectus forms a part, the full text of the Code of Business Conduct and Ethics will be posted on our website at www.alcobra-pharma.com. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus and is not incorporated by reference herein. If we make any amendment to the Code of Business Conduct and Ethics or grant any waivers, including any implicit waiver, from a provision of the code of ethics, 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. Under Item 16B of the SEC's Form 20-F, if a waiver or amendment of the Code of Business Conduct and Ethics applies to our principal executive officer, principal financial officer, principal accounting officer or controller and relates to standards promoting any of the values described in Item 16B(b) of such Form 20-F, we will disclose such waiver or amendment on our website in accordance with the requirements of Instruction 4 to such Item 16B.

Compensation of Executive Officers and Directors

The aggregate compensation, including share-based compensation, paid by us to our directors and executive officers with respect to the year ended December 31, 2012 was approximately $500,000. This amount includes approximately $50,000 set aside or accrued to provide pension, severance, retirement or similar benefits or expenses, but does not include business travel, relocation, professional and business association due and expenses reimbursed to office holders, and other benefits commonly reimbursed or paid by companies in our industry.

As of December 31, 2012, options to purchase 73,256 ordinary shares issued to our chief executive officer, Dr. Yaron Daniely, were outstanding under our 2010 Incentive Option Plan. 58,000 options were granted November 15, 2010. Of such outstanding options which were granted on November 15, 2010, options to purchase 26,875 ordinary shares were vested as of December 31, 2012, with an exercise price of $1.923 per share. The expiration date of all of these options is November 15, 2020. 15,256 additional options shall vest upon closing of this offering.

We do not have written agreements with any director providing for benefits upon the termination of his employment with our company.

Employment Agreements with Executive Officers; Consulting and Directorship Services Provided by Directors

We have entered into a written employment agreement with our chief executive officer. This agreement contains provisions standard for a company in our industry regarding non-competition, confidentiality of information and assignment of inventions. Under current applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. Please see "Risk factors—Risks Relating to Our Business and Industry.” for a further description of the enforceability of non-competition clauses. See "Certain Relationships and Related Party Transactions—Agreements and Arrangements with, and Compensation of, Directors and Executive Officers" for additional information.

We receive consulting and directorship services from certain of our directors. The amounts payable pursuant to these arrangements have been approved by our Board of Directors and shareholders. See "Certain relationships and related party transactions—Agreements and arrangements with, and compensation of, directors and executive officers" for additional information.

2010 Incentive Option Plan

We maintain one equity incentive plan—our 2010 Incentive Option Plan, or our 2010 Plan. As of December 31, 2012, a total of 131,423 shares were reserved for issuance under our 2010 Plan, of which options to purchase 130,229 ordinary shares were issued and outstanding under that plan. Of such outstanding options, options to purchase 64,778 ordinary shares were vested as of that date, with a weighted average exercise price of $1.54 per share.

Our 2010 Plan, which was adopted by our Board of Directors on February 3, 2010, provides for the grant of options to our and our affiliates' respective directors, employees, office holders, service providers and consultants.

The 2010 Plan is administered by our Board of Directors, which shall determine, subject to Israeli law, the grantees of awards and various terms of the grant. The 2010 Plan provides for granting options in compliance with Section 102 of the Israeli Income Tax Ordinance, 1961, or the Ordinance.

Options granted under the 2010 Plan to Israeli employees have been granted under the capital gains track of Section 102 of the Ordinance.

Section 102 of the Ordinance allows employees, directors and officers, who are not controlling shareholders and are considered Israeli residents, to receive favorable tax treatment for compensation in the form of shares or options. Our Israeli non-employee service providers and controlling shareholders may only be granted options under Section 3(9) of the Ordinance, which does not provide for similar tax benefits. Section 102 of the Ordinance includes two alternatives for tax treatment involving the issuance of options or shares to a trustee for the benefit of the grantees and also includes an additional alternative for the issuance of options or shares directly to the grantee. Section 102(b)(2) of the Ordinance, the most favorable tax treatment for grantees, permits the issuance to a trustee under the "capital gains track." However, under this track we are not allowed to deduct an expense with respect to the issuance of the options or shares. In order to comply with the terms of the capital gains track, all options granted under the 2010 Plan pursuant and subject to the provisions of Section 102 of the Ordinance, as well as the ordinary shares issued upon exercise of these options and other shares received subsequently following any realization of rights with respect to such options, such as share dividends and share splits, must be granted to a trustee for the benefit of the relevant employee, director or officer and should be held by the trustee for at least two years after the date of the grant.

Options granted under the 2010 Plan will generally vest over four years commencing on the date of grant such that 25% vest after one year and an additional 6.25% vest at the end of each subsequent three-month period thereafter for 36 months. Options that are not exercised within ten years from the grant date expire, unless otherwise determined by the Board or its designated committee, as applicable. In case of termination for reasons of disability or death, the grantee or his legal successor may exercise options that have vested prior to termination within a period of six months from the date of disability or death. If we terminate a grantee's employment or service for cause, all of the grantee's vested and unvested options will expire on the date of termination. If a grantee's employment or service is terminated for any other reason, the grantee may exercise his or her vested options within 30 days of the date of termination. Any expired or unvested options return to the pool for reissuance.

In the event of a merger or consolidation of our company subsequent to which we shall no longer exist as a legal entity, or a sale of all, or substantially all, of our shares or assets or other transaction having a similar effect on us, then any outstanding option shall be assumed, or an equivalent option shall be substituted, by such successor corporation or an affiliate thereof or, in case the successor corporation refuses to assume or substitute the option, our board of directors or its designated committee may (a) provide the grantee with the opportunity to exercise the option as to all or part of the shares, vested or otherwise, and (b) specify a period of time, no less than 7 days, following which all outstanding options shall terminate.

Certain relationships and related party transactions

The following is a description of the material terms of those transactions with related parties to which we, or our subsidiaries, are party and which we are required to disclose pursuant to the disclosure rules of the SEC.

Agreements and Arrangements With, and Compensation of, Directors and Executive Officers

Employment Agreement with Dr. Yaron Daniely

We entered into an employment agreement, dated March 4, 2010, with our Chief Executive Officer, Dr. Yaron Daniely. This employment agreement was amended several times, with the latest amendment approved by our shareholders on January 2, 2013. Under the terms of his amended employment agreement, upon conclusion of this offering, Dr. Daniely will be entitled to a gross monthly salary of $15,000. In addition, Dr. Daniely will be eligible to receive (i) a special bonus of $100,000 upon successful completion of Phase III Clinical Studies, (ii) a special bonus of $75,000 upon the successful completion of this offering and (iii) an annual bonus in an amount of two to six monthly salaries, to be determined based on the achievement of certain milestones set by our board of directors. In addition, Dr. Daniely receives under the agreement other benefits that are provided for by Israeli law or that are customary for senior executives in Israel, including the right to use (and all related fixed and variable costs in respect of) a leased car and cellular telephone. Dr. Daniely is also entitled to company contributions equivalent to 5%, 8.33%, 2.5%, and 7.5% of his gross monthly salary towards certain pension, severance, disability and tax-advantaged savings funds (known as a manager's insurance policy, severance compensation fund, disability insurance, and a study fund, respectively). Dr. Daniely also contributes 5% and 2.5% of his gross monthly salary towards the manager's insurance policy and study fund, respectively. Dr. Daniely’s employment engagement is terminable by either party upon sixty days prior written notice, and contains customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. As required under Israeli law, the terms of Dr. Daniely’s engagement with our company have been approved by our Board of Directors and shareholders.

We granted Dr. Daniely an aggregate of 73,256 options to purchase our ordinary shares, of which 26,875 have vested as of December 31, 2012.

Consulting Agreement with Dr. Dalia Megiddo

Dr. Dalia Megiddo has provided our company with consulting services related to pre-clinical, clinical, regulatory and intellectual property issues pursuant to an agreement, effective May 1, 2011 and terminable by either party upon thirty days prior written notice, approved by our board of directors and shareholders. The monthly amount payable to Dr. Megiddo under this arrangement is $2,500.

Services Agreement with Udi Gilboa

Udi Gilboa, our chief financial officer, has provided our company with part time CFO and COO services pursuant to an agreement, effective March 1, 2008 and terminable by either party upon 60 days prior written notice. The monthly amount payable to Udi Gilboa under the agreement is $7,000. In addition, in June 2010, we entered into an agreement with Top-Notch Consulting 2009 Ltd., which is wholly owned by Mr. Gilboa. Under this agreement, Top-Notch provides the Company with office space and services for a monthly fee of approximately $4,000 since June 1, 2010. Either party may terminate the agreement on 30-days notice.

Services of Aharon Schwartz as Director and Chairman of Our Board of Directors

Dr. Aharon Schwartz has served as a director and Chairman of the Board of Directors of our company since January 2, 2013. In connection with such services, Dr. Schwartz receives a monthly amount of $3,333. In addition, we granted Dr. Schwartz 19,070 options to purchase ordinary shares under our 2010 Incentive Option Plan. Of such options, 15,256 shall vest according to our 2010 Incentive Option Plan, and the remaining 3,814 will vest upon initiation of Phase III Clinical Studies in the United States.

Indemnification Agreements

Our amended and restated articles of association permit us to exculpate, indemnify and insure each of our directors and office holders to the fullest extent permitted by the Israeli Companies Law. We have entered into indemnification agreements with each of our directors and other office holders, undertaking to indemnify them to the fullest extent permitted by Israeli law, including with respect to liabilities resulting from this offering to the extent that these liabilities are not covered by insurance. We have also obtained Directors & Officers insurance for each of our officers and directors. For further information, see "Management—Exculpation, insurance and indemnification of directors and officers."

PRINCIPAL SHAREHOLDERS

The following table sets forth information regarding beneficial ownership of our ordinary shares as of December 31, 2012 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.

Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to ordinary shares. Ordinary shares issuable under share options or warrants that are exercisable within 60 days after December 31, 2012 are deemed outstanding for the purpose of computing the percentage ownership of the person holding the options or warrants but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Percentage of shares beneficially owned before this offering is based on 1,327,812 shares outstanding on December 31, 2012. The number of ordinary shares deemed outstanding after this offering includes the ordinary shares being offered for sale in this offering but assumes no exercise of the underwriter’s over-allotment option.

As of December 31, 2012, there were 18 record holders of our ordinary shares. None of our shareholders has different voting rights from other shareholders. To the best of our knowledge, we are not owned or controlled, directly or indirectly, by another corporation or by any foreign government. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

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 shareholder’s address is: c/o Alcobra Ltd., 65 Rothschild Blvd., Tel Aviv 65785, Israel.

	No. of Shares Beneficially Owned Prior to this Offering		Percentage Owned Before this Offering			Percentage Owned After this Offering

Holders of more than 5% of our voting securities:
Udi Gilboa		465,916		35.09	%
Dr. Dalia Megiddo		477,652		35.97	%
Hasasit Medical Research Services & Development Ltd.		127,882		9.63	%
Directors and executive officers who are not 5% holders:
Dr. Yaron Daniely (1)		26,875		1.98	%
All directors and executive officers as a group (4 persons)(3)		970,443		71.64	%

	(1)	Consists of options currently exercisable or exercisable within 60 days of December 31, 2012 to purchase 26,875 ordinary shares (which have an exercise price of $1.923 per share and expire in November 15, 2020). Does not include the following options not currently exercisable: 16,125 options that are time-vested, 15,000 options that become exercisable in connection with an acquisition of the Company and 15,256 options that become exercisable upon an initial public offering or an acquisition of the Company. The options were granted under our 2010 Plan.

	(2)	See preceding notes.

DESCRIPTION OF SHARE CAPITAL

The following description of our share capital and provisions of our amended and restated articles of association which will be adopted immediately prior to the consummation of this offering are summaries and do not purport to be complete.

General

Ordinary Shares

Immediately prior to the consummation of this offering, effective upon the adoption of our amended and restated articles of association, our authorized share capital will consist of ___________ordinary shares, par value NIS 0.01 per share, of which shares will be issued and outstanding (assuming that the underwriters do not exercise their over-allotment option).

All of our outstanding ordinary shares are validly issued, fully paid and non-assessable. They are not redeemable and do not have any preemptive rights.

Warrants

As of December 31, 2012, we had the following warrants outstanding:

· Warrants issued to professional advisor. As consideration for certain professional services, on April 2, 2008, we issued to certain advisors warrants to purchase up to 10,000 ordinary shares at an exercise price of NIS 0.01 per share. These warrants shall expire on April 2, 2018.

· Warrants issued in the February 2010 Preferred B Subscription Agreement. In connection with the February 2010 Preferred B Subscription Agreement, as further detailed below, we issued to the investors warrants to purchase up to 22,020 series B3 preferred shares at an exercise price of $16.02 per share. The warrants are currently exercisable into ordinary shares. These warrants shall expire immediately prior to the closing of this offering.

Options

Share History

The following is a summary of the history of our share capital for the last three years.

Share Options. Since January 1, 2010, we have issued 49,835 ordinary shares upon the exercise of share options.

February 2010 Preferred B Subscription Agreement. On February 28, 2010, we closed the February 2010 Preferred B Subscription Agreement, pursuant to which we sold an aggregate of 67,751 series B1 preferred shares, and an aggregate of 21,893 series B2 preferred shares, at a price of $12.82 per share and issued warrants to purchase up to an aggregate of 22,020 series B3 preferred shares with an exercise price of $16.02 per share, which shall expire immediately prior to the closing of this offering.

February 2011 Share Purchase Agreement. On March 24, 2011, we closed the February 2011 Share Purchase Agreement, pursuant to which we sold an aggregate of 51,844 of our ordinary shares at a price of $67.51 per share.

Recapitalization and conversion of Preferred Shares to Ordinary Shares. In connection with the February 2011 Share Purchase Agreement, on March 24, 2011, all classes of preferred shares in the Company’s share capital, including all preferred shares issued and outstanding, were converted to ordinary shares on a one for one basis, resulting in a one-class capital structure consisting solely of ordinary shares.

2012 Convertible Notes. During 2012, we issued convertible notes for a total principal amount of $600,000. According to the terms of the convertible notes, the total amount, bearing an annual interest rate of 6%, shall be automatically converted into ordinary shares as of immediately after closing of this offering, at a 25% discount from the initial public offering price.

Voting Rights

Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before the shareholders at a general meeting.

Transfer of Shares

Our ordinary shares that are fully paid for are issued in registered form and may be freely transferred under our amended and restated articles of association, unless the transfer is restricted or prohibited by applicable law or the rules of a stock exchange on which the shares are traded. The ownership or voting of our ordinary shares by non-residents of Israel is not restricted in any way by our amended and restated articles of association or the laws of the State of Israel, except for ownership by nationals of some countries that are, or have been, in a state of war with Israel.

Our research and development efforts were financed in part, in the past, through grants that we received from Israel's Office of the Chief Scientist of the Ministry of Industry, Trade and Labor, as a result of which we must comply with the requirements of the Israeli Encouragement of Industrial Research and Development Law, 5744-1984, and related regulations, or the Research Law. According to the Research Law, a change of control of our company should be reported to the research committee at the Ministry of Industry, Trade and Labor, or the Committee, and a change in the holding of the means of control in our company (means of control include the right to vote at a general meeting of a company or a corresponding body of another corporation or the right to appoint directors of the corporation or its general manager) which results in any person not being a citizen or resident of Israel or corporation incorporated in Israel holding 5% or more of the issued share capital or of the voting power of our company, should be reported to the Committee, which may notify us of its objection to such change, and such person shall be required to sign an undertaking in a certain form published by the Committee.

Election of Directors

Our ordinary shares do not have cumulative voting rights in the election of directors. As a result, the holders of a majority of the voting power represented at a shareholders meeting have the power to elect all of our directors, subject to the special approval requirements for external directors described under "Management—External directors."

Our directors hold office for their scheduled term unless they are removed from office upon the occurrence of certain events, in accordance with the Israeli Companies Law and our amended and restated articles of association. In addition, our amended and restated articles of association allow our Board of Directors to appoint directors to fill vacancies on the Board of Directors to serve for a term of office equal to the remaining period of the term of office of the directors(s) whose office(s) have been vacated. External directors are elected for an initial term of three years, may be elected for additional terms of three years each under certain circumstances, and may be removed from office pursuant to the terms of the Israeli Companies Law. See "Management—Board practices—External directors."

Dividend and Liquidation Rights

We may declare a dividend to be paid to the holders of our ordinary shares in proportion to their respective shareholdings. Under the Israeli Companies Law, dividend distributions are determined by the board of directors and do not require the approval of the shareholders of a company unless the Company's articles of association provide otherwise. Our amended and restated articles of association do not require shareholder approval of a dividend distribution and provide that dividend distributions may be determined by our Board of Directors.

Pursuant to the Israeli Companies Law, the distribution amount is limited to the greater of retained earnings or earnings generated over the previous two years, according to our then last reviewed or audited financial reports, provided that the date of the financial reports is not more than six months prior to the date of distribution, or we may distribute dividends that do not meet such criteria only with court approval. In each case, we are only permitted to pay a dividend if our Board of Directors or the court, as applicable, determined that there is no reasonable concern that payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.

In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to their shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.

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.

Shareholder Meetings

Under Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year that must be no later than 15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our Board of Directors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Israeli Companies Law provides that our Board of Directors is required to convene a special meeting upon the written request of (i) any two of our directors or one-quarter of our Board of Directors, or (ii) one or more shareholders holding, in the aggregate, either (a) 5% of our outstanding issued shares and 1% of our outstanding voting power, or (b) 5% of our outstanding voting power.

Subject to the provisions of the Israeli Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which may generally be between four and 40 days prior to the date of the meeting. Furthermore, the Israeli Companies Law requires that resolutions regarding the following matters must be passed at a general meeting of our shareholders:

· amendments to our amended and restated articles of association;

· appointment or termination of our auditors;

· appointment of external directors;

· approval of acts and transactions involving related parties, as defined by the Israeli Companies Law;

· increases or reductions of our authorized share capital; and

· a merger.

The Israeli Companies Law and our amended and restated articles of association require that a notice of any annual general meeting or special shareholders meeting be provided to shareholders at least 21 days prior to the meeting and if the agenda of the meeting includes matters upon which shareholders may vote by means of a voting deed, including the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of a merger, notice must be provided at least 35 days prior to the meeting.

Under the Israeli Companies Law and our amended and restated articles of association, shareholders are not permitted to take action via written consent in lieu of a meeting.

Voting Rights

Quorum Requirements

The quorum required for our general meetings of shareholders consists of at least two shareholders present in person, by proxy or written ballot who hold or represent between them at least one-third of the total outstanding voting rights. A meeting adjourned for lack of a quorum is generally adjourned to the same day in the following week at the same time and place or to a later time/date if so specified in the summons or notice of the meeting. At the reconvened meeting, any two or more shareholders present in person or by proxy shall constitute a lawful quorum.

Vote Requirements

Our amended and restated articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by the Israeli Companies Law or by our amended and restated articles of association. Under the Israeli Companies Law certain actions require a special majority, which may include (i) appointment of external directors, requiring the approval of certain transactions described above under “”Management—Board Practices—External Directors”, (ii) approval of an extraordinary transaction with a controlling shareholder and the terms of employment or other engagement of the controlling shareholder of the Company or such controlling shareholder's relative (even if not extraordinary), requiring the approval described above under "Approval of Related Party Transactions under Israeli Law—Disclosure of Personal Interests of Controlling Shareholders.", and (iii) approval of executive officer’ compensation inconsistent with our office holder compensation policy, compensation of our chief executive officer, or the compensation of an executive officer who is also the controlling shareholder of our company (including an affiliate thereof), all of which require the approval described above under “Management—NASDAQ Listing Rules and Home Country Practices—Compensation of Officers.”.

Under our amended and restated articles of association, the alteration of the rights, privileges, preferences or obligations of any class of our share capital requires a simple majority of the class so affected (or such other percentage of the relevant class that may be set forth in the governing documents relevant to such class), in addition to the ordinary majority vote of all classes of shares voting together as a single class at a shareholder meeting.

Further exceptions to the simple majority vote requirement are a resolution for the voluntary winding up, or an approval of a scheme of arrangement or reorganization, of the Company pursuant to Section 350 of the Israeli Companies Law, which requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by voting deed and voting on the resolution.

Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a voting deed in which the shareholder indicates how he or she votes on resolutions relating to the following matters:

· appointment or removal of directors;

· approval of transactions with office holders or interested or related parties;

· approval of a merger;

· authorization of the chairman of the board or a relative thereof to assume the role or responsibilities of our chief executive officer, and authorization of our chief executive officer or a relative thereof to assume the role or responsibilities of the chairman of the board;

· approval of an arrangement or reorganization of the Company pursuant to Section 350 of the Israeli Companies Law; and

· other matters in respect of which there is a provision in the articles of association providing that decisions of the general meeting may also be passed by voting deed or which may be prescribed by Israel's Minister of Justice.

The provision allowing the vote by voting deed does not apply if, to the best knowledge of the Company at the time of calling the general shareholders meeting, a controlling shareholder will hold on the record date for such shareholders meeting, voting power sufficient to determine the outcome of the vote.

The Israeli Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the Company and its other shareholders, including voting at general meetings, must act in good faith and in a customary manner, and avoid abusing his or her power. See "Approval of Related Party Transactions under Israeli Law—Shareholder Duties" above for further detail.

Access to Corporate Records

Under the Israeli Companies Law and our amended and restated articles of association, shareholders are provided access to the following corporate records: minutes of our general meetings; our shareholders register and principal shareholders register, articles of association and financial statements; and any document that we are required by law to file publicly with the Israeli Companies Registrar or the Israel Securities Authority. In addition, shareholders may submit a reasoned request to be provided with any document related to an action or transaction requiring shareholder approval under the related party transaction provisions of the Companies Law. We may deny this request if we believe it has not been submitted in good faith or if such denial is necessary to protect our interest or protect a trade secret or patent.

Modification of Class Rights

The rights attached to any class of shares, such as voting, liquidation and dividend rights, may be amended by adoption of a resolution by the holders of a majority of the shares of that class present at a separate class meeting, or otherwise in accordance with the rights attached to such class of shares, as set forth in our amended and restated articles of association.

Acquisitions under Israeli Law

Full Tender Offer

A person wishing to acquire shares of a public Israeli company and who could as a result hold over 90% of the target company's issued and outstanding share capital or voting rights is required by the Israeli Companies Law to make a tender offer to all of the company's shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and who could as a result hold over 90% of the issued and outstanding share capital or voting rights of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the relevant class for the purchase of all of the issued and outstanding shares of that class. If the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital and voting rights of the company or of the applicable class, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved it, which condition shall not apply if, following consummation of the tender offer, the acquirer would hold at least 98% of all of the company's outstanding shares and voting rights (or shares and voting rights of the relevant class)). However, shareholders may, at any time within six months following the completion of the tender offer, petition the court to alter the consideration for the acquisition. Even shareholders who indicated their acceptance of the tender offer may so petition the court, unless the acquirer stipulated that a shareholder that accepts the offer may not seek appraisal rights). If the shareholders who did not accept the tender offer hold 5% or more of the issued and outstanding share capital or voting rights of the company or of the applicable class, the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company's issued and outstanding share capital or voting rights or 90% of the shares or voting rights of the applicable class, from shareholders who accepted the tender offer.

Special Tender Offer

The Israeli Companies Law provides that an acquisition of shares of a public Israeli company must be made by means of a special tender offer if as a result of the acquisition the purchaser could become a holder of 25% or more of the voting rights in the company, unless one of the exemptions in the Israeli Companies Law (as described below) is met. This rule does not apply if there is already another holder of at least 25% of the voting rights in the company. Similarly, the Israeli Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser could become a holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company, unless one of the exemptions in the Israeli Companies Law is met. Such exemptions include (a) acquisition of shares issued in the course of a private placement approved by the general meeting of the company as a private placement intended to provide purchaser with holdings of 25% or more of the voting rights in the company, if there is no other shareholder of the company who holds more than 25% of the voting rights in the company, or as a private placement intended to provide purchaser with holdings of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company, (b) acquisition of shares from a holder of 25% or more of the voting rights in the company following which purchaser shall hold 25% or more of the voting rights in the company, or (c) acquisition of shares from a holder of 45% or more of the voting rights in the company following which purchaser shall hold 45% or more of the voting rights in the company.

A special tender offer must be extended to all shareholders of a company but the offeror is not required to purchase shares representing more than 5% of the voting power attached to the company's outstanding shares, regardless of how many shares are tendered by shareholders. A special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company's outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer (disregarding holders who have a personal interest).

If a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.

Merger

The Israeli Companies Law permits merger transactions if approved by each party's board of directors and, unless certain requirements described under the Israeli Companies Law are met, by a majority vote of each party's shares, and, in the case of the target company, a majority vote of each class of its shares, voted on the proposed merger at a shareholders meeting called with at least 35 days' prior notice.

For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the votes of shares represented at the shareholders meeting that are held by parties other than the other party to the merger, or by any person (or group of persons acting in concert) who holds (or hold, as the case may be) 25% or more of the voting rights or the right to appoint 25% or more of the directors of the other party, vote against the merger. If, however, the merger involves a merger with a company's own controlling shareholder or if the controlling shareholder has a personal interest in the merger, then the merger is instead subject to the same special majority approval that governs all extraordinary transactions with controlling shareholders (as described above in this prospectus under "Management—NASDAQ Listing Rules and Home Country Practices—Shareholder Approval.")

If the transaction would have been approved by the shareholders of a merging company but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking into account the value of the parties to the merger and the consideration offered to the shareholders of the company that have petitioned the court to approve the merger.

Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and may further give instructions to secure the rights of creditors.

In addition, a merger may not be consummated unless at least 50 days have passed from the date on which a proposal for approval of the merger was filed by each party with the Israeli Registrar of Companies and at least 30 days have passed from the date on which the merger was approved by the shareholders of each party.

Anti-takeover Measures under Israeli Law

The Israeli Companies Law allow us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certain preferred rights, distributions or other matters and shares having preemptive rights. As of the closing of this offering, no preferred shares will be authorized under our amended and restated articles of association. In the future, if we do authorize, create and issue a specific class of preferred shares, such class of shares, depending on the specific rights that may be attached to it, may have the ability to frustrate or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization and designation of a class of preferred shares will require an amendment to our amended and restated articles of association, which requires the prior approval of the holders of a majority of the voting power attaching to our issued and outstanding shares at a general meeting. The convening of the meeting, the shareholders entitled to participate and the majority vote required to be obtained at such a meeting will be subject to the requirements set forth in the Israeli Companies Law as described above in "—Voting Rights."

Borrowing Powers

Pursuant to the Israeli Companies Law and our amended and restated articles of association, our Board of Directors may exercise all powers and take all actions that are not required under law or under our amended and restated articles of association to be exercised or taken by our shareholders, including the power to borrow money for company purposes.

Changes in Capital

Our amended and restated articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Israeli Companies Law and must be approved by a resolution duly passed by our shareholders at a general meeting by voting on such change in the capital. In addition, transactions that have the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings or profits and an issuance of shares for less than their nominal value, require the approval of both our Board of Directors and an Israeli court.

Transfer Agent

Our transfer agent in the United States will be .

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, no public market existed for our ordinary shares. Sales of substantial amounts of our ordinary shares following this offering, or the perception that these sales could occur, could adversely affect prevailing market prices of our ordinary shares and could impair our future ability to obtain capital, especially through an offering of equity securities. Assuming that the underwriters do not exercise their over-allotment option with respect to this offering and assuming no exercise of options outstanding following the offering, we will have an aggregate of ordinary shares outstanding upon completion of this offering. Of these shares, the ordinary shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" (as that term is defined under Rule 144 of the Securities Act), who may sell only the volume of shares described below and whose sales would be subject to additional restrictions described below.

The remaining ordinary shares will be held by our existing shareholders. Because substantially all of these shares were sold outside the United States to persons residing outside the United States at the time, they also will be freely tradable without restriction or further registration, except that shares held by affiliates must be sold under Rule 144, and except for the lock-up restrictions described below. Further, substantially all of our outstanding shares are subject to the lock-up agreements.

Lock-up agreements

We, all of our directors and executive officers and holders of all of our outstanding ordinary shares have signed lock-up agreements pursuant to which, subject to certain exceptions, they have agreed not to sell or otherwise dispose of their ordinary shares or any securities convertible into or exchangeable for ordinary shares for a period of 180 days after the date of this prospectus without the prior written consent of Aegis Capital Corp. In addition, certain holders of options to purchase our shares have entered into similar lock-up agreements.

The 180-day lock-up period described in the preceding paragraph will be extended if:

•

during the last 17 days of the 180-day lock-up period, we release earnings results or announce material news or a material event; or

•

prior to the expiration of the 180-day lock-up period, we announce that we will release earnings results during the 15-day period following the last day of the 180-day period,

in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the date of release of the earnings results or the announcement of the material news or material event, unless such extension is waived, in writing, by Aegis Capital Corp.

Rule 144

In general, under Rule 144, beginning 90 days after the date of this prospectus, any person who is not our affiliate and has held their shares for at least six months, including the holding period of any prior owner other than one of our affiliates, may sell shares without restriction. In addition, under Rule 144, any person who is not an affiliate of ours and has held their shares for at least one year, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares immediately upon the closing of this offering without regard to whether current public information about us is available.

Beginning 90 days after the date of this prospectus, a person who is our affiliate or who was our affiliate at any time during the preceding three months and who has beneficially owned restricted securities for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell a number of shares within any three-month period that does not exceed the greater of:

one percent of the number of ordinary shares then outstanding, which will equal –- shares; or

the average weekly trading volume of our ordinary shares on the NASDAQ Capital Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

If an affiliate acquires “restricted securities,” those securities will also be subject to holding period requirements.

Upon expiration of the 180-day lock-up period described above, substantially all of our outstanding ordinary shares will either be unrestricted or will be eligible for sale under Rule 144. We cannot estimate the number of our ordinary shares that our existing stockholders will elect to sell.

Form S-8 Registration Statements

Following the completion of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act to register up the ordinary shares issued or reserved for issuance under our 2010 Plan. The registration statement on Form S-8 will become effective automatically upon filing. Ordinary shares issued upon exercise of a share option and registered under the Form S-8 registration statement will, subject to vesting and lock-up provisions and Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market immediately unless they are subject to the 180-day lock-up or, if subject to the lock-up, immediately after the 180-day lock-up period expires.

TAXATION

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. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.

ISRAELI TAX CONSIDERATIONS

The following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income tax consequences concerning the ownership and disposition of our ordinary shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that the discussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this prospectus and does not take into account possible future amendments which may be under consideration.

General corporate tax structure in Israel

Israeli resident companies, such as the Company, are generally subject to corporate tax at the rate of 25% of their taxable income in 2013.

Capital gains derived by an Israeli resident company are now 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.

Taxation of our Israeli individual shareholders on receipt of dividends

Israeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our ordinary shares (other than bonus shares or share dividends) at a rate of 25%, or 30% if the recipient of such dividend is a "substantial" shareholder (as defined below) at the time of distribution or at any time during the preceding 12-month period.

Recently, the Israeli Parliament passed the Reduction the Deficit and Coping with Implications resulting from the Global Economic Crisis (Legislative Amendments), 2012 according to which starting in 2013, an additional income tax at a rate of 2% will be imposed on high earners whose annual income or gains exceed 800,000 NIS.

A “Substantial Shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits, nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or she is to exercise such right(s), and all regardless of the source of such right.

The term “Israeli Resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of vital interests is in Israel. The Israeli Tax Ordinance [New Version], 1961 (as amended by Amendment Law No. 132 of 2002) (the “Israeli Tax Ordinance”) determines that in order to determine the center of vital interests of an individual, account will be taken of the individual’s family, economic and social connections, including: (a) place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanent occupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activities in organizations, associations and other institutions. The center of vital interests of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for 183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence in Israel in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by the assessing officer.

Taxation of Israeli Resident Corporations on Receipt of Dividends

Israeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our ordinary shares.

Capital Gains Taxes Applicable to Israeli Resident Shareholders

The income tax rate applicable to Real Capital Gain derived by an Israeli individual from the sale of shares which had been purchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (as defined above) at the time of sale or at any time during the preceding 12-month period, such gain will be taxed at the rate of 30%. Recently, the Israeli Parliament passed the Reduction of Deficit and Coping with Implications resulting from the Global Economic Crisis (Legislative Amendments), 2012 according to which starting in 2013, an additional tax at a rate of 2% will be imposed on high earners whose annual income or gains exceed 800,000 NIS.

Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary business income, are taxed in Israel at ordinary income rates (currently, 25% for corporations and up to 48% for individuals in 2013).

Taxation of Non-Israeli Shareholders on Receipt of Dividends

Non-residents of Israel are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% (or 30% for individuals, if such person is a “substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date), which tax will be withheld at the source, unless a different rate is provided in a tax treaty between Israel and the shareholder’s country of residence.

A non-resident of Israel who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income; provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.

For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, as amended (the "U.S.-Israel Tax Treaty"), Israeli withholding tax on dividends paid to a US resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid out of the profits of a Benefited Enterprise, subject to certain conditions. Where the recipient is a US corporation owning 10% or more of the voting shares of the paying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any) and the dividend is not paid from the profits of a Benefited Enterprise, the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.

Capital gains income taxes applicable to non-Israeli shareholders.

Shareholders that are not Israeli residents are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our ordinary shares, provided that such shareholders did not acquire their shares prior to January 1, 2009 and such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemptions if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli corporation or (ii) is the beneficiary of or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.

In addition, a sale of securities may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under the US-Israel Income Tax Treaty, the sale, exchange or disposition of our ordinary shares by a shareholder who is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty) holding the ordinary shares as a capital asset and is entitled to claim the benefits afforded to such a resident by the U.S.-Israel Tax Treaty (called a "Treaty U.S. Resident") is generally exempt from Israeli capital gains tax unless (i) such Treaty U.S. Resident is an individual and was present in Israel for more than 183 days during the relevant taxable year; (ii) such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12 month period preceding such sale, exchange or disposition, subject to certain conditions; or (iii) the capital gains arising from such sale, exchange or disposition are attributable to a permanent establishment of the Treaty U.S. Resident located in Israel. In any such case, the sale, exchange or disposition of ordinary shares would be subject to Israeli tax, to the extent applicable.

Regardless of whether shareholders may be liable for Israeli income tax on the sale of our ordinary shares, the payment of the consideration may be subject to withholding of Israeli tax at the source. Accordingly, 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.

Estate and gift tax

Israeli law presently does not impose estate or gift taxes.

THE PRECEDING DISCUSSION OF ISRAELI INCOME TAX AND CAPITAL GAIN TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OF PURCHASING, HOLDING, AND DISPOSING OF OUR ORDINARY SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.

U.S. FEDERAL INCOME TAX CONSEQUENCES

Except as specifically set forth below, the following discussion is limited to the material U.S. federal income tax consequences relating to the purchase, ownership and disposition of our ordinary shares by U.S. Holders (as defined below) that purchase ordinary shares pursuant to the offering and hold such ordinary shares as capital assets. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, U.S. Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to specific U.S. Holders in light of their particular circumstances or to U.S. Holders subject to special treatment under U.S. federal income tax law (such as certain financial institutions, insurance companies, broker-dealers and traders in securities or other persons that generally mark their securities to market for U.S. federal income tax purposes, tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts, certain former citizens or residents of the United States, persons who hold ordinary shares as part of a "straddle," "hedge," "conversion transaction," "synthetic security" or integrated investment, persons that have a "functional currency" other than the U.S. dollar, persons that own (or are deemed to own) 10% or more (by voting power or value) of our shares, corporations that accumulate earnings to avoid U.S. federal income tax, partnerships and other pass-through entities, and investors in such pass-through entities). Except as expressly set forth herein, this discussion does not address any U.S. state or local or non-U.S. tax consequences or any U.S. federal estate, gift or alternative minimum tax consequences.

As used in this discussion, the term "U.S. Holder" means a beneficial owner of ordinary shares that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source or (iv) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions or (y) that has elected under applicable U.S. Treasury regulations to be treated as a domestic trust for U.S. federal income tax purposes.

If an entity treated as a partnership for U.S. federal income tax purposes holds the ordinary shares, the U.S. federal income tax consequences relating to an investment in the ordinary shares will depend in part upon the status and activities of such entity and the particular partner. Any such entity should consult its own tax advisor regarding the U.S. federal income tax consequences applicable to it and its partners of the purchase, ownership and disposition of the ordinary shares.

Persons considering an investment in the ordinary shares should consult their own tax advisors as to the particular tax consequences applicable to them relating to the purchase, ownership and disposition of the ordinary shares, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws.

Distributions

Subject to the discussion below under "Passive foreign investment company consequences," a U.S. Holder that receives a distribution with respect to an ordinary share generally will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Israeli tax withheld from such distribution) when actually or constructively received to the extent of the U.S. Holder's pro rata share of our current and/or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent a distribution received by a U.S. Holder is not a dividend because it exceeds the U.S. Holder's pro rata share of our current and accumulated earnings and profits, it will be treated first as a tax-free return of capital and reduce (but not below zero) the adjusted tax basis of the U.S. Holder's ordinary shares. To the extent the distribution exceeds the adjusted tax basis of the U.S. Holder's shares, the remainder will be taxed as capital gain. Because we do not account for our income in accordance with U.S. federal income tax purposes, U.S. Holders should expect all distributions to be reported to them as dividends.

The U.S. dollar value of any distribution on the ordinary shares made in NIS generally should be calculated by reference to the exchange rate between the U.S. dollar and the NIS in effect on the date of receipt of such distribution by the U.S. Holder regardless of whether the NIS so received is in fact converted into U.S. dollars at that time. If the NIS so received is converted into U.S. dollars on the date of receipt, such U.S. Holder generally should not recognize currency gain or loss on such conversion. If the NIS so received is not converted into U.S. dollars on the date of receipt, such U.S. Holder generally will have a basis in such NIS equal to the U.S. dollar value of such NIS on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of such NIS by such U.S. Holder generally will be treated as ordinary income or loss and generally will be income or loss from sources within the United States for U.S. foreign tax credit purposes.

Distributions on the ordinary shares that are treated as dividends generally will constitute income from sources outside the United States for foreign tax credit purposes. Such dividends will not be eligible for the "dividends received" deduction generally allowed to corporate shareholders with respect to dividends received from U.S. corporations. Distributions treated as dividends that are received by non-corporate U.S. Holders before January 1, 2013 are expected to qualify for the 15% reduced maximum tax rate available for dividends received from "qualified foreign corporation" provided certain holding periods and other requirements are met. Absent a change in current law, dividends received by a U.S. Holder from us on or after January 1, 2013, will be taxed at regular ordinary income tax rates. We will not be treated as a qualifying foreign corporation, and therefore the reduced maximum tax rate in effect for 2012 described above will not apply, if we are a PFIC for the taxable year in which the dividend is paid or the preceding taxable year (see "Passive foreign investment company consequences," below).

Distributions may be subject to Israeli withholding tax—see—"Taxation—Israeli tax considerations—Taxation of our shareholders—Taxation of non-Israeli shareholders on receipt of dividends." Subject to certain conditions and limitations, Israeli taxes withheld from distributions by us may be credited against a U.S. Holder's U.S. federal income tax liability or, alternatively, deducted to determine the U.S. Holder's taxable income. This election to deduct foreign income taxes is made on a year-by-year basis and applies to all foreign taxes paid by a U.S. Holder that year. Dividends paid on the ordinary shares generally will constitute income from sources outside the United States and be categorized as "passive category income" for U.S. foreign tax credit purposes.

Sale, exchange or other disposition of the ordinary shares

Subject to the discussion below under "Passive foreign investment company consequences," a U.S. Holder generally will recognize capital gain or loss for U.S. federal income tax purposes upon the sale, exchange or other disposition of a ordinary share in an amount equal to the difference, if any, between the amount realized (i.e., the amount of cash plus the fair market value of any property received) on the sale, exchange or other disposition and such U.S. Holder's adjusted tax basis in the ordinary share, both amounts determined in U.S. dollars. Such capital gain or loss generally will be long-term capital gain taxable at a reduced rate for non-corporate U.S. Holders (currently a maximum of 15% and increasing to a maximum of 20% after January 1, 2013) or loss if, on the date of sale, exchange or other disposition, the ordinary share was held by the U.S. Holder for more than one year. Any capital gain of a non-corporate U.S. Holder that is not long-term capital gain is taxed at ordinary income rates. The deductibility of capital losses is subject to limitations. Any gain or loss recognized from the sale or other disposition of our ordinary shares will generally be gain or loss from sources within the United States for U.S. foreign tax credit purposes.

A U.S. Holder that receives NIS from the sale, exchange or other disposition of ordinary shares will generally realize an amount equal to the U.S. dollar value of the NIS received at the spot rate on the date of sale (or, in the case of cash basis and electing accrual basis U.S. Holders, the settlement date). A U.S. Holder will recognize foreign currency gain or loss to the extent the U.S. dollar value of the amount received at the spot exchange rate on the settlement date differs from the amount realized. A U.S. Holder will have a tax basis in the NIS received equal to its U.S. dollar value on the settlement date. Any gain or loss on a subsequent conversion or other disposition of the NIS will be U.S. source ordinary income or loss.

Passive foreign investment company consequences

In general, a corporation organized outside the United States will be treated as a PFIC in any taxable year in which either (i) at least 75% of its gross income is "passive income" or (ii) on average at least 50% of its assets is attributable to assets that produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, dividends, interest, royalties, rents, and gains from commodities transactions and from the sale or exchange of property that gives rise to passive income. Assets that produce or are held for the production of passive income include cash, even if held as working capital or raised in a public offering, marketable securities and other assets that may produce passive income. The average percentage of a corporation's assets that produce or are held for the production of passive income generally is determined on the basis of the fair market value of the corporation's assets at the end of each quarter. This determination is based on the adjusted tax basis of the corporation's assets however, if the corporation is a "controlled foreign corporation", that is not a publicly traded corporation for the taxable year. In determining whether a foreign 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.

Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, we do not expect to be a PFIC in 2013, 2014 or a subsequent year. Nevertheless, because this determination is made annually after the close of each taxable year, because we hold and expect to continue to hold following this offering a substantial amount of cash and cash equivalents, and because the calculation of the value of our assets may be based in part on the value of our ordinary shares, which may fluctuate after this offering and may fluctuate considerably given that market prices of technology companies historically often have been volatile, it is difficult to predict whether we will be a PFIC in any taxable year. Even if we determine that we are not a PFIC after the close of our taxable year, there can be no assurance that the Internal Revenue Service, or the IRS, will agree with our conclusion.

If we are a PFIC in any taxable year during which a U.S. Holder owns ordinary shares, such U.S. Holder could be liable for additional taxes and interest charges upon (i) certain distributions by us (generally any distribution paid during a taxable year that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years, or, if shorter, the U.S. Holder's holding period for our ordinary shares), and (ii) any gain recognized on a sale, exchange or other disposition, including a pledge, of the ordinary shares, whether or not we continue to be a PFIC. In these circumstances, the tax will be determined by allocating such distributions or gain ratably over the U.S. Holder's holding period for the ordinary shares. The amount allocated to the current taxable year (i.e., the year in which the distribution occurs or the gain is recognized) and any year prior to the first taxable year in which we are a PFIC will be taxed as ordinary income earned in the current taxable year. The amount allocated to other taxable years will be taxed at the highest marginal rates in effect for individuals or corporations as appropriate applicable to ordinary income for each such taxable year, and an interest charge, generally that applicable to underpayments of tax, will be added to the tax. If we are a PFIC for any year during which a U.S. Holder holds our ordinary shares, we will generally continue to be treated as a PFIC with respect to the holder for all succeeding years during which the U.S. Holder holds ordinary shares even if we cease to meet the requirements for PFIC status.

The tax consequences that would apply if we were a PFIC would be different from those described above if a timely and valid "mark-to-market" election is made by a U.S. Holder for our ordinary shares. An electing U.S. Holder generally would take into account as ordinary income each year, the excess of the fair market value of our ordinary shares held at the end of the taxable year over the adjusted tax basis of such ordinary shares. The U.S. Holder would also take into account, as an ordinary loss each year, the excess of the adjusted tax basis of such ordinary shares over their fair market value at the end of the taxable year, but only to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder's tax basis in our ordinary shares would be adjusted to reflect any income or loss resulting from the mark-to-market election. Any gain from a sale, exchange or other disposition of the ordinary shares in any taxable year in which we are a PFIC would be treated as ordinary income and any loss from such sale, exchange or other disposition would be treated first as ordinary loss (to the extent of any net mark-to-market gains previously included in income) and thereafter as capital loss. If, after having been a PFIC for a taxable year, we cease to be classified as a PFIC, the U.S. Holder would not be required to take into account any latent gain or loss in the manner described above and any realized gain or loss would be classified as a capital gain or loss.

A mark-to-market election is available to a U.S. Holder only if the ordinary shares are considered "marketable stock". Generally, stock will be considered marketable stock if it is "regularly traded" on a "qualified exchange" within the meaning of applicable U.S. Treasury regulations. A class of stock is regularly traded during any calendar year during which such class of stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Our ordinary shares will be marketable stock as long as they remain listed on the NASDAQ Global Market and are regularly traded. A mark-to-market election will not apply to our ordinary shares for any taxable year during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable year in which we become a PFIC. Such election will not apply to any subsidiary that we own.

The tax consequences that would apply if we were a PFIC would also be different from those described above if a U.S. Holder were able to make a valid "qualified electing fund" ("QEF") election. As we do not expect to provide U.S. Holders with the information required in order to permit a QEF election, prospective investors should assume that a QEF election will not be available.

If we are a PFIC in any taxable year during which a U.S. Holder owns the ordinary shares, such U.S. Holder may also suffer adverse tax consequences under the PFIC rules described above with respect to any lower-tier PFIC in which we have a direct or indirect equity interest.

Each U.S. Holder who is a shareholder of a PFIC must file an annual report containing certain information.

The U.S. federal income tax rules relating to PFICs are complex. Prospective U.S. investors are urged to consult their own tax advisers with respect to the purchase, ownership and disposition of ordinary shares, the consequences to them of an investment in a PFIC, any elections available with respect to our ordinary shares and the IRS information reporting obligations with respect to the purchase, ownership and disposition of ordinary shares.

Certain reporting requirements with respect to payments of Offer Price

U.S. Holders paying more than U.S. $100,000 for ordinary shares generally will be required to file IRS Form 926 reporting the payment of the Offer Price for an ordinary share to us. Substantial penalties may be imposed upon a U.S. Holder that fails to comply. Each U.S. Holder should consult its own tax advisor as to the possible obligation to file IRS Form 926.

Information reporting and backup withholding

Dividends on and proceeds from the sale or other disposition of the ordinary shares may be reported to the IRS unless the U.S. Holder establishes a basis for exemption. Backup withholding may apply to amounts subject to reporting if (i) the holder fails to provide an accurate taxpayer identification number or otherwise establish a basis for exemption, or (ii) is described in certain other categories of persons. Backup withholding is not an additional tax.

Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a U.S. Holder's U.S. federal income tax liability if the required information is furnished by the U.S. Holder on a timely basis to the IRS.

For taxable years beginning after March 18, 2010, new legislation requires certain U.S. Holders who are individuals to report information relating to stock of a non-U.S. person, subject to certain exceptions (including an exception for stock held in custodial accounts maintained by a U.S. financial institution). U.S. Holders are urged to consult their tax advisers regarding the effect, if any, of this legislation on their ownership and disposition of ordinary shares.

THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PROSPECTIVE INVESTOR. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN ORDINARY SHARES IN LIGHT OF THE INVESTOR'S OWN CIRCUMSTANCES.

UNDERWRITING

Aegis Capital Corp. is acting as the representative of the underwriters of this offering (the “Representative”). We have entered into an underwriting agreement dated the date of this prospectus with the Representative. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each underwriter named below and each underwriter named below has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of our ordinary shares next to its name in the following table:

Underwriter	Number of Shares
Aegis Capital Corp.



Total

The underwriters are committed to purchase all the shares offered by us if any shares are purchased, other than those covered by the option to purchase additional shares described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.

The underwriters propose to offer the shares offered by us to the public at the public offering price set forth on the cover of this prospectus. In addition, the underwriters may offer some of the shares to other securities dealers at such price less a concession of $ per share. If all of the shares offered by us are not sold at the public offering price, the underwriters may change the offering price and other selling terms by means of a supplement to this prospectus.

The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement, the underwriters’ obligations are subject to customary conditions, representations and warranties, such as receipt by the underwriters of officers’ certificates and legal opinions.

We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments the underwriters may be required to make in respect thereof.

The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase a maximum of additional shares from us to cover over-allotments. If the underwriters exercise all or part of this option, they will purchase shares covered by the option at the public offering price less the underwriting discounts and commissions that appear on the cover page of this prospectus. If this option is exercised in full, the total price to the public will be $ , and the total proceeds to us, before expenses, will be $ .

Underwriting Discounts and Commissions. We have agreed to pay underwriting discounts and commissions of 7% of the gross proceeds of the offering (equivalent to 7% of the per share public offering price of $ ). The following table shows the public offering price, underwriting discounts and commissions and expenses to be paid by us to the underwriters and the proceeds of the public offering, before expenses, to us.

	Without over-allotment exercise	With full over- allotment exercise
Public offering price	$	$

Underwriting discounts and commissions paid by us (per ordinary share)

Underwriting discounts and commissions paid by us (total)

Proceeds before other expenses (1)

______________________

(1)

We have agreed to pay the underwriters a non-accountable expense allowance in the amount of 1% of the total public offering price of the shares sold (excluding the over-allotment option). We have paid a $25,000 advance to the underwriters and are required to pay an additional $25,000 within five days after the filing of this registration statement, such amounts to be applied against the underwriters’ non-accountable expense allowance. We will also pay or reimburse the underwriters in an amount of up to $ , over and above the underwriting discount, to cover certain out of pocket items of expenses they incur in connection with this offering. Excluding the underwriting discounts and commissions, total expenses attributable to this offering are estimated to be approximately $ .

Right of First Refusal. We have agreed to grant to the Representative the right of first refusal to act as co-manger/co-book runner on customary terms for such transactions for each and every public equity and public debt offering of the Company, or any successor to or any subsidiary of the Company, that takes place within a period of six (6) months from the closing of this offering.

Representative’s Warrants. We have also agreed to issue to the Representative or its designees, at the closing of this offering, warrants (the “Representative’s Warrants”) to purchase that number of our ordinary shares equal to 5% of the aggregate number of shares sold in the offering (excluding the over-allotment option). The Representative’s Warrants will be exercisable at any time and from time to time, in whole or in part, during a period commencing one year from the date of effectiveness of this registration statement (the “First Anniversary”), as follows: 1/3 of the Representative’s Warrants will have an exercise period of 12 months beginning on the First Anniversary, at a price per share equal to 150.0% of the public offering price per share of ordinary shares at the offering; 1/3 of the Representative’s Warrants will have an exercise period of 18 months beginning on the First Anniversary, at a price per share equal to 200.0% of the public offering price per share of ordinary shares at the offering; and 1/3 of the Representative’s Warrants will have an exercise period of 24 months beginning on the First Anniversary, at a price per share equal to 250.0% of the public offering price per share of ordinary shares at the offering. The Representative’s Warrants will provide for one demand registration right and customary anti-dilution provisions (for share dividends and splits and recapitalizations) consistent with FINRA Rule 5110, and further, the number of shares underlying the Representative’s Warrants shall be reduced if necessary to comply with FINRA rules or regulations.

Discretionary Accounts. The underwriters do not intend to confirm sales of the shares offered hereby to any accounts over which they have discretionary authority.

Lock-Up Agreements. We, our officers and directors and holders of all of our outstanding ordinary shares have entered into lock-up agreements with the underwriters. Under these agreements, we and these other individuals have agreed, subject to specified exceptions, not to sell or transfer any common stock or securities convertible into, or exchangeable or exercisable for, our common stock, during a period ending 180 days after the date of this prospectus, without first obtaining the written consent of the Representative. Specifically, we and these other individuals have agreed not to:

•

offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of any ordinary shares, or any options or warrants to purchase any shares of our common stock, or any securities convertible into, exchangeable for or that represent the right to receive ordinary shares; or

•

engage in any hedging or other transactions, including, without limitation, any short sale or any purchase, sale or grant of any right (including without limitation any put or call option) with respect to any of the ordinary shares or with respect to any security that includes, relates to, or derives any significant part of its value from the individual’s ordinary shares;

whether any such transaction described above is to be settled by delivery of ordinary shares or other securities, in cash or otherwise.

The restrictions described above, applicable to us, do not apply to:

•

the sale of shares of common stock to the underwriters pursuant to the underwriting agreement;

•

the issuance by us of shares of our common stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing or that is described in this prospectus;

•

the grant by us of stock options or other stock-based awards, or the issuance of shares of our common stock upon exercise thereof, to eligible participants pursuant to employee benefit or equity incentive plans described in this prospectus, provided that, prior to the grant of any such stock options or other stock-based awards that vest within the restricted period, each recipient of such grant shall sign and deliver a lock-up agreement agreeing to be subject to the restrictions on transfer described above; and

•

the filing by us of a registration statement on Form S-8 or any successor form thereto with respect to the registration of securities to be offered under any employee benefit or equity incentive plans described in this prospectus.

The 180-day restricted period is subject to extension if (1) during the last 17 days of the restricted period we issue an earnings release or material news or a material event relating to us occurs or (2) prior to the expiration of the restricted period, we announce that we will release earnings results during the 15-day period beginning on the last day of the restricted period, in which case the restrictions imposed in the lock-up agreements will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. In addition, if the Representative agrees to release any party from the restrictions set forth in the lock-up agreement with such party prior to the expiration of the restricted period, all other parties subject to the lock-up agreement shall be entitled to a proportionate release of their ordinary shares from the lock-up agreement restrictions.

Electronic Offer, Sale and Distribution of Shares. A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The Representative may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.

Other Relationships. Certain of the underwriters and their affiliates have provided, and may in the future provide, various investment banking, commercial banking and other financial services for us and our affiliates for which they have received, and may in the future receive, customary fee; however, except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services.

Stabilization. In connection with this offering, the underwriters may engage in stabilizing transactions, overallotment transactions, syndicate covering transactions, penalty bids and purchases to cover positions created by short sales.

· Stabilizing transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the shares while the offering is in progress.

· Overallotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the overallotment option. In a naked short position, the number of shares involved is greater than the number of shares in the overallotment option. The underwriters may close out any short position by exercising their overallotment option and/or purchasing shares in the open market.

· Syndicate covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the overallotment option. If the underwriters sell more shares than could be covered by exercise of the overallotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering.

· Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the shares originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our ordinary shares or preventing or retarding a decline in the market price of our ordinary shares. As a result, the price of our ordinary shares in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our ordinary shares. These transactions may be effected on Nasdaq, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.

Initial public offering of ordinary shares

Prior to this offering, there has been no public market for our ordinary shares. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:

· the information set forth in this prospectus and otherwise available to the representative;

· our prospects and the history and prospects for the industry in which we compete;

· an assessment of our management;

· our prospects for future earnings;

· the general condition of the securities markets at the time of this offering;

· the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and

· other factors deemed relevant by the underwriters and us.

Neither we nor the underwriters can assure investors that an active trading market will develop for our ordinary shares, or that the shares will trade in the public market at or above the initial public offering price.

Offering Restrictions Outside the United States

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the shares offered by this prospectus in any jurisdiction where action for that purpose is required. The shares offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any shares offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

European economic area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a "Relevant Member State") an offer to the public of any shares which are the subject of the offering contemplated by this Prospectus (the "Shares") may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

· to any legal entity which is a qualified investor as defined in the Prospectus Directive;

· to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representative for any such offer; or

· in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Shares shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an "offer to the public" in relation to any Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor to decide to purchase any Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and the expression "2010 PD Amending Directive" means Directive 2010/73/EU.

United Kingdom

Each underwriter has represented and agreed that:

· it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the Shares in circumstances in which Section 21(1) of the FSMA does not apply to us; and

· it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Shares in, from or otherwise involving the United Kingdom.

Israel

In the State of Israel, the securities offered hereby may not be offered to any person or entity other than the following:

· a fund for joint investments in trust (i.e., mutual fund), as such term is defined in the Law for Joint Investments in Trust, 5754-1994, or a management company of such a fund;

· a provident fund as defined in the Control of the Financial Services (Provident Funds) Law 5765-2005, or a management company of such a fund;

· an insurer, as defined in the Law for Oversight of Insurance Transactions, 5741-1981;

· a banking entity or satellite entity, as such terms are defined in the Banking Law (Licensing), 5741-1981, other than a joint services company, acting for its own account or for the account of investors of the type listed in Section 15A(b) of the Securities Law, 1968;

· a company that is licensed as a portfolio manager, as such term is defined in Section 8(b) of the Law for the Regulation of Investment Advisors and Portfolio Managers, 5755-1995, acting on its own account or for the account of investors of the type listed in Section 15A(b) of the Securities Law, 1968;

· an investment advisor or investment distributer, as such term is defined in Section 7(c) of the Law for the Regulation of Investment Advisors and Portfolio Managers, 5755-1995, acting on its own account;

· a member of the Tel Aviv Stock Exchange, acting on its own account or for the account of investors of the type listed in Section 15A(b) of the Securities Law, 1968;

· an underwriter fulfilling the conditions of Section 56(c) of the Securities Law, 5728-1968, acting on its own account;

· a venture capital fund (defined as an entity primarily involved in investments in companies which, at the time of investment, (i) are primarily engaged in research and development or manufacture of new technological products or processes and (ii) involve above-average risk);

· an entity fully owned by investors of the type listed in Section 15A(b) of the Securities Law, 1968;

· an entity, other than an entity formed for the purpose of purchasing securities in this offering, in which the shareholders’ equity is in excess of NIS 50 million; and

· an individual fulfilling the conditions of Section 9 to the supplement to the Law for the Regulation of Investment Advisors and Portfolio Managers, 5755-1995, acting on its own account (for this matter, Section 9 to the supplement shall be referred to as “as an investor for the meaning of Section15A(b)(1) of the Securities Law 1968” instead of “as an eligible client for the meaning of this law”).,

Offerees of the securities offered hereby (“Investors”) in the State of Israel shall be required to submit written confirmation that they fall within the scope of one of the above criteria, that they are fully aware of the significance of being an Investor pursuant to such criteria and that they have given their consent (the “Consent”). An appeal to an Investor for the Consent shall not be considered a public offering. This prospectus supplement will not be distributed or directed to investors in the State of Israel who do not fall within one of the above criteria.

In addition, if a purchase of securities is made within an institutional trading system, as that term is defined in the Tel Aviv Stock Exchange regulations, a person giving a stock exchange member his prior Consent before submitting a purchase order to the institutional trading system for the first time will be seen as acting within the provisions the above criteria with respect to the Consent, provided that if such person is an investor pursuant to the sixth, tenth, eleventh or twelfth bullet points specified above, such person committed in advance that, until the last business day of the third month in each year, he will renew his Consent, and that if he withdraws his Consent, he will notify the stock exchange member immediately and will cease to give purchase orders in such institutional trading institution.

Canada

The Shares sold in this offering have not been and will not be qualified for distribution under applicable Canadian securities laws. Shares may be offered to residents of Canada pursuant to exemptions from the prospectus requirements of such laws.

_____________

The address of Aegis Capital Corp. is 810 Seventh Avenue, 18th Floor, New York, New York 10019.

EXPENSES

We estimate that the total expenses of this offering payable by us, excluding the underwriting discounts and commissions and expenses, will be approximately $ as follows:

SEC filing fee	$	2,557.50
FINRA filing fee		3,312.50
Transfer agent fees and expenses		*
Printer fees and expenses		*
Legal fees and expenses		*
Accounting fees and expenses		*
Miscellaneous		*
Total	$

* To be completed by amendment

LEGAL MATTERS

Certain legal matters concerning this offering will be passed upon for us by Zysman, Aharoni, Gayer and Sullivan & Worcester LLP, New York, New York. Certain legal matters with respect to the legality of the issuance of the securities offered by this prospectus will be passed upon for us by Zysman, Aharoni, Gayer & Co., Tel Aviv, Israel. As of the date of this prospectus, certain partners with Zysman Aharoni Gayer & Co. Law Offices beneficially own 65,350 ordinary shares and options to purchase 10,000 of our ordinary shares. Certain legal matters related to the offering will be passed upon for the underwriters by Troutman Sanders LLP, New York, New York.

EXPERTS

The financial statements of Alcobra Ltd. for its fiscal years ended December 31, 2012 and December 31, 2011 included herein have been audited by Kost Forer Gabbay & Kasierer (a Member of Ernst & Young Global), independent registered public accounting firm, as set forth in their report thereon, which contains an explanatory paragraph describing conditions that raise substantial doubt about the Company's ability to continue as a going concern as described in Note 1(b) to the financial statements included herein. Such financial statements are included herein in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The address of Kost Forer Gabbay & Kasierer is 3 Aminadav St., Tel-Aviv, Israel 67067.

Enforceability of civil liabilities

We are incorporated under the laws of the State of Israel. Service of process upon us and upon our directors and officers and the Israeli experts named in this registration statement, substantially all of whom reside outside of the United States, may be difficult to obtain within the United States. Furthermore, because substantially all of our assets and substantially all of our directors and officers are located outside of the United States, any judgment obtained in the United States against us or any of our directors and officers may not be collectible within the United States.

We have been informed by our legal counsel in Israel, Zysman, Aharoni, Gayer & Co., that it may be difficult to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws because Israel is not 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.

Subject to specified time limitations and legal procedures, Israeli courts may enforce a United States judgment in a civil matter which, subject to certain exceptions, is non-appealable, including judgments based upon the civil liability provisions of the Securities Act and the Exchange Act and including a monetary or compensatory judgment in a non-civil matter, provided that among other things:

· the judgment is obtained after due process before a court of competent jurisdiction, according to the laws of the state in which the judgment is given and the rules of private international law currently prevailing in Israel;

· the judgment is final and is not subject to any right of appeal;

· the prevailing law of the foreign state in which the judgment was rendered allows for the enforcement of judgments of Israeli courts;

· adequate service of process has been effected and the defendant has had a reasonable opportunity to be heard and to present his or her evidence;

· the liabilities under the judgment are enforceable according to the laws of the State of Israel and the judgment and the enforcement of the civil liabilities set forth in the judgment is not contrary to the law or public policy in Israel nor likely to impair the security or sovereignty of Israel;

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

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

· the judgment is enforceable according to the law of the foreign state in which the relief was granted.

If a foreign judgment is enforced by an Israeli court, it generally will be payable in Israeli currency, which can then be converted into non-Israeli currency and transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount in a non-Israeli currency is for the Israeli court to issue a judgment for the equivalent amount in Israeli currency at the rate of exchange in force on the date of the judgment, but the judgment debtor may make payment in foreign currency. Pending collection, the amount of the judgment of an Israeli court stated in Israeli currency ordinarily will be linked to the Israeli consumer price index plus interest at the annual statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must bear the risk of unfavorable exchange rates.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form F-1 under the Securities Act relating to this offering of our ordinary shares. This prospectus does not contain all of the information contained in the registration statement. The rules and regulations of the SEC allow us to omit certain information from this prospectus that is included in the registration statement. Statements made in this prospectus concerning the contents of any contract, agreement or other document are summaries of all material information about the documents summarized, but are not complete descriptions of all terms of these documents. If we filed any of these documents as an exhibit to the registration statement, you may read the document itself for a complete description of its terms.

You may read and copy the registration statement, including the related exhibits and schedules, and any document we file with the SEC without charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are also available to the public through the SEC's website at http://www.sec.gov.

Upon completion of this offering, we will be subject to the information reporting requirements of the Exchange Act that are applicable to foreign private issuers, and under those requirements will file reports with the SEC. Those other reports or other information may be inspected without charge at the locations described above. As a foreign private issuer, we will be exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and will submit to the SEC, on Form 6-K, unaudited quarterly financial information.

We expect to maintain a corporate website at www.alcobra-pharma.com. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

ALCOBRA LTD.

(A development stage company)

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2012

U.S. DOLLARS IN THOUSANDS

INDEX

	Page

Report of Independent Registered Public Accounting Firm	2

Balance Sheets	3 - 4

Statements of Comprehensive Loss	5

Statements of Changes in Shareholders' Equity (Deficiency)	6

Statements of Cash Flows	7

Notes to Financial Statements	8 - 23

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

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Board of Directors and the shareholders of

ALCOBRA LTD.

(A development stage company)

We have audited the accompanying balance sheets of Alcobra Ltd. (a development stage company) ("the Company") as of December 31, 2012 and 2011, and the related statements of comprehensive loss and changes in shareholders' equity (deficiency) and cash flow for each of the two years in the period ended December 31, 2012 and for the period from February 7, 2008 (date of inception) to December 31, 2012. These financial statements are the responsibility of the Company's board of directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the board of directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the statements of comprehensive loss and cash flows and the changes in shareholders' equity (deficiency) for each of the two years in the period ended December 31, 2012 and for the period from February 7, 2008 (date of inception) to December 31, 2012, in conformity with generally accepted accounting principles in the United States.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1b, the Company has incurred losses in the amount of $ 1,579 thousand during the year ended December 31, 2012, and has an accumulated deficit of $ 8,186 thousand as of December 31, 2012. Its ability to continue to operate is dependent upon obtaining additional financial support. These conditions, among other matters described in Note 1b, raise substantial doubt about the Company's ability to continue as a going concern. The 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 the outcome of this uncertainty.

Tel-Aviv, Israel	/s/ KOST FORER GABBAY & KASIERER
January 14, 2013	A Member of Ernst & Young Global

F-2

ALCOBRA LTD.

(A development stage company)

BALANCE SHEETS

U.S. dollars in thousands

	December 31,
	2012		2011

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	97	$	55
Short-term bank deposit		-		517
Receivables and prepaid expenses		83		95

Total current assets		180		667

LONG-TERM ASSETS:

Restricted bank deposits		-		507
Long-term deposit		3		5
Property and equipment, net		18		25

Total long-term assets		21		537

TOTAL ASSETS	$	201	$	1,204

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

F-3

ALCOBRA LTD.

(A development stage company)

BALANCE SHEETS

U.S. dollars in thousands, (except share and per share data)

	December 31,
	2012			2011

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES:
Trade payables	$	23		$	124
Other accounts payable		83			95
Convertible Notes		662			-

Total current liabilities		768			219

SHAREHOLDERS' EQUITY (DEFICIENCY):
Ordinary shares of NIS 0.01 par value - 10,000,000 shares authorized at December 31, 2012 and 2011; 1,379,656 and 1,379,235 issued shares at December 31, 2012 and 2011, respectively; 1,327,812 and 1,379,235 shares outstanding at December 31, 2012 and 2011, respectively		4			4
Treasury shares (51,844 Ordinary shares as of December 31, 2012)		*) -			-
Additional paid- in capital		7,615			7,588
Deficit accumulated during the development stage		(8,186	)		(6,607	)

Total shareholders' equity (deficiency)		(567	)		985

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)	$	201		$	1,204

*) Represents an amount lower than $ 1.

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

F-4

ALCOBRA LTD.

(A development stage company)

STATEMENTS OF COMPREHENSIVE LOSS

U.S. dollars in thousands, (except share and per share data)

	December 31,						Period from February 7, 2008 (date of inception) to December 31,
	2012			2011			2012

Research and development expenses, net	$	818		$	1,822		$	3,768

General and administrative expenses		683			2,084			4,042

Operating loss		1,501			3,906			7,810

Financial expenses, net		78			23			196

Net comprehensive loss	$	1,579		$	3,929		$	8,006

Deemed dividend		-			180			180

Net loss attributable to holders of Ordinary shares	$	1,579		$	4,109		$	8,186

Net basic and diluted loss per share	$	(1.2	)	$	(3.1	)

Weighted average number of Ordinary shares used in computing basic and diluted net loss per share		1,327,416			1,336,182

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

F-5

ALCOBRA LTD.

(A development stage company)

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)

U.S. dollars in thousands, except share data

	Ordinary shares					Preferred A shares					Preferred B shares					Additional paid-in			Deficit accumulated during the development			Total shareholders' equity
	Number			Amount		Number			Amount		Number			Amount		capital			stage			(deficiency)

Balance as of February 7, 2008 (date of inception)		-		$	-		-		$	-		-		$	-	$	-		$	-		$	-
Issuance of Ordinary shares at par share		980,000			3		-			-		-			-		-			-			3
Issuance of Preferred A shares, net ($5.4 per share)		-			-		127,315			*) -		-			-		657			-			657
Preferred A shares issued to service provider ($5.4 per share)		-			-		13,889			*) -		-			-		75			-			75
Share based compensation related to warrants granted to consultant		-			-		-			-		-			-		28			-			28
Net loss		-			-		-			-		-			-		-			(666	)		(666	)

Balance as of December 31, 2008		980,000			3		141,204			*) -		-			-		760			(666	)		97
Issuance of Preferred A shares, net ($5.4 per share)		-			-		34,722			*) -		-			-		187			-			187
Issuance of Preferred A shares granted to service provider ($5.4 per share)		-			-		32,407			*) -		-			-		175			-			175
Conversion of Preferred A shares into Ordinary shares		78,703			*) -		(78,703	)		*) -		-			-		-			-			*) -
Net loss		-			-		-			-		-			-		-			(608	)		(608	)

Balance as of December 31, 2009		1,058,703			3		129,630			*) -		-			-		1,122			(1,274	)		(149	)
Issuance of Preferred B shares and warrants, net ($12.82 per unit of 1 share and 0.25 warrant)		-			-		-			-		58,380			*) -		723			-			723
Issuance of Preferred B shares and warrants upon conversion of convertible notes ($10.26 per unit of 1 share and 0.25 warrant)		-			-		-			-		21,893			*) -		279			-			279
Issuance of Preferred B shares and warrants granted to service provider		-			-		-			-		9,371			*) -		120			-			120
Share based compensation related to options granted to a service provider and employees		-			-		-			-		-			-		242						242
Exercise of options		49,179			*) -		-			-		-			-		*) -			-			*) -
Net loss		-			-		-			-		-			-		-			(1,224	)		(1,224	)

Balance as of December 31, 2010		1,107,882			3		129,630			*) -		89,644			*) -		2,486			(2,498	)		(9	)
Conversion of Preferred A and B shares into Ordinary shares		219,274			1		(129,630	)		*) -		(89,644	)		*) -		(1	)		-			-
Deemed dividend in respect of equity restructuring		-			-		-			-		-			-		180			(180	)		-
Issuance of Ordinary shares upon conversion of loan into Ordinary shares net ($67.51 per share)		17,776			*) -		-			-		-			-		1,200			-			1,200
Issuance of Ordinary shares, net ($67.51 per share)		34,068			*) -		-			-		-			-		2,170			-			2,170
Exercise of options		235			*) -		-			-		-			-		*) -			-			*) -
Share based compensation related to options granted to consultants and employees		-			-		-			-		-			-		1,553			-			1,553
Net loss		-			-		-			-		-			-		-			(3,929	)		(3,929	)

Balance as of December 31, 2011		1,379,235			4		-			-		-			-		7,588			(6,607	)		985
Treasury shares		(51,844	)		*) -		-			-		-			-		-			-			*) -
Exercise of options		421			*) -		-			-		-			-		1			-			1
Share based compensation related to options granted to consultants and employees		-			-		-			-		-			-		26			-			26
Net loss		-			-		-			-		-			-		-			(1,579	)		(1,579	)

Balance as of December 31, 2012		1,327,812		$	4		-		$	-		-		$	-	$	7,615		$	(8,186	)	$	(567	)

*) Represents an amount lower than $ 1.

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

F-6

ALCOBRA LTD.

(A development stage company)

STATEMENTS OF CASH FLOWS

U.S. dollars in thousands, except share data

	Year ended December 31,						Period from February 7, 2008 (date of inception) to December 31,
	2012			2011			2012
Cash flows from operating activities

Net loss	$	(1,579	)	$	(3,929	)	$	(8,006	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		7			6			22
Decrease (increase) in receivables and prepaid expenses		12			(49	)		(83	)
Increase (decrease) in trade payables		(101	)		95			23
Increase (decrease) in other accounts payable		(12	)		(37	)		83
Interest on convertible notes		62			-			121
Stock base compensation		26			1,553			2,219

Net cash used in operating activities		(1,585	)		(2,361	)		(5,621	)

Cash flows from investing activities

Purchase of property and equipment		-			(24	)		(40	)
Investment in (proceeds from) short-term bank deposit		517			(517	)		-
Decrease (increase) in long-term deposit		2			-			(3	)
Investment in (proceeds from) restricted bank deposit		507			(500	)		-


Net cash provided by (used in) investing activities		1,026			(1,041	)		(43	)

Cash flows from financing activities

Proceeds from issuance of convertible notes		600			-			820
Proceeds from loan		-			450			1,200
Issuance of shares, net		1			2,170			3,741

Net cash provided by financing activities		601			2,620			5,761

Increase (decrease) in cash and cash equivalents		42			(782	)		97
Cash and cash equivalents at the beginning of the period		55			837			-

Cash and cash equivalents at the end of the period	$	97		$	55		$	97

Supplemental disclosure of non-cash investing and financing activities:

Issuance of Preferred B shares and warrants upon conversion of convertible notes	$	-		$	-		$	224
Issuance of Ordinary shares upon conversion of loans	$	-		$	1,200		$	1,200

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

F-7

ALCOBRA LTD.

(A development stage company)

NOTE 1:- GENERAL

Alcobra Ltd. (the "Company”) was incorporated in Israel and commenced its operation on February 7, 2008. The Company is an emerging biopharmaceutical company primarily focused on the development and commercialization of a proprietary drug to treat neurological disturbance like Attention Deficit Hyperactivity Disorder ("ADHD"). The Company's objective is to conduct additional clinical trials for its drug called MG01CI (the "Drug") and, if those trials are successful, seek marketing approval from the U.S. Food and Drug Administration (the "FDA") and other worldwide regulatory bodies. The Company has not generated revenue from the sale of any product, and does not expect to generate significant revenue unless and until the obtaining of marketing approval, and commercialize the MG01CI. Accordingly, the Company is considered to be in the development stage as defined in ASC 915, "Development stage entities".

The Company has incurred losses in the amount of $ 1,579 thousand during the year ended December 31, 2012. The Company has an accumulated deficit in the total amount of $ 8,186 as of December 31, 2012 and as of that date the accumulated negative cash flow from operating activity is in the amount of $ 5,621. These conditions raise substantial doubts about the Company's ability to continue as a going concern. The Company's ability to continue to operate is dependent upon raising additional funds to finance its activities. According to the management's estimates, based on the Company's budget, if the Company is not successful in obtaining additional capital resources to maintain its operational activities, there is substantial doubt that the Company will be able to continue its activity after March 31, 2013. The Company plans to have its securities listed on the NASDAQ Stock Market (the "NASDAQ") in the late first quarter of 2013, for the purpose of raising capital to finance its operations. There are no assurances, however, that the Company will be successful in obtaining an adequate level of financing needed for the long-term development and commercialization of its products. The financial statements do not include any adjustments with respect to the carrying amounts of assets and liabilities and their classification that might be necessary should the Company be unable to continue as a going concern.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP").

Use of estimates:

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments 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 and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

F-8

ALCOBRA LTD.

(A development stage company)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Financial statements in U.S. dollars:

The Company finances its operation in U.S. dollars. The majority of the Company's operations are currently conducted in Israel, a significant part of the Company's expenses are denominated and determined in U.S. dollars. The Company's management believes that the dollar is the currency of the primary economic environment in which the Company operates and expects to continue to operate in the foreseeable future. Thus, the functional and reporting currency of the Company is the U.S. dollar.

The Company transactions and balances denominated in U.S. dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to U.S. dollars in accordance with ASC 830, "Foreign Currency Matters", of the Financial Accounting Standards Board ("FASB"). All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of operations as financial income or expenses, as appropriate.

Cash equivalents:

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition.

Short-term bank deposit

Short-term bank deposits are deposits with maturities of more than three months but less than one year. The short–term bank deposits are presented at their cost, including accrued interest, which approximates fair value. As of December 31, 2011, the Company's bank deposits were in U.S. dollars and bore interest at a weighted average interest rate of 1.85%.

Restricted bank deposits:

Restricted bank deposits are pledged in favor of the bank which provides to the Company guarantees with respect to office lease agreements and credit card usage.

Property and equipment, net:

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following rates:

		%

Computers and electronic equipment		15-33
Office furniture and equipment		6
Clinical and medical equipment		15-33

F-9

ALCOBRA LTD.

(A development stage company)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company's property and equipment are reviewed for impairment in accordance with ASC 360, "Property, Plant, and Equipment," whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. In 2012 and 2011, no impairment losses have been identified.

Long-term deposits:

Long-term deposits include long-term deposits for motor vehicles under operating leases, presented at their cost.

Research and development expenses:

Research and development expenses are expensed as incurred. Those expenses includes payments to third party clinical consultants, expenses related to conducting clinical trials, salaries and related personnel expenses, travel expenses, and share based compensations expenses to research and development employees. During 2012 and 2011, no grants were received.

Severance pay:

The Company's liability for severance pay is pursuant to Section 14 of the Severance Compensation Act, 1963 ("Section 14"), all the employees are included under this section, and entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made in the employee's name with insurance companies. Payments in accordance with Section 14 release the Company from any future severance payments in respect of those employees. The fund is made available to the employee at the time the employer-employee relationship is terminated, regardless of cause of termination. The severance pay liabilities and deposits under section 14 are not reflected in the balance sheet as the severance pay risks have been irrevocably transferred to the severance funds.

Severance pay expense for the years ended December 31, 2012 and 2011 amounted to $18 and $14, respectively.

F-10

ALCOBRA LTD.

(A development stage company)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Income taxes:

The Company account for income taxes in accordance with ASC 740, "Income Taxes". This topic prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, to reduce deferred tax assets to the amount that is more likely than not to be realized.

The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative basis) likely to be realized upon ultimate settlement.

The Company believes that its tax positions are all highly certain of being upheld upon examination. As such, as of December 31, 2012 and 2011 the Company has not recorded a liability for uncertain tax positions.

Concentrations of credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short term bank deposit and restricted bank deposits.

Cash and cash equivalents, short term bank deposit and restricted bank deposits are invested in major banks in Israel. Management believes that the financial institutions that hold the Company's investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.

The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

Fair value of financial instruments:

ASC 820, "Fair Value Measurements and Disclosures", defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.

F-11

ALCOBRA LTD.

(A development stage company)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

	Level 1 -	Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

	Level 2 -	Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

	Level 3 -	Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The carrying amounts of cash and cash equivalents, short-term bank deposits, restricted bank deposits, accounts payable, and other accounts payable approximate their fair value due to the short-term maturities of such instruments.

Basic and diluted net loss per share:

Basic net loss per share is computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net loss per share is computed based on the weighted average number of Ordinary shares outstanding during each year plus dilutive potential equivalent Ordinary shares considered outstanding during the year, in accordance with ASC 260, "Earnings per Share."

All outstanding stock options and warrants have been excluded from the calculation of the diluted net loss per share because all such securities are anti-dilutive for all periods presented.

F-12

ALCOBRA LTD.

(A development stage company)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Accounting for stock-based compensation:

The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation - Stock Compensation" that requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees, directors. ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the option award is recognized as an expense over the requisite service periods in the Company's statement of operations.

The Company selected the Black-Scholes-Merton ("Black-Scholes") option-pricing model as the fair value method for of its stock-options awards. The option-pricing model requires a number of assumptions as noted below:

Expected dividend yield - The expected dividend yield assumption is based on the Company's historical experience and expectation of no future dividend payouts. The Company has historically not paid cash dividends and has no foreseeable plans to pay cash dividends in the future.

Volatility - Since the Company is not traded on any stock exchange market, quoted prices of the Company's share are unavailable. According to ASC 718, due to insufficient or no historical data for a company, the expected volatility determination was based on similar companies' stock volatility.

Risk free interest rate - The risk free interest rate is based on the yield of U.S Treasury bonds with equivalent terms.

Expected term - ASC 718 provides the factors to consider when estimating the expected term of an option: An option's expected term must at least include the vesting period and the employees' historical exercise and post-vesting employment termination behavior for similar grants. It also determines that if the amount of past exercise data is limited, that data may not represent a sufficiently large sample on which to base a robust conclusion on expected exercise behavior. In that circumstance, it may be appropriate to consider external data or the SEC staff's "simplified" method to the expected term. Accordingly, The Company used the "simplified" method, meaning the expected life can be set as the average of the vesting period for each vested tranche of options and the contractual term for those options.

F-13

ALCOBRA LTD.

(A development stage company)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Because there has been no public market for the Company's Ordinary shares, the fair value of the Ordinary shares underlying the options through December 31, 2012, had been determined by the Company's management, using the assistance of an independent valuation firm. The valuation of the Ordinary shares was based on recent third-party transactions in the equity of the Company by applying the option-pricing method.

NOTE 3:- RECEIVABLES AND PREPAID EXPENSES

	December 31,
	2012		2011

Government authorities	$	10	$	93
Prepaid expenses		66		2
Advance to suppliers		7		-

	$	83	$	95

NOTE 4: PROPERTY AND EQUIPMENT, NET

	December 31,
	2012		2011
Cost:
Computers and electronic equipment	$	19	$	19
Office furniture and equipment		7		7
Clinical and medical equipment		14		14

		40		40
Accumulated depreciation:
Computers and electronic equipment		13		9
Office furniture and equipment		1		*) -
Clinical and medical equipment		8		6

		22		15

Depreciated cost	$	18	$	25

*) Represents an amount lower than $ 1.

Depreciation expenses for the years ended December 31, 2012 and 2011 were $7 and $6, respectively.

F-14

ALCOBRA LTD.

(A development stage company)

NOTE 5:- OTHER ACCOUNTS PAYABLE

	December 31,
	2012		2011

Employees and payroll accruals	$	31	$	35
Accrued expenses		52		60

	$	83	$	95

NOTE 6:- CONVERTIBLE NOTES

On June 23, 2009, the Company entered into a convertible note agreement. Total loan consideration amounted to $220. The loan bore interest of 4% per annum. The conversion price was set to be at 20% discount of such shares of the following financing round. In case the total convertible note amount remains due and outstanding upon the elapse of 12 months from closing, then the total convertible note amount shall be automatically converted into an amount of shares of the Company reflecting a pre-money Company valuation of $ 7,169 on fully diluted basis. In February 2010, as part of a financing round (see also Note 9(b)(6)) the convertible note and the accumulated interest, in an amount of $ 224 were converted into 21,893 Preferred B2 shares.

During 2012, the Company issued convertible promissory notes to certain investors for a total amount of $ 600. The convertible notes bear an annual interest rate of 6%. According to the terms of the convertible notes, the total amount shall be automatically converted into securities of the Company upon the earlier of the following events: (i) a financing round, or (ii) Initial Public Offering ("IPO"), at a 25% discount paid for such shares in the course of a financing round or the price per share as determined for such shares in an IPO, as applicable. In case the total convertible notes amount remains due and outstanding upon the elapse of 12 months from closing, then the total convertible notes amount shall be automatically converted into an amount of Ordinary shares of the Company reflecting a pre-money Company valuation of $ 25,000 on fully diluted basis.

The convertible notes have a conversion option related to financing round and/or IPO that continuously resets as the underlying share price increases or decreases to provide a fixed value of shares. The conversion upon financing round and/or IPO was determined to be the predominant event and therefore the entire instrument was considered to be a liability pursuant to ASC No. 480 "Distinguishing Liabilities from Equity". The convertible notes are presented at their redemption amount, which includes the principal amount of the convertible notes, the accumulated interest and additional redemption amount accrued over the term of the convertible notes, using the interest method.

Upon conversion of the convertible note in February 2010, the entire redemption amount was derecognized against additional paid in capital in the amount of $ 279. As of December 31, 2012, the convertible notes redemption amount was $ 662.

F-15

ALCOBRA LTD.

(A development stage company)

NOTE 7:- INCOME TAXES

Tax rates applicable to the Company:

The Company is incorporated in Israel. Taxable income of Israeli companies is subject to tax at the rate of 24% in 2011 and 25% in 2012 and onwards.

Net operating losses carry forward:

The Company has accumulated losses for tax purposes as of December 31, 2012 in the amount of approximately $ 4,600 which may be carried forward and offset against taxable income in the future for an indefinite period.

Deferred income taxes:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows:

	December 31,
	2012			2011

Operating loss carryforward	$	1,153		$	703
Reserves and allowances		308			341

Net deferred tax asset before valuation allowance		1,461			1,044
Valuation allowance		(1,461	)		(1,044	)

Net deferred tax asset	$	-		$	-

As of December 31, 2012, the Company has provided valuation allowances of $ 1,461 in respect of deferred tax assets resulting from tax loss carry forward and other temporary differences. Management currently believes that since the Company has a history of losses it is more likely than not that the deferred tax regarding the loss carry forward and other temporary differences will not be realized in the foreseeable future.

No liability for uncertain tax positions was recorded as a result of implementation of ASC 740.

The main reconciling item between the statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowances in respect of deferred taxes relating to accumulated net operating losses carried forward due to the uncertainty of the realization of such deferred taxes.

F-16

ALCOBRA LTD.

(A development stage company)

NOTE 8:- CONTINGENT LIABILITIES AND COMMITMENTS

The Company is engaged in an operating lease agreement for its office facilities. Future minimum non cancelable rental payments under the operating lease are $4. The rent expenses for the years ended December 31, 2012 and 2011 amounted to $44 and $61 respectively.

The Company has entered into an operating lease agreement for its vehicles until December 2013. The rent expenses for the years ended December 31, 2012 and 2011 amounted to $18 and $29 respectively. Future minimum payments under the lease are as follows:

Year ended December 31,	Total

2013	$	14
2014		3

	$	17

Royalty bearing Government grants:

The Company partially financed its research and development expenditures under programs sponsored by the Office of Chief Scientist ("OCS") for the support of certain research and development activities conducted in Israel.

In connection with its research and development, the Company received $ 106 of participation payments from the OCS through December 31, 2012. In return for the OCS's participation, the Company is committed to pay royalties at a rate of 3%-5% of sales of the developed product linked to U.S dollars, up to 100% of the amount of grants received (100% plus interest at LIBOR). The Company's total commitment for royalties payable with respect to future sales, based on OCS participations received or accrued, net of royalties paid or accrued, totaled approximately $ 112 as of December 31, 2012. In addition, the OCS may impose certain conditions on any arrangement under which it permits the Company to transfer technology or development out of Israel.

NOTE 9:- SHAREHOLDERS' EQUITY (DEFICIENCY)

Share capital:

The Ordinary shares confer upon their holders the right to participate and vote in general shareholders meetings of the Company and to share in the distribution of dividends, if any declared by the Company.

Issuances of share:

On February 7, 2008, (inception day) the Company issued 980,000 Ordinary shares in consideration of their par value.

In February 2008, the Company entered into an investment agreement, according to the agreement, the Company issued 74,074 Preferred A shares in consideration of $ 400.

F-17

ALCOBRA LTD.

(A development stage company)

NOTE 9:- SHAREHOLDERS' EQUITY (DEFICIENCY) (Cont.)

In May 2008, an agreement to purchase Preferred A shares was signed with a new investor (the "Investor"). Accordingly, as of December 31, 2008, 16,204 Preferred A shares were issued inconsideration of $ 88. In January 2009, additional 16,203 Preferred A shares, were issued in consideration of $ 87.

In addition, the Company and the Investor agreed that the Investor shall supply clinical trial services in a value of up to $ 250 in exchange of up to 46,296 Preferred A shares. As of December 31, 2008, the investor provided part of the clinical trial services, for which 13,889 Preferred A shares were issued.

In January 2009, the Investor carried out the rest of the services and an additional 32,407 Preferred A shares were issued.

In July 2008, the Company entered into an investment agreement. Accordingly, as of December 31, 2008, 37,037 Preferred A shares were issued in consideration of $ 184. In February 2009, 18,519 Preferred A shares were issued in consideration of $ 100.

In relation with the convertible loan agreement dated June 2009, in July 2009, 78,703 Preferred A shares of an existing investor that did not participate in the loan agreement, were converted into 78,703 Ordinary shares.

In February 2010, an agreement to purchase Preferred B shares was signed. Accordingly, 31,236 Preferred B shares issued in consideration of $ 400. In addition, the Convertible Notes were converted (see Note 6(a)). As a part of the above agreement, the Company granted to investors warrants to purchase 13,282 Preferred B-3 shares at an exercise price of $ 16.02 per share. The warrants will expire five years after the date of grant. As of December 31, 2012, the warrants were not exercised.

As a part of the 2010 Agreement, the Company entered into a service agreement according to which a service provider will provide clinical trial services for up to 9,371 Preferred B-1 shares. As of December 31, 2010, the services provider supplied the clinical trial services and 9,371 Preferred B-1 shares and 1,952 warrants to Preferred B-3 were issued. The Company recorded a compensation expense in the amount of $120 in the year ended December 31, 2010.

In August 2010, additional 27,144 preferred B shares and 6,786 warrants to preferred B-3 were issued for a total consideration of $323 (net of $26 issuance expenses).

On November 17, 2010, the Company entered into an agreement with a strategic investor (the "Strategic Investor") under which, the Company received a loan in an amount of $ 750, which was extended in February 2011, for an additional amount of $ 450. The loan was to be repaid in February 2011, if the parties do not reach a Buyout agreement. To the extent a Buyout agreement is executed by March 2011, the loan will be converted into Ordinary shares. In March 2011, the Buyout agreement was executed and the Company issued to the Strategic Investor 34,068 Ordinary shares in consideration of $ 2,170 (net of $130 issuance expenses).

F-18

ALCOBRA LTD.

(A development stage company)

NOTE 9:- SHAREHOLDERS' EQUITY (DEFICIENCY) (Cont.)

Additionally, 17,776 Ordinary shares were issued in consideration of the loan amount. According to the Buyout agreement, the Strategic Investor has certain options to buy shares from the Company's shareholders according to certain milestones and shall hold 100% of the Company's shares. According to the Buyout agreement, if one of the options is not exercised, within the agreed time, the Buyout agreement is terminated and the shares issued will be transferred to the Company free of charge. Due to the fact that the Strategic Investor did not exercise his option, in January 2012, the agreement was terminated, and the Strategic Investor transferred 51,844 Ordinary shares to back the Company, without any consideration.

Prior to the closing of the Buyout agreement and as a condition to it, the Company affected an equity restructuring, under which, all of the Company's Preferred shares (219,274 Preferred shares) were converted into Ordinary shares at 1:1 ratio. In addition, all options, warrants that were convertible into share capital of the Company other than Ordinary shares were replaced or exchanged at 1:1 ratio to notes and rights entitling their holders the right to purchase or receive Ordinary shares. In accordance with ASC 718-20-35-6, the Company recorded a compensation expense in the amount of $ 15 and of $ 1,466 in the years ended December 31, 2012 and 2011, respectively. Additionally, a deemed dividend to other Ordinary shareholders was recorded in the amount of $ 180 for the year ended December 31, 2011.

2010 incentive option plan:

In February 2010, the Company authorized through its 2010 incentive option plan (the "2010 Plan") the grant of options to officers, directors, advisors, management and other key employees. The Company reserved for grants of options up to 181,258 of the Company's Ordinary shares. The options granted have generally four year vesting terms and expire ten years after the grant date. As of December 31, 2012, 1,194 options were still available for future grants under the Plan.

F-19

ALCOBRA LTD.

(A development stage company)

NOTE 9:- SHAREHOLDERS' EQUITY (DEFICIENCY) (Cont.)

A summary of the Company's options activity (for employees and directors) under the 2010 Plan is as follows:

	Year ended December 31,
	2012					2011
	Number of options			Weighted average exercise price		Number of options			Weighted average exercise price

Outstanding at beginning of year		79,305		$	1.21		92,755		$	1.05
Granted		-			-		-			-
Exercised		(421	)	$	1.92		(235	)	$	1.92
Forfeited		(329	)	$	1.92		(13,215	)	$	0.08

Outstanding at end of year		78,555		$	1.20		79,305		$	1.21

Vested and expected to vest		78,555		$	1.20		79,305		$	1.21

Options exercisable at the end of the period		62,430		$	1.29		51,962		$	1.16

As of December 31, 2012, the weighted-average remaining contractual term of the outstanding and exercisable options is 7.098 years; the aggregate intrinsic value of outstanding options and exercisable options is $38 and $38 respectively. As of December 31, 2012, the unrecognized compensation cost is $ 11 and $ 1 to be recognized in 2013 and 2014, respectively.

In addition, the Company granted an employee the following: (a) Options to purchase 15,000 Ordinary shares granted in 2010, at an exercise price of $ 1.92 per share. The options will vest immediately prior to and subject to the event of a merger of the Company into another corporation; (b) Options to purchase 15,256 Ordinary shares granted in December 2012. The options will vest immediately prior to and subject to the earlier of: (i) the next round of equity financing of at list $5,000; (ii) the consummation of a merger, acquisition or sale of the securities of the Company; or (iii) the event of an Initial Public Offering of the Company's Ordinary shares (a "Transaction").

According to ASC-718-10-20, compensation cost will be recognized if the performance condition is satisfied. As of December 31, 2012, no compensation cost was recognized.

F-20

ALCOBRA LTD.

(A development stage company)

NOTE 9:- SHAREHOLDERS' EQUITY (DEFICIENCY) (Cont.)

In addition, in December 2012, the Company granted a director the following options: (a) Options to purchase 15,256 Ordinary shares. The exercise price shall be the effective price determined in the course of the Transaction; (b) Options to purchase 3,814 Ordinary shares according to the 2010 Plan. The exercise price shall be the effective price determined in the course of the Transaction. The options will vest subject and upon initiation of phase III clinical studies. According to ASC-718-10-20, compensation cost will be recognized if the performance condition is satisfied.

According to ASC-718-10-55-83, grant date did not occur because the recipient did not begin to benefit from or be adversely affected by the changes in the price of the shares of the Company. As of December 31, 2012, no compensation cost was recognized.

Options granted to consultants:

The Company granted options to certain service providers and accounted for these options in accordance with ASC 505-50.

The outstanding options granted to the Company's consultants are as follows:

Grant date	Number of options	Exercise price	Expiration date

April 2, 2008	10,000	0.003	April 2, 2018
February 28, 2010	1,500	12.82	February 28, 2020
February 13, 2011	200	0.003	February 13, 2021
February 17, 2011	648	0.003	February 17, 2021

	12,348*)

*) All options were fully vested on grant date.

Share-based payment:

The share based expense recognized in the financial statements for services received from employees and non-employees is shown in the following table:

	Year ended December 31,				Period from February 7, 2008 (date of inception) to December 31,
	2012		2011		2012

Research and development, net	$	*) -	$	18	$	483
General and administrative expenses		26		1,535		1,736

	$	26	$	1,553	$	2,219

Represents an amount lower than $ 1.

F-21

ALCOBRA LTD.

(A development stage company)

NOTE 10:- RELATED PARTY BALANCES AND TRANSACTIONS

Balances with related parties:

	December 31,
	2012		2011

Convertible Notes (Note 6 (b))	$	610	$	-

Other accounts payable (c)	$	21	$	19

Related parties' expenses:

	Year ended December 31,
	2012		2011
Amounts charged to: *)

General and administrative expense (a) (b) (c) (d)	$	401	$	1,786

Financial expense (Note 6 (b))	$	10	$	-

Including share based compensation expenses for the years ended December 31, 2012 and 2011 in the amounts of $ 26 and $ 1,394, respectively.

On March 1, 2008, the Company signed an agreement with a consultant, who is also one of the Company's shareholders and directors, as an independent contractor to render management, finance and operation services. The Company pays the consultant an amount of $ 7 per month.

The Company signed an agreement with a company owned by one of its related parties. Under the agreement, the company renders the Company with office services and office lease for a monthly fee in the amount of approximately $ 4 since June 1, 2010. Each party may terminate the agreement with 30-days notice.

An agreement was signed on June 2, 2011 between the Company and one its shareholders, as an independent contractor to render services related to pre clinical, clinical, regulatory and intellectual property issues, for an amount of approximately $ 3 per month.

Under the employment agreement, dated March 4, 2010, with the Company's Chief Executive Officer and Director, and following a salary increase approved April 14, 2011, the CEO is entitled to a gross monthly salary of $ 14. Besides a base salary, the CEO receives under the agreement other benefits that are provided for by Israeli law or that are customary for senior executives in Israel, including the right to use a leased car and cellular telephone.

F-22

ALCOBRA LTD.

(A development stage company)

NOTE 11:- FINANCIAL EXPENSES, NET

	Year ended December 31,				Period from February 7, 2008 (date of inception) to December 31,
	2012		2011		2012
Financial expenses:
Interest expense	$	13	$	3	$	23
Exchange rate		15		41		92
Interest on convertible notes		52		-		107

		80		44		222
Financial income:
Interest income		2		21		26

		2		21		26

	$	78	$	23	$	196

NOTE 12:- BASIC AND DILUTED NET LOSS PER SHARE

The following table sets forth the computation of the Company's basic and diluted net loss per share of Ordinary share:

	Year ended December 31
	2012			2011

Net loss attributable to Ordinary shares as reported	$	(1,579	)	$	(4,109	)

Shares used in computing net loss per share of Ordinary shares, basic and diluted		1,327,416			1,336,182

Net loss per share of Ordinary share, basic and diluted	$	(1.2	)	$	(3.1	)

For the years ended December 31, 2012 and 2011, all outstanding options and warrants have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive.

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

F-23

Ordinary Shares

PROSPECTUS

Aegis Capital Corp.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 6. Indemnification of Directors, Officers and Employees

An Israeli company may indemnify an office holder in respect of certain liabilities either in advance of an event or following an event provided that a provision authorizing such indemnification is inserted in its articles of association. Our amended and restated articles of association contain such a provision. An undertaking provided in advance by an Israeli company to indemnify an office holder with respect to a financial liability imposed on him or her in favor of another person pursuant to a judgment, settlement or arbitrator's award approved by a court must be limited to events which in the opinion of the board of directors can be foreseen based on the Company's activities when the undertaking to indemnify is given, and to an amount or a criteria determined by the board of directors as reasonable under the circumstances, and such undertaking must detail the abovementioned events and amount or criteria.

In addition, a company may indemnify an office holder against the following liabilities incurred for acts performed as an office holder:

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

reasonable litigation expenses, including attorneys' fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the Company, on its behalf or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for a crime that does not require proof of criminal intent.

An Israeli company may insure a director or officer against the following liabilities incurred for acts performed as a director or officer:

a breach of duty of care to the Company or to a third party, including a breach arising out of the negligent conduct of an office holder;

a breach of duty of loyalty to the Company, provided the director or officer acted in good faith and had a reasonable basis to believe that the act would not prejudice the interests of the Company; and

Financial liabilities imposed on the office holder for the benefit of a third party.

An Israeli company may not, however, indemnify or insure an office holder against any of the following:

a breach of duty of loyalty, except to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the Company;

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

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

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

Under the Israeli Companies Law, indemnification and insurance of office holders must be approved by our compensation committee, our Board of Directors and, in certain circumstances, by our shareholders. We have obtained directors' and officers' liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay all premiums thereunder to the fullest extent permitted by the Israeli Companies Law. In addition, we have entered into indemnification agreements with each of our directors and officers providing them with indemnification for liabilities or expenses incurred as a result of acts performed by them in their capacity as our, or our subsidiaries', directors and officers. This indemnification is limited both in terms of amount and coverage. In the opinion of the SEC, however, indemnification of directors and office holders for liabilities arising under the Securities Act is against public policy and therefore unenforceable.

II-1

Item 7. Recent Sales of Unregistered Securities

Set forth below are the sales of all securities by the Company since January 1, 2010.

In February and August 2010 we issued an aggregate of 67,751 Series B1 preferred shares, convertible into ordinary shares on a one-for-one basis. The price per Series B1 preferred share was approximately $12.82 and the aggregate consideration received was approximately $867,000.

Additionally, in February 2010 we issued 21,893 Series B2 preferred shares, convertible into ordinary shares on a one-for-one basis. The price per Series B2 preferred share was approximately $10.26 and the aggregate consideration received was approximately $224,000.

In connection with the issuance of Series B1 preferred shares and Series B2 preferred shares, in February and August 2010 we issued warrants to purchase up to 22,020 Series B3 preferred shares, convertible into ordinary shares on a one-for-one basis, at an exercise price of $16.02 per share. As of the date of this registration statement, none of the warrants have been exercised.

In March 2011 we issued 51,844 ordinary shares, at a price per share of approximately $67.51 and an aggregate consideration of approximately $3.5 million.

In July through November 2012 we issued convertible notes for an aggregate principal amount of $600,000. According to the terms of the convertible notes, the total amount, bearing an annual interest rate of 6% shall be automatically converted into ordinary shares as of immediately after closing of this offering, at a 25% discount from the initial public offering price.

The issuance of the above-referenced securities was exempt from registration under the Securities Act because they were made outside of the United States to certain non-U.S. individuals or entities pursuant to Regulation S or in reliance upon the exemption from registration provided under Section 4(a)(2) of the Securities Act and the regulations promulgated thereunder.

We granted options to employees, directors and consultants under our equity incentive plan covering an aggregate of 229,286 ordinary shares, with exercise prices ranging from $0.03 to the initial public offering price per share. As of the date of this registration statement, 49,835 ordinary shares have been issued upon the exercise of these options; an additional amount of 49,222 options have been forfeited and cancelled without being exercised.

The grant of such options, and the issuance of shares pursuant to exercise thereof, were exempt from registration under the Securities Act because they were made pursuant to Regulation S thereunder or pursuant to exemptions from registration provided under Section 4(a)(2) of the Securities Act and/or Rule 701 and the regulations promulgated thereunder.

No underwriters were employed in connection with any of the securities issuances set forth in this Item 7.

Item 8. Exhibits and Financial Statement Schedules

Exhibits:

Exhibit Number		Exhibit Description
1.1*		Form of Underwriting Agreement by and among the Company and the underwriters named therein

3.1*		Amended and Restated Articles of Association of the Company, as currently in effect.

3.2*		Articles of Association of the Company, to be in effect upon completion of this offering.


4.1*		Form of Representative’s Warrant

5.1*		Opinion of Zysman, Aharoni, Gayer & Co., Israeli counsel to the Company, as to the validity of the ordinary shares being offered (including consent).

10.1		Consulting Agreement between the Company and Adler Consulting LLC, dated November 2010.

10.2		Addendum to Services Agreement between the Company and Top-Notch Consulting 2009 Ltd., dated June 1, 2010, and as an exhibit thereto, Services Agreement between the Company and Top-Notch Finance (2003) Ltd., dated March 1, 2008.

10.3		Alcobra Ltd. 2010 Incentive Option Plan.

10.4*		Form of Indemnification Agreement.

10.5*		Services Agreement between the Company and Ehud Gilboa.

10.6*		Services Agreement between the Company and Dalia Megiddo.

10.7*		Employment agreement between the Company and Yaron Daniely.

23.1		Consent of Kost Forer Gabbay & Kasierer (a Member of Ernst & Young Global).

23.2		Consent of Zysman, Aharoni, Gayer, & Co. (included in Exhibit 5.1).
24.1		Power of Attorney (included on the signature page of the Registration Statement).

______________________

* To be filed by amendment.

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Financial Statement Schedules:

All financial statement schedules have been omitted because either they are not required, are not applicable or the information required therein is otherwise set forth in the Company’s financial statements and related notes thereto.

Item 9. Undertakings

(a) The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 6 hereof, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(1) That for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) That for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 has duly caused this registration statement on Form F-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Tel Aviv, Israel on January 14, 2013.

ALCOBRA LTD.

By: /s/ Dr. Yaron Daniely_________

Yaron Daniely

Chief Executive Officer and President

POWER OF ATTORNEY

The undersigned officers and directors of Alcobra Ltd. hereby constitute and appoint Dr. Yaron Daniely and Udi Gilboa, and each of them singly, with full power of substitution, our true and lawful attorneys-in-fact and agents to take any actions to enable the Company to comply with the Securities Act, and any rules, regulations and requirements of the SEC, in connection with this registration statement on Form F-1, including the power and authority to sign for us in our names in the capacities indicated below any and all further amendments to this registration statement and any other registration statement filed pursuant to the provisions of Rule 462 under the Securities Act.

Pursuant to the requirements of the Securities Act of 1933, this registration statement on Form F-1 has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date


/s/ Dr. Yaron Daniely	Chief Executive Officer and President	January 14, 2013
Yaron Daniely	(Principal Executive Officer) and Director

/s/ Udi Gilboa	Chief Financial Officer (Principal Financial	January 14, 2013
Udi Gilboa	and Accounting Officer) and Director

/s/ Dr. Aharon Schwartz	Director, Chairman of the Board of Directors	January 14, 2013
Dr. Aharon Schwartz

/s/ Dr. Dalia Megiddo	Director	January 14, 2013
Dalia Megiddo

II-4

SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES

Pursuant to the Securities Act of 1933, as amended, the undersigned, Zysman, Aharoni, Gayer & Sullivan & Worcester LLP, the duly authorized representative in the United States of Alcobra Ltd., has signed this registration statement on January 14, 2013.

	ZYSMAN, AHARONI, GAYER AND SULLIVAN & WORCESTER LLP


	By:	/s/ Edwin L. Miller Jr.

II-5

Exhibit 10.1

CONSULTING AGREEMENT

This consulting agreement (the "Agreement") is effective as of November, 2010 (the "Effective Date"), by and among Alcobra Ltd., an Israeli company, of 65 Rothschild Ave, Tel Aviv, Israel (the "Company") and Adler Consulting LLC, of 98 Farbrook Drive, Short Hills, NJ 07078 (the "Consultant").

WHEREAS The Company is a specialty pharmaceutical company engaged in the development and re-purposing of the cognitive drug Metadoxine;

WHEREAS The Consultant declares that he owns the skills and experience necessary to render the Services (as defined therein); and

WHEREAS The Company wishes to engage the Consultant as an independent contractor to render the Services as will be instructed in advance by the Company, all upon the terms and conditions set forth herein;

NOW, THEREFORE, it is hereby agreed as follows:

Term; Termination. This Agreement shall commence as of the Effective Date and shall continue for a period of twenty four (24) months unless earlier terminated by either party for any reason whatsoever with a thirty (30) days prior written notice (the "Consulting Term"). In addition, each party may terminate this Agreement immediately in case of a breach by the other party of any provision herein which had not been corrected within fourteen (14) days from the date on which the breaching party was notified of said breach.

The Services. During the Consulting Term, Consultant shall provide advice, knowledge and know-how to the Company in assisting the Company with its clinical development planning (the "Services"). Consultant shall be required to provide the Services as agreed between Consultant and the Company, in accordance with Company's needs from time to time. The dates and places to perform the Services shall be coordinated between the Consultant and the Company. The Consultant shall utilize the highest professional skill, diligence, ethics and care to ensure that the Services are performed to the reasonable satisfaction of the Company and to provide the expertise required in connection with such Services. Consultant shall furnish the Company with such reports concerning its activities as the Company may request from time to time.

Consideration. As sole compensation for the Services:

3.1.

Company shall pay Consultant an hourly fee at the rate of US $500 per hour (the "Hourly Fee"). Anything to the contrary above notwithstanding, in the event that the parties will agree, on a case by case basis, that the Services will be provided through Consultant attending conventions, meetings, etc. designated by the Company, Consultant shall be entitled, instead of the Hourly Fee, to a fixed daily fee of US $2,500 (the "Daily Fee"). All amounts paid to Consultant are exclusive of Value Added Tax, which shall be paid to Consultant, if applicable, against provision of a value Added Tax Invoice (the Hourly Fee and the Daily Fee, as applicable, the "Consulting Fee"). Company shall pay Consultant in accordance with this Section 3.1 within ten (10) days after the end of each calendar month for all services performed by Consultant during such month.

3.2.

The Consulting Fee constitutes the full and final consideration for the Services, and Consultant performing the Services, shall not be entitled to any additional consideration, of any form, for the Services, with the exception of reimbursement of reasonable out-of-pocket expenses incurred by Consultant in the performance of the Services ("Expenses") as shall be approved by the Company's Chief Executive Officer in advance in writing. Such expenses shall be invoiced by the Consultant and shall be paid together with the Consulting Fee. By executing this Agreement, Consultant acknowledges and agrees that as a service provider to the Company, it is not entitled to receive from the Company any social benefits (including without limitation, paid vacation days, paid sick leave, severance payments, pension funds, etc.).

3.3.

Consultant shall bear any and all United States taxes imposed on any payments made to Consultant pursuant to this Agreement, including taxes on Consultant's income. Company shall bear any and all Israeli taxes (including, without limitation, value added taxes and sales taxes) imposed in connection with any payments made pursuant to this Agreement. 1.

Confidentiality; Inventions. Consultant agrees to the terms and conditions with respect to Company's confidential information set forth in Exhibit A.

Independent Contractor.

5.1.

Consultant agrees and acknowledges that he is performing the Services hereunder as an independent contractor and that no employer-employee relationship exists or will exist between Consultant and Company.

5.2.

Consultant is estopped from making any claim regarding the existence of employer-employee relations between Consultant and the Company.

Representations by Consultant. Each party represents that the execution and delivery of this Agreement and the fulfillment of the terms hereof (i) will not constitute a default under or conflict with any agreement or other instrument to which he or it is a party or by which he or it is bound; and (ii) will not result in a breach of any confidentiality undertaking to any third party,

LIMITATION OF LIABILITY: DISCLAIMERS: The parties understand and agree that Consultant makes no express or implied warranties with respect to the Services or any deliverables provided by Consultant, including but not limited to warranties of merchantability, infringement or fitness for a particular purpose or use. In no event shall Consultant be liable for indirect, special, punitive, direct or consequential damages (including, without limitation, lost profits or goodwill or cost of cover) in connection with this Agreement, the Services or any deliverables provided by Consultant, however caused and under any theory of liability, whether or not advised of the possibility of such damages, and notwithstanding any failure of essential purpose of any limited remedy. In no event shall the aggregate liability of Consultant in connection with any and all claims arising out of this Agreement, the Services or any deliverables provided by Consultant exceed the aggregate amount paid by the Company to Consultant pursuant to this Agreement.

Miscellaneous. This Agreement constitutes the entire understanding between the parties with respect to the matters referred to herein. This Agreement shall be governed by the laws of the State of New York, excluding its conflict of law rules, and the courts of New York, New York, shall have exclusive jurisdiction over the parties. This Agreement may not be assigned by either party. This Agreement may not be amended or modified, except by the written consent of both parties hereto. No failure or delay on the part of any party hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof. Headings to Sections herein are for the convenience of the parties only, and are not intended to be or to affect the meaning or interpretation of this Agreement. In the event that any covenant, condition or other provision contained in this Agreement is held to be invalid, void or illegal by any court of competent jurisdiction, the same shall be deemed severable from the remainder thereof, and shall in no way affect, impair or invalidate any other covenant, condition or other provision therein contained. All notices required to be delivered under this Agreement shall be effective only if in writing and shall be deemed given when received by the party to whom notice is required to be given and shall be delivered personally, by registered mail, by fax or by means of electronic communication.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

Alcobra Ltd.		Adler Consulting LLC

By:	/s/ Yaron Daniely	By:	/s/ Leonard Adler

Name: Yaron Daniely, PhD MBA		Name: Leonard Adler

Title: CEO		Title: Managing Member, Adler Consulting LLC

Date: January 6, 2011		Date: January 5, 2011

Exhibit A

To the Personal Consulting Agreement by and between

Alcobra Ltd. and the Consultant whose name is set forth herein

General

Capitalized terms herein shall have the meanings ascribed to them in the Agreement to which this Exhibit is attached (the "Agreement"). For purposes of any undertakings of the Consultant toward the Company, the term Company shall include any subsidiary, parent company and affiliate of the Company.. The Consultant's obligations and representations and the Company's rights under this Exhibit shall apply as of the date Consultant began to provide Services to the Company, regardless of the date of execution of the Agreement.

Confidentiality; Proprietary Information

"Proprietary Information" means confidential and proprietary information concerning the business and financial activities of the Company, including patents, patent applications, trademarks, copyrights and other intellectual property, and information relating to the same, technologies and products (actual or planned), inventions, research and development activities, inventions, trade secrets and industrial secrets, and also confidential commercial information such as investments, investors, consultants, customers, suppliers, marketing plans, whether documentary, written, oral or computer generated. Proprietary Information shall also include information of the same nature which the Company may obtain or receive from third parties.

Proprietary Information shall be deemed to include any and all proprietary information disclosed by or on behalf of the Company and irrespective of form but excluding information that (i) was known to Consultant prior to Consultant's association with the Company; (ii) is or shall become part of the public knowledge except as a result of the breach of the Agreement or this Exhibit by Consultant; (iii) shall have been received by Consultant not under an obligation of confidentiality from a third party, (iv) is independently developed by Consultant without reference to the Proprietary Information;; or (v) reflects information and data generally known in the industries or trades in which the Company and/or Consultant operates.

Consultant recognizes that the Company received and will receive confidential or proprietary information from third parties, subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. In connection with such duties, such information shall be deemed Proprietary Information hereunder.

Consultant agrees that all Proprietary Information, and patents, trademarks, copyrights and other intellectual property and ownership rights in connection therewith are and shall remain at all times the sole property of the Company and its assigns. At all times, both during Consultant's engagement with the Company and after the termination of the engagement between the parties, Consultant will keep confidence all Proprietary Information, and will not use or disclose any Proprietary Information without the prior written consent of the Company, except as may be necessary in the ordinary course of performing Consultant's duties under the Agreement.

Upon the Company's request and upon termination of Consultant's engagement with the Company, for any reason whatsoever, Consultant will promptly deliver to the Company all documents and materials of any nature containing Proprietary Information, pertaining to Consultant's engagement with the Company, and will not take any documents or materials or copies thereof containing any Proprietary Information.

Consultant's undertakings set forth in Section 1 through Section 6 shall remain in full force and effect after termination of the Agreement or any renewal thereof.

The Consultant agrees and undertakes not to disclose to the Company any confidential information of any third party and, in the framework of its engagement with the Company, not to make any use of any intellectual property rights of any third party.

The Consultant agrees that any work performed by the Consultant with respect to Company's products or potential products, including, without limitation, any improvement and modifications to such products is owned by the Company and the Consultant has no ownership rights with respect thereto and Consultant hereby assigns any such rights (including, without limitation, all patents) it may have to such improvements and modifications to the Company. However, the Company acknowledges and agrees that, notwithstanding the foregoing, the Company has no rights, other than a limited license pursuant to any licensing agreement that Company may enter into with NYU Medical Center, to any ratings scales or training materials with respect to such ratings scales or to any improvements and modifications made to such scales and training materials, even if made while or in connection with providing services to the Company.

Remedies for Breach

10.

Consultant acknowledges that the legal remedies for breach of the provisions of this Exhibit may be found inadequate and therefore agrees that, in addition to all of the remedies available to Company in the event of a breach or a threatened breach of any of such provisions, the Company may also, in addition to any other remedies which may be available under applicable law, obtain temporary, preliminary and permanent injunctions against any and all such actions.

Intent of Parties

11.

Consultant recognizes and agrees: (i) that this Exhibit is necessary and essential to protect the business of the Company and to realize and derive all the benefits, rights and expectations of conducting Company's business; and (ii) that good and valuable consideration exists under the Agreement, for Consultant's agreement to be bound by the provisions of this Exhibit.

Exhibit 10.2

Addendum to Services Agreement

This addendum (the “Addendum”), dated December 20, 2012 and effective June 1, 2010 (the “Effective Date”), is made by and between Alcobra Ltd., a company incorporated under the laws of the State of Israel (“Company”), and Top-notch Consulting 2009 Ltd., a company incorporated under the laws of the State of Israel (“Service Provider”).

All capitalized terms used in this Addendum and not defined herein shall have the meaning ascribed to such terms in the Agreement, as defined below.

Whereas

the Company and Top-notch Finance 2003, a company under full common control as Service Provider (“Top-notch Finance”), have entered into a certain Services Agreement, dated March 1, 2008 (the “Agreement”); and

Whereas

the engagement with Top-notch Finance was suspended March 2009, and renewed as of the Effective Date with Service Provider, subject to certain modifications; and

Whereas

the parties now wish to fix such renewal, assignment and modification in writing;

NOW, THEREFORE, in consideration of the promises and mutual agreements herein set forth, the parties hereto, intending to be legally bound, have agreed as follows:

The preamble hereto constitutes an integral part hereof.

For the avoidance of doubt, Service Provider assumes all rights, obligations and representations set forth in the Agreement with respect to Top-Notch Finance.

The term of the Agreement has been renewed commencing the Effective Date and until terminated by either party upon 30 days written notice.

Notwithstanding Section 2.1 to the Agreement, Service Provider Fees, as of the Effective Date, shall be a total monthly amount of NIS 13,500 plus VAT (NIS 3,500 for administrative services, and NIS 10,000 for use of offices).

Notwithstanding Exhibit A, Section 2 of the Agreement, Office Services (including designation of offices for the exclusive use of Company’s personnel) shall be provided, at all times, with respect to Service Provider’s offices at applicable time (as of the Effective Date and the date hereof, such are located at 65 Rothschild Blvd., Tel-Aviv, Israel).

All other provisions of the Agreement shall continue in full force and effect with the necessary changes resulting from this Addendum.

IN WITNESS WHEREOF, the parties have executed this Addendum as of the date first above written.

Alcobra Ltd.		Top-notch Consulting 2009 Ltd.

By:	/s/ Yaron Daniely	By:	/s/ Udi Gilboa

Name: Yaron Daniely		Name: Udi Gilboa

Title: CEO		Title: CEO

- 2 -

EXHIBIT TO THE ADDENDUM

SERVICES AGREEMENT

This Services Agreement (the “Agreement”) is made as of the 1s` day of March, 2008, by and among Alcobra Ltd., a company organized under the laws of the Israel (the "Company") and Top-notch Finance (2003) Ltd. a company organized under the laws of the Israel (the “Service Provider”).

WITNESSETH:

WHEREAS

The Service Provider wishes to render the Company with the Office Services (as defined below); and

WHEREAS

The Company wishes to receive such Office Services from the Service Provider.

NOW, THEREFORE, in consideration of the premises and mutual agreements herein set forth, the parties hereto, intending to be legally bound, have agreed as follows:

Office Services

Subject to the terms and conditions of this agreement, as of March 1^st, 2008 the Service Provider shall render the Company with the Office Services specified in Exhibit A attached hereto (the “Office Services”).

Compensation

2.1.

In consideration for the Office Services rendered by the Service Provider, the Company shall pay the Service Provider monthly fees in the amount of US$ 2,000 + VAT as applicable (the “Service Provider Fees”). The rate of the 1 US$ will not be lower than 4 NIS.

2.2.

The Service Provider Fees shall be paid by the Company during the term of this Agreement on the first day of each month in respect of such month. Upon payment, Consultant will furnish to the Company an invoice and a receipt.

2.3.

It is expressly agreed that except as set forth in this section 2, the Service Provider shall not be entitled to any further compensation, reimbursement of expenses, fees, commissions etc. in connection with the performance of the Office Services.

Term and Termination

3.1.

This Agreement shall become effective on March 1st, 2008 and shall continue until terminated by either party.

3.2.

Either party may terminate this Agreement at will by delivering a 30-days prior written notice to the other party.

Independent Contractor

The status of the Service Provider in providing the Office Services to the Company, according to this Agreement, shall be that of an independent contractor and nothing herein contained shall be so construed as to constitute the relationship with the Company hereby created as an employment, partnership, joint venture or agency relationship, or as any other relationship, other than that of an independent contractor, as aforesaid.

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Governing Law

This agreement and the right of the parties hereunder shall be governed by and interpreted in accordance with the laws of the state of Israel. Any conflicts and/or disputes should be brought for decision before the competent court in Tel-Aviv, Israel.

Amendments and Waivers

No amendment to this Agreement shall be valid unless such amendment is in writing and is signed by both of the parties to this Agreement. Any of the terms and conditions of this Agreement may be waived at any time in writing by the party entitled to the benefit thereof, but a waiver in one instance shall not be deemed to constitute a waiver in any other instance. A failure to enforce any provision of this Agreement shall not operate as a waiver of the provision or of any other provision hereof

Severability

In the event that any provision of this Agreement shall be held to be invalid, illegal or unenforceable in any circumstances, the remaining provisions shall nevertheless remain in full force and effect and shall be construed as if the unenforceable portion or portions were deleted.

Notices

All notices, request, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered personally or sent by fax, or mailed, by registered or certified mail, to the addresses set forth above (or to such other address and fax numbers as either party shall designate by notice in writing to the other in accordance herewith). Notices sent by fax shall be deemed to have been given upon transmission and electronic confirmation of receipt or (if transmitted and received on a non-business day) on the first business day following transmission and electronic confirmation of receipt, notices sent by mail shall be deemed to have been given 96 hours after delivery.

IN WITNESS HEREOF, the undersigned have executed this Agreement as of date above first written.

Alcobra Ltd.		Top-Notch Finance 2003 Ltd.

By:	/s/ Rina Yamin	By:	/s/ Udi Gilboa

Name: Rina Yamin		Name: Udi Gilboa

Title: CEO		Title: CEO

- 3 -

Exhibit A

The Office Services

8.1.1.

Secretarial services between the hours of 09.00 AM-17.00 PM Sunday till Thursday. In the event there is a need for additional secretarial services after -ne said hours_ no additional charge will be charged.

8.1.2.

The Company may use the offices of the Service Provider located at 53 Hashalom Rd. Givatayim, as shall be agreed between the parties to this Agreement.

8.1.3.

In addition, the company may use the meeting room, Kitchen and reception without limit.

8.1.4.

The company will receive an executive room for the use of the company's CEO.

8.1.5.

All land line communication (domestic and international).

8.1.6.

All other reasonable office services.

8.1.7.

Payment will include all of the services and will include rent, maintenance fee, Arnona and all other services.

- 4 -

Exhibit 10.3

Alcobra Ltd.

The 2010 Incentive Option Plan

PURPOSE OF THE PLAN

The purpose of this 2010 Incentive Option Plan (the “Plan”) is to advance the interests of Alcobra Ltd. (the “Company”) and its shareholders by attracting and retaining the best available personnel for positions of substantial responsibility, providing additional incentive to employees, office holders and service providers and promoting a close identity of interests between those individuals and entities and the Company.

DEFINITIONS

As used herein, the following definitions shall apply:

2.1.

"Administrator" means the Board or the Committee, as shall administer the Plan, as set forth herein.

2.2.

“Articles” mean the Company’s Articles of Association, as amended from time to time.

2.3.

"Board" means the Board of Directors of the Company.

2.4.

"Committee" means the Company’s compensation committee, or in the case there is no such committee, a committee appointed in order to administer the Plan, and until such committee is appointed, the Board.

2.5.

“Companies Law” means the Israeli Companies Law 5759 - 1999.

2.6.

"Employee" means: (I) any person, employed by the Company or employed by any Related Entity; and (II) any Office Holder (as such term is defined in the Companies Law), officer or Director of the Company or a Related Entity.

2.7.

“Exercise Price” means the price that is to be paid in order to exercise an Option.

2.8.

“Group” means the Company and the Related Entities taken together.

2.9.

“IPO” means an initial public offering of the Company's Shares.

2.10.

"Option" means an option to purchase a Share according to the provisions of this Plan.

2.11.

“Option Grant” means a single grant of Options to a certain Participant as determined by the Board or the Committee.

{N0332202; 2}

Alcobra Ltd. – 2010 Incentive Option Plan

2.12.

"Option Grant Letter Agreement" means the notice letter attached to this Plan as Exhibit A.

2.13.

"Participant" means a person or entity that has been granted Options.

2.14.

“Related Entity” means any parent or subsidiary of the Company. In addition, Related Entity shall include any business, corporation, partnership, limited liability company or other entity in which the Company, or the Company’s parent or a subsidiary holds a substantial ownership and/or interest, directly or indirectly, and is determined by the Board to be a Related Entity.

2.15.

“Service Provider” means a person or entity who is engaged by the Company or any Related Entity to render services (e.g., consulting services, advisory services, development services, marketing and sale services or any other services, including suppliers) to the Company or a Related Entity.

2.16.

"Share" means the Company’s Ordinary Share of NIS 0.01 par value, or that was issued following an exercise of an Option.

2.17.

“Total Option Amount” means the amount of Options granted to a Participant in a single Option Grant.

ADMINISTRATION OF THE PLAN

3.1.

Subject to the provisions of the Plan, any applicable law, the Articles and any other binding commitments taken by the Company, the Board or the Committee shall have the power and authority to administer the Plan. Such power and authority shall include, but not be limited to: (i) approval of Option Grants and the determination of the terms and provisions of respective Option Grants, including, the vesting schedules of the Options; the Exercise Price thereof; provisions concerning the time or times when and the extent to which Options may be exercised; the nature and duration of restrictions as to transferability; or any other special conditions relating to an Option Grant; (ii) the acceleration of any Participant’s right to exercise Options, in whole or in part; (iii) the interpretation of the provisions of the Plan; (iv) altering, amending or rescinding any resolution or act previously taken by the Committee; and (v) the determination of any other matter which is necessary or desirable for, or incidental to, the administration of the Plan, as set forth in the Plan.

3.2.

Notwithstanding the above, the Board shall have the power and authority to take any act the Committee is empowered and authorized to take, and to alter amend or rescind any act or resolution taken by the Committee.

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3.3.

The Committee shall consist of such number of directors as may be appointed by the Board.

3.4.

The Board shall have the exclusive discretion and power to grant Options. Such power may be delegated by the Board to the Committee subject to the provisions of the Companies Law.

3.5.

All Committee resolutions and decisions, including the interpretation and construction of any provision of the Plan, shall be final and conclusive unless otherwise determined by the Board.

3.6.

No member of the Board or of the Committee shall be held liable for any act or determination made in good faith with respect to the Plan or any Option Grant.

SHARES RESERVED FOR THE PLAN

4.1.

Subject to adjustments, as set forth in Section 9 below, a total of 139,258 Ordinary Shares, of NIS 0.01 par value each, from the Company’s authorized share capital shall be reserved and subject to the Plan (the “Reserved Shares”).

4.2.

Until termination of the Plan the Company shall at all times reserve sufficient number of Ordinary Shares in its authorized share capital to cover for all Reserved Shares that were not issued.

4.3.

Without derogating from Section 4.2 above:

4.3.1.

The Company need not reserve Shares with respect to Options that terminated, expired or were canceled for any reason prior to exercise thereof.

4.3.2.

In the case that there are certain Reserved Shares, which remain unissued and which are not subject to outstanding Options, then the Board may resolve that such Reserved Shares shall cease to be reserved.

DESIGNATION OF PARTICIPANTS; OPTION GRANTS

5.1.

The Board may grant Option Grants to the following persons and entities:

5.1.1.

Employees.

5.1.2.

Service Providers and their employees.

5.2.

Unless determined otherwise by the Board or Committee, a Participant shall not be required to pay any consideration for an Option Grant.

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VESTING; EXERCISE PERIOD

6.1.

Unless determined otherwise by the Committee or Board, upon approval of the Option Grant or thereafter, Options underlying an Option Grant shall vest over four years, commencing on the vesting commencement date (the "Vesting Commencement Date") as determined by the Committee.

6.2.

The vesting schedule of each Option Grant shall be as determined by the Committee. However, unless determined otherwise by the Committee or Board, upon approval of the Option Grant or thereafter, the following shall apply:

25% of the Total Option Amount shall vest on the first anniversary of the Vesting Commencement Date, and additional 6.25% of the Total Option Amount shall vest on the last day of each three months period immediately after the first anniversary of the Vesting Commencement Date.

In the case that as a consequence of the vesting schedule mentioned above a fraction of vested Option is created, then such fraction shall be rounded up or down, as determined by the Board.

6.3.

Notwithstanding anything to the contrary in this Plan, all Options shall terminate and not bestow any rights on their owner after ten years from the date the Options were granted. All Options that have not been exercised by such date shall expire immediately and the Participants shall not have any claim against the Company with respect thereto.

6.4.

The period within which Options are exercisable shall be called the “Exercise Period”. Options which have not been exercised during the Exercise Period shall expire immediately, and will be automatically returned to the Options pool and may be re-allocated.

TERMINATION OF EMPLOYMENT WITH THE GROUP

In the event that the Participant is an Employee at the time of the Option Grant, whose employment with the Group was subsequently terminated, for whatever reason but subject to Section 7.6 (including but not limited to (i) dismissal of a Participant or (ii) a Participant’s resignation, or (iii) death of a Participant or (iv) disability of a Participant), then the following provisions shall apply:

7.1.

The date on which employment was terminated under applicable labor laws, or, in the case an Employee is not an employee under applicable labor laws the date in which such Employee ceases to be an Employee as defined in the Plan, shall be deemed the date in which such Employee’s employment was terminated (“Employment Termination Date”).

7.2.

On the Employment Termination Date all Options that are not vested shall immediately expire.

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7.3.

In the event that the Participant's termination of employment is not due to the Participant's death (but does include termination due to Disability), then the Participant will be entitled to exercise all, or part of, the vested Options that have not expired, for a period of thirty (30) days after the Employment Termination Date. After such thirty days period, all unexercised Options will automatically expire.

For purposes of this Section 7.3, "Disability" shall mean the inability in 100%, due to illness or injury, to engage in any gainful occupation for which the individual is suited by education, training or experience, which condition continues for at least six (6) months.

7.4.

Notwithstanding the above, in the event of termination of employment due to the Participant's death or Disability, the Participant (if applicable) or Participant's estate, or other person who acquired the right to exercise the Options by way of bequest or inheritance, may, but only within six (6) months after the date of such death or the Employment Termination Date (in the case of Disability), exercise all, or part of, the vested Options that have not expired. After such six (6) months period, all unexercised options shall automatically expire.

7.5.

Notwithstanding Section 7.3 above, all Options granted to a certain Employee (whether vested or unvested) will immediately expire if the termination of the Participant’s employment is due to Participant’s breach of his/her employment agreement (whether written or oral) including without limitation, a breach of non compete obligations, or breach of his/her fiduciary duties towards the Company or a Related Entity as determined by the Committee or the Board, in their sole discretion, or in the case that competent court or other authority resolves that such employee is not entitled to discharge compensation.

7.6.

For the purposes of this Plan, the Committee or Board is authorized to determine if and when a Participant terminated his/her employment with the Company, and due to what reason, subject to the provisions of Israeli labor laws with respect to Israeli employees.

7.7.

The Committee or the Board shall be entitled, prospectively and retroactively, to extend the periods in which Options (either vested or unvested) do not expire and remain exercisable after the Employment Termination Date.

TERMINATION OF ENGAGEMENT WITH THE GROUP

In the event that a Participant is not an Employee, and the agreement of such Participant with the Group is terminated, then, unless otherwise specified in the Option Grant Letter Agreement, or otherwise determined by the Committee, on the date of such termination, all Options that have not vested by then shall expire and the vested options shall remain exercisable as specified in sections 7.3, 7.4 or 7.5, as the case may be, which shall apply mutatis mutandis to such Participant (where if such Participant has more than one agreement with the Group, then the foregoing shall apply to the Options underlying the terminated agreement or issued in connection therewith).

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ADJUSTMENTS

9.1.

Merger, Sale of the Company or Sale of the Company’s Assets.

In the event of a merger of the Company into another corporation, in a way that the Company shall no longer continue to exist as a legal entity subsequent to such merger, the sale of all, or substantially all of the Company’s issued and outstanding shares to a third party or the sale of all, or substantially all of the assets of the Company (each of them, a “Transaction”), then the following provisions shall apply:

9.1.1.

Each outstanding Option shall be assumed by, or an equivalent option shall be substituted by the successor corporation or a parent or subsidiary of the successor corporation.

9.1.2.

In the event that the successor corporation does not agree to assume the Options or to substitute them with equivalent options, the Committee may in lieu of such assumption or substitution, provide for the Participant to have the right to exercise the Options as to all, or part of the Shares, including certain Shares as to which it would not otherwise be exercisable.

9.1.3.

In addition to Section 9.1.2 above, and if Section 9.1.1 does not apply, the Committee may notify the Participants that all Options that are exercisable shall remain so for a period of no less then seven (7) days from the date of such notice, and that all Options will terminate upon the expiration of such period. In any case, the Committee may condition the termination of all said Options upon consummation of the Transaction.

9.2.

Bonus Shares

In the event that the Company issues any of its shares as bonus shares to all its shareholders, on a pro rata basis, then the number of Shares received upon exercise of certain Options shall be increased to the number of Shares the Participant would have held after the issuance of the bonus shares had such Participant exercised such Options immediately before the issuance of the bonus shares.

9.3.

Reorganization; Separation

If the Company is separated, reorganized, or consolidated with another corporation (other than as part of a Transaction) while Options which were not yet exercised remain outstanding under this Plan, the Company shall use reasonable efforts to maintain the rights of each Participant through such separations, reorganizations or consolidations, or compensate the Participant for such event in lieu of the Options such Participant holds. The Committee, at its sole discretion, shall determine what steps shall be taken according to this section 9.3.

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9.4.

Changes in Capitalization

If the outstanding shares of the Company shall at anytime be changed or exchanged by declaration of a share split, reverse share split, combination or reclassification of Ordinary Shares, or any other increase or decrease in the number Company’s Ordinary Shares effected without receipt of consideration by the Company from the shareholders, then the number, class and kind of Shares subject to this Plan or subject to any Options therefore granted, and the Exercise Prices of the Options, shall be appropriately and equitably adjusted so as to maintain the proportionate number of Shares without changing the aggregate Exercise Prices of the Options (except in case the Exercise Price is equal to the par value of the shares, in which case the Exercise Price will be increased respectively). However no adjustment shall be made by reason of the distribution of subscription rights on outstanding shares, or conversion of securities into shares of the Company.

9.5.

Other terms and conditions

9.5.1.

The allocation of each Option Grant hereunder is subject to the relevant Participant’s agreement to sign any document he/she is required to sign pursuant to the provisions of this section 9. If a Participant refuses to sign any such documents, the Committee or Board may determine that the Options held by the Participant or by a trustee for such Participant’s benefit shall immediately expire.

9.5.2.

Such adjustments as mentioned in this Section 9 shall be made by the Committee, whose determination in such respect shall be final, binding and conclusive.

9.5.3.

Anything herein to the contrary notwithstanding, if prior to an IPO, there is a bona fide offer to purchase all or substantially all of the issued and outstanding shares of the Company, or upon a reorganization separation or the like, all or substantially all of the shares of the Company are to be exchanged for securities of another company, then each Participant shall be obliged to sell or exchange (in accordance with the value of such Participant’s Options and Shares pursuant to the terms of such transaction) as the case may be, any Shares such Participant purchases hereunder, in accordance with the instructions issued by the Board in connection with such transaction, which will be given according to a policy of the Board concerning all of the Participants under the Plan.

10.

ASSIGNABILITY AND SALE OF OPTIONS

No Option shall be assignable, transferable, given as collateral, hypothecated pledged or encumbered and no right with respect to the Options shall be given to any third party whatsoever, and during the lifetime of each Participant, each and all of such Participant’s rights to purchase Shares hereunder shall be exercisable only by such Participant.

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11.

TERM AND EXERCISE OF OPTIONS

11.1.

Options shall be exercised by a Participant by giving written notice to the Company, in the form substantially attached hereto as Exhibit B or such other form(s) and method as may be determined by the Company from time to time (the “Exercise Notice”).

11.2.

The Exercise Price shall be payable upon the exercise of the Option in cash or by check, or other form satisfactory to the Committee.

11.3.

The Exercise Price will be paid in NIS, or if the Exercise Price is fixed in U.S. dollars, in U.S. dollars or in accordance with the representative rate of exchange of the U.S. dollar, last published by the Bank of Israel at the time of actual payment, or as provided for by the Company.

11.4.

Each Participant will be entitled to exercise, upon signing the Exercise Notice and any additional documents as required by the Company, and paying the Exercise Price, all, or part of the Options that are vested at the Exercise Period.

11.5.

Options shall not be deemed exercised unless: (I) the Company receives duly signed Exercise Notice including all relevant details; and (II) the Company receives the Exercise Price.

11.6.

The Options may be exercised only to purchase whole Shares, and in no case may a fraction of a Share be purchased. If any fractional Shares would be deliverable upon exercise, such fraction shall be rounded up or down, to the nearest whole number. Half of a Share will be rounded up.

11.7.

Each Option granted under this Plan shall be exercisable during the Exercise Period. Subject to adjustments, as set forth in Section 9 above, the exercise of one Option shall entitle the Participant to hold one Share.

11.8.

Without derogating from any restrictions mentioned hereinabove, the exercise of the Options is being subject to the following terms, restrictions and conditions as may be in effect on the time of the exercise of the Options is requested: (i) any applicable law or regulation; (ii) any order or limitation set by any stock exchange in which the Company’s securities may be traded (e.g., blackout periods, and lock up after an IPO); and (iii) any limitation undertaken by the Company with respect of the shares of the Company, including limitations set forth by Company’s underwriters. Such period of restriction of sale or exercise shall not be counted as part of the applicable exercise period.

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11.9.

Notwithstanding the foregoing, starting as of the Employment Termination Date of a certain Participant and during the period that the vested Options are exercisable, the Company shall be entitled (subject to the provisions of applicable law) to purchase the vested Options held by such Participant by sending the Participant a purchase notice (the "Purchase Notice"). The purchase price of each Option shall be the Market Value of an Ordinary Share less the Exercise Price of the Option. The Market Value of an Ordinary Share shall be determined as follows: (i) in case the Company's shares are listed on a stock exchange, the Market Value shall be the average price of the Shares during 5 days prior to the Purchase Notice; or (ii) in case the Company's shares are not traded, the Market Value shall be the value determined in good faith unanimously by the Board and in the event the Board members are unable to reach an agreement with respect to the Market Value within 10 days of the Purchase Notice to the Participant, the Board will refer to an external expert. The Committee or the Board shall be entitled to establish further processes for the purchase of the Options as set forth above, provided, however, that if the Company receives the Participant’s Exercise Notice prior to the receipt of the Purchase Notice from the Company, then the Company’s right to purchase the said Options shall become null and void and the Participant may exercise the vested Options pursuant to their terms.

12.

RIGHTS AND OBLIGATIONS ATTACHED TO THE SHARES

12.1.

No Participant shall have any of the rights or privileges of a shareholder of the Company with respect to any of the Shares, unless and until, following exercise, the registration of the Participant as holder of such Shares in the Company’s register of members is duly completed.

12.2.

The rights and obligations attached to the Shares will be as set forth in the Articles. The Shares may be subject to rights of first refusal, co-sale rights and other rights specified in the Articles.

12.3.

The Participant waives any of the following rights to the extent such rights are attached to the Shares: (i) pre-emptive rights in relation to issuance of new securities in the Company; (ii) rights of first refusal in relation with any sale of shares of the Company; (iii) co-sale rights in relation with any sale of shares of the Company.

12.4.

Unless provided otherwise by the Committee, until an IPO, all voting rights, and rights to receive information from the Company with respect to the Shares shall be granted to the Board or as determined by the Board, in accordance with Exhibit C attached hereto.

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12.5.

Without derogating from any restrictions mentioned hereinabove, by accepting an Option Grant, each Participant agrees that the sale or disposal of Shares is subject to the following terms, restrictions and conditions as may be in effect on the time when such sale or disposal is requested: (i) any applicable law or regulation; (ii) any order or limitation set by any stock exchange in which the Company’s securities may be traded (e.g., blackout periods, and lock up after an IPO); and (iii) any limitation undertaken by the Company with respect of the shares of the Company, including limitations set forth by Company’s underwriters.

12.6.

Until an IPO the Company shall have the authority to endorse upon the certificate or certificates representing the Shares such legends referring to the foregoing restrictions, and any other applicable restrictions, as it may deem appropriate (and which do not violate the Participant's rights according to this Agreement).

12.7.

By accepting an Option Grant, each Participant agrees that in the case of an IPO or after registering the Company’s securities for trading, to sign any document and approve any resolution or restriction upon the Shares, or modify the terms of allocation of the Shares, if such Participants signature or approval or such restriction or modification were reasonably required, in the Committee’s discretion, in order to facilitate the Company in meeting all the underwriters and stock exchange demands and all applicable securities and corporate laws and regulations.

12.8.

The Participant shall not sell, pledge, transfer or otherwise dispose of any Shares in transactions which violate, according to the Company’s sole discretion, any applicable laws, rules and regulations, or the Articles.

12.9.

No transfer of Shares shall be effective if the Committee determines that the transferee is a competitor of the Company (either directly or indirectly).

12.10.

Notwithstanding anything to the contrary in this Section 12, as long as Shares are held by a trustee for the benefit of a Participant (if applicable) the Shares shall not be sold, pledged, transferred or otherwise disposed of, by the Participant until an IPO, or until such time or event as determined by the Committee, either individually or with respect to all Participants.

13.

TERM OF THE PLAN

This Plan shall be effective as of January 1, 2010, which is the day it was adopted by the Board and shall terminate when all the Options are exercised into Shares or expired in accordance with the provisions of this Plan or such other date as shall be determined by the Board, which date shall be no later than January 1, 2020.

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14.

AMENDMENTS; TERMINATION

14.1.

The Board may, at any time and from time to time, amend, alter or terminate the Plan, provided, however, that the rights of the Participants shall not be adversely affected, unless such Participants agreed to such amendment, alteration or termination.

14.2.

The Plan may be terminated at any time by an action of the Board, but any such termination will not terminate any Options granted under this Plan, which are then outstanding, without the consent of the Participant that is holding such Options.

15.

BINDING EFFECT

The provisions of the Plan shall be binding upon the heirs, executors, administrators, and successors of the Participants.

16.

GOVERNMENT REGULATIONS AND OTHER RESTRICTIONS

16.1.

This Plan, the Option Grant Letter Agreements, the grant and exercise of Options hereunder, the obligation of the Company to issue the Shares, and any other act or obligation of the Company or any related individual or entity acting in connection with this Plan are all subject to the Articles, all applicable laws, rules, and regulations, whether of the State of Israel or of the United States or any other state having jurisdiction over the Company and any Participant.

16.2.

By accepting an Option Grant, each Participant agrees not to sell, pledge, transfer or otherwise dispose of any of the Shares such Participant may hold except in compliance with: (I) the United States Securities Act of 1933, as amended, and the rules and regulations thereunder if applicable; and (II) the Israeli Securities Law 5728 – 1968; and (III) any other applicable securities law, regulations or other rules set by any stock exchange in which the Company's securities may be traded; and to further agree that certificates evidencing any of such Shares shall bear appropriate legend to reflect such restrictions. The Company does not obligate itself to register any shares under the United States Securities Act of 1933, as amended or any other securities laws.

17.

TAX CONSEQUENCES, INDEMNIFICATION

17.1.

Any tax consequences (pursuant to Israeli or any other applicable law that the relevant Participant is subject to), including tax consequences due to adjustments, made in accordance with Section 9 above, arising from the grant or exercise of any Option, the payment for Shares covered thereby, or any other event or act (of the Company or any Participant) relating to the Plan, shall be borne solely by each Participant.

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17.2.

The Company and/or the Board and/or the Committee and/or a trustee for the Plan shall not be required to release any Share certificates or transfer any Shares to a Participant until all required tax payments have been fully made.

17.3.

The Company may withhold taxes according to the requirements under the applicable laws, rules, and regulations, including withholding taxes at source. In the case that applicable law requires so, the Company shall deduct taxes at source. Such deduction may be made from any proceeds attributed to the exercise of the Options and sale of Shares, or from any proceeds the Participant is entitled to receive from the Group or other proceeds such Participant owns and are held by the Group, including from Participant’s salary or other proceeds he/she is entitled to receive from the Company or a Related Entity. It is explicitly stated herein that each Participant who is an Employee, by accepting an Option Grant agrees to the deduction from his/her salary of any amounts that in the Company’s determination are required to be deducted under applicable law in connection with the Plan. In any such case, the Company shall be entitled to offset any amounts due to such Participant on account of such taxes.

17.4.

In the case that the Company, or any other person on its behalf is required to pay taxes, that under applicable law should have been paid by the Participant, then such Participant shall immediately either pay such tax, or, if such tax was already paid, reimburse the Company, or such other person for the total amount paid.

17.5.

Neither the Company, nor any Related Entity nor anyone on their behalf, shall give, or be deemed to be giving any Participant, or a potential Participant, advice regarding tax consequences relating to the Plan and issuance of securities thereunder. Each Participant shall rely solely, while considering participation in the Plan, on the advice of such Participant’s consultants.

18.

CONTINUANCE OF EMPLOYMENT OR ENGAGEMENT

Neither the Plan nor any Option Grant shall be construed to impose any obligation on any entity included in the Group to continue any Participant’s employment with it (in the case that the Participant is an Employee) or to maintain any business engagement with such Participant. Nothing in the Plan or in any Option Grant shall confer upon any Participant any right to continue to be employed by the Group or to maintain any other business engagement with it, or restrict the right of any entity included in the Group to terminate such employment or business engagement at any time.

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19.

RULES PARTICULAR TO SPECIFIC COUNTRIES

19.1.

Notwithstanding anything herein to the contrary, the terms and conditions of the Plan may be amended with respect to particular types of Participants as determined by the Board (for example, Israeli employees, employees that are subject to US taxation) by an addendum to the Plan (the “Appendix”).

19.2.

The Company may adopt one or more Appendixes. Each Appendix shall be approved by the Board and as required or advisable under applicable law.

19.3.

The terms of an Appendix shall govern only with respect to the types of Participants specified in such Appendix.

19.4.

In the case that the terms and conditions set forth in an Appendix conflict with any provisions of the Plan, the provisions of the Appendix shall govern with respect to Participants that are subject to such Appendix, provided, however, that such Appendix shall not be construed to grant the Participants rights not consistent with the terms of the Plan, unless specifically provided in such Appendix.

20.

NON-EXCLUSIVITY OF THE PLAN

20.1.

The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangements or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of Options other than under this Plan, and such arrangements may be either applicable generally or only in specific cases.

20.2.

The grant of Options hereunder shall neither entitle the recipient thereof to participate, nor disqualify him from participating in, any other grant of Options pursuant to this Plan or any other option or stock plan of the Company.

21.

MULTIPLE AGREEMENTS; OTHER CORPORATE ACTIONS

21.1.

The terms of each Option Grant may differ from other Options Grants granted under the Plan at the same time, or at any other time. The Board may also grant more than one Option Grant to a certain Participant during the term of this Plan, either in addition to, or in substitution for, one or more Option Grants previously granted to such Participant.

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21.2.

Under no circumstances shall the Plan be construed to grant any right to a Participant, or any other third party, to postpone, delay or affect any corporate action resolved by the Company.

22.

GOVERNING LAW & JURISDICTION

This Plan shall be governed by, construed and enforced in accordance with the laws of the State of Israel, without giving effect to the principles of conflict of laws. Any dispute or claim shall be put to the Board’s resolution. Subject to the above, the competent courts of Tel-Aviv, Israel shall have sole jurisdiction in any matter pertaining to this Plan, and any other issue related to it.

23.

NO WAIVER

The failure of the Company or any other party acting on its behalf or assisting it in implementing the Plan to enforce at any time any provisions of the Plan shall not be construed to constitute a waiver of such provision or of any other provision hereof.

24.

NOTICES

24.1.

Any notice, request, demand or other communication required or permitted under the Plan shall be in writing and shall be deemed to have been duly given, made and received only by personal delivery or if sent by certified mail, postage prepaid, return receipt requested, overnight delivery service, facsimile transmission (with confirmation of delivery), or confirmed e-mail to the address of the Company (if sent to the Company), or to the address of the Participant as such was provided by him in the Option Grant Letter Agreement, unless such address is changed by written notice received by the Company.

24.2.

Except as otherwise set forth herein, any notice sent by mail shall be deemed to be given six days after deposit with the relevant post service; any notice sent by overnight delivery service shall be deemed given the first business day after deposited with the delivery service; and any notice sent by facsimile transmission or e-mail, shall be deemed given when transmitted if sent during normal business hours or if not, on the next business day; and any notice given by personal delivery shall be deemed given on the date of delivery.

24.3.

In the case a certain Participant changes his or her contact details, in a way that the contact details provided to the Company by him do not enable the Company to provide notices and other communications to such Participant, then such Participant shall be deemed to have waived his or her right to receive any notices, and the Committee shall have the right, in its sole discretion, to take any appropriate action under the circumstances.

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Appendixes

Appendix A: Terms of grant of options to Israeli employees

Exhibits:

Exhibit A: Option Grant Letter Agreement

Exhibit B: Form of Exercise Notice

Exhibit C: Proxy

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Appendix A

Terms of grant of Options to Israeli employees

Purpose of the Appendix

1.1.

This Appendix (the “Appendix”) is made as part of the Plan (as defined herein whereas all terms not otherwise defined herein shall have the meaning ascribed to them in the Plan) and pursuant to the provisions of Section 102 of the Income Tax Ordinance (as defined herein).

1.2.

This Appendix governs grants of Options to Israeli Employees, either by a Trustee, or without a Trustee.

Definitions

As used herein, the following definitions shall apply:

2.1.

“Capital Gain Method” means choosing the alternative of capital gain method under Section 102.

2.2.

“Eligible Participant” means any employee as such term is defined in Section 102. Without derogating from the foregoing Eligible Participant shall include any employee or Office Holder (as such term is defined in the Companies Law) of the Company or any Subsidiary except for such persons that are deemed to be ‘Ba’al Shlita’ under Section 32 to the Income Tax Ordinance.

2.3.

"Deposit Date" means the date in which options were deposited with the Trustee for the benefit of a certain Participant.

2.4.

“Income Tax Authorities” mean the Israeli income tax authorities that are authorized to give approvals in relation with this Appendix and Option Grants to Eligible Participants.

2.5.

“Income Tax Ordinance” means the Israeli Income Tax Ordinance (New Version) 1961, as amended from time to time.

2.6.

“Labor Income Method” means choosing the alternative of labor income method under Section 102.

2.7.

“Participant” means any Eligible Participant who is granted with Options.

2.8.

“Plan” means the 2010 Incentive Option Plan this Appendix is attached to.

2.9.

“Realization Event” means, with respect to each Option Grant granted to a certain Participant, the earlier to occur of: (I) transfer of Securities from the Trustee to such Participant; or (II) the sale of Shares by the Trustee; or (III) one day before such Participant is no longer an Israeli resident (as provided for in Section 100A to the Income Tax Ordinance).

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2.10.

“Release Term” means: (i) in the case of Capital Gains Method, a period ending twenty four (24) months after the Deposit Date; (ii) In the case of Labor Income Method ‘Release Term’ shall mean a period ending twelve (12) months after the Deposit Date.

2.11.

“Section 102” means Section 102 to the Income Tax Ordinance as amended from time to time, and / or as superseded and any rules regulations or instructions promulgated or enacted under such Section 102.

2.12.

“Securities” mean Options subject to a certain Option Grant and Shares received subsequent exercise of such Options.

2.13.

“Tax Method” means either Capital Gains Method or Labor Income Method.

2.14.

“Trust” means a trust, maintained under the Trust Agreement entered into between the Company and the Trustee for administration of grant of Options under Section 102.

2.15.

“Trust Agreement” means the agreement between the Company and the Trustee as may be in effect from time to time specifying the duties and authorities of the Trustee.

2.16.

“Trust Assets” mean all Securities and other assets held in Trust for the benefit of the Participants pursuant to this Appendix and the Trust Agreement

2.17.

“Trustee” means __________ (and any successor Trustee) who was, or shall be appointed by the Board of Directors of the Company and approved by the Income Tax Authorities to hold the Trust Assets.

Provisions of the Appendix shall govern

The provisions of the Appendix shall supersede and govern in the case of any inconsistency or conflict arising between the provisions of the Appendix and the provisions of the Plan, provided, however, that this Appendix shall not be construed to grant Participant rights not consistent with the terms of the Plan, unless specifically provided herein.

Selection of Tax Method – Capital Gains Method

The Company chooses the Capital Gain Method (‘Maslul Revach Hon’). This choice may be changed in the future, by a Board resolution, provided, however, that the change in selection is permissible under the provisions of Section 102.

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Holding of Securities by the Trustee

5.1.

All Securities shall be issued to the Trustee to be held in the Trust for the benefit of the relevant Participants. All certificates representing Securities issued to the Trustee under this Appendix shall be deposited with the Trustee, and shall be held by the Trustee until such time that such Options or Shares are released from the Trust as herein provided.

5.2.

After the Release Term is over, a Participant shall be entitled to instruct the Trustee to transfer the Shares held for such Participant’s benefit to such Participant, provided, however, that the Trustee confirms that all applicable tax as set in Section 102 was actually paid and the Trustee holds a confirmation to that effect from Income Tax Authorities.

5.3.

In the case that the Company distributes dividends, than the amount of dividends with respect of Shares held in Trust shall be paid to the Participants that are the beneficial holders of such Shares, subject to deduction at source of the applicable tax.

Provisions governing this Appendix and Plan

Notwithstanding anything to the contrary in the Plan or elsewhere in this Appendix:

6.1.

The Plan shall have one, sole, Trustee.

6.2.

The Appendix shall be subject to one Tax Method, unless the provisions of Section 102 allow otherwise.

6.3.

The Participants shall not be entitled to cause a Realization Event to occur unless the Release Term is fulfilled.

6.4.

All rights or benefits that are received subsequent to the grant or exercise the Options or the Shares underlying such Options (including and not limited to bonus shares) shall be deposited with the Trustee until the end of the Release Term, and all such rights and benefits shall be subject to the Tax Method selected by the Company.

Effectiveness of the Appendix.

This Appendix shall become effective, and Option Grants may be granted hereunder only after receipt the required approvals under Section 102 from the Income Tax Authorities.

Additional limitations

8.1.

The Company shall not issue Options to a Participant unless such Participant confirmed in writing that he/she is aware of the provisions of Section 102 and the applicable Tax Method, and such Participant agreed in writing to the terms of the Trust Agreement, and that he/she shall not cause a Realization Event to occur before the Release Term is over. The form for the above confirmation shall be determined by the Committee, and shall be attached to the Plan as Exhibit A.

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8.2.

By accepting an Option Grant, each Participant agrees irrevocably to discharge the Trustee, the Company and any other office holder, employee or agent thereof from any liability with respect of any action or decision duly taken and bona fide executed in relation with the Plan, or relating to any Option Grant or Shares.

8.3.

The Trustee shall use the voting rights vested in any such shares issued upon the exercise of any Options granted under the Plan, in accordance with Exhibit C of the Plan.

Grant of Options not by a Trustee

Notwithstanding the above, the Company shall be entitled to allocate Option Grants not according to the Tax Methods, but by direct grant to Participants, provided, however, that the requirements of Section 102 are met.

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Exhibit A

Option Grant Letter Agreement

This letter agreement (the “Agreement”) is made is made as of _______ __, 20__, by and among Alcobra Ltd. (the “Company”), an Israeli Company with main place of business at 8 Menachem Plaut St., Rehovot 76326, Israel, and _________, an [Israeli citizen], I.D number _______ (the “Participant”).

Whereas

The Company adopted an Incentive Option Plan (together with applicable Appendixes, the “Plan”), a copy of which was reviewed by the Participant; and

Whereas

The Company resolved to grant to the Participant an Option Grant, subject to the terms and conditions herein; and

NOW, THEREFORE, it is agreed as follows:

All terms not defined herein shall have the meaning ascribed to them in the Plan.

The Company resolved to grant certain options (the “Option Grant”) to purchase the Company’s Ordinary Shares to the Participant.

The terms of the Option Grant are as follows:

3.1.

Number of Options: _______ (____________________).

3.2.

Vesting Schedule – as defined in the Plan / ___________________. [Choose the relevant alternative]

3.3.

Vesting Commencement Date: _____ __, 200_.

3.4.

Exercise Price per options: US$____ per share.

3.5.

[Acceleration Terms: ________________________]

The grant of the Option Grant is conditioned upon, and shall not become effective unless and until the Participant agreeing to the terms of this Agreement.

Contact details and personal details of the Participant as supplied by it:

5.1.

Full name: _________.

5.2.

Identification / registration number: _____________. [For Israeli citizens or entities]

5.3.

Address: ______________.

5.4.

Telephone (home): _________.

5.5.

Cellular Phone: ____________.

5.6.

Facsimile: __________.

5.7.

E-mail: ____________.

The grant is made in accordance with the terms of the Plan.

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Prior to signing this Agreement Participant had the reasonable opportunity to review the Plan and consult with his / her advisors (such advisors shall not include the Company or anyone on the Company’s behalf) as Participant deemed fit.

Participant hereby confirms that he /she received reasonable opportunity to review the Plan and understand its terms, and that Participant agrees to the terms and provisions of the Plan.

The Participant acknowledges and agrees that the Company may be merged, or acquired or sold to a third party, and in such case, by signing this Agreement, the Participant grants the Board, or anyone on behalf of the Board, the right to sign on behalf of such Participant any document or agreement reasonably necessary, in the Board’s discretion, in order to consummate such acquisition, merger or sale.

10.

Participant hereby confirms that he /she is aware of the provisions of Section 102 (the updated Section 102 is attached hereto as Schedule A) and the applicable Tax Method.

11.

Participant shall not exercise shares (as such term is defined in Section 102) before the Release Term.

12.

Participant agrees to the terms in the Trust Agreement (attached hereto as Schedule B).

[Sections 10 – 12 are applicable only to grants under Appendix A]

Sincerely yours,


Alcobra Ltd.			____________________ [Participant]

By:			Name:
Title:

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[for consultant use this form]

Option Grant Letter Agreement

Whereas

The Company adopted an Incentive Option Plan (together with applicable Appendixes, the “Plan”), a copy of which was reviewed by the Participant; and

Whereas

The Company resolved to grant to the Participant an Option Grant, subject to the terms and conditions herein; and

NOW, THEREFORE, it is agreed as follows:

All terms not defined herein shall have the meaning ascribed to them in the Plan.

The Company resolved to grant certain options (the “Option Grant”) to purchase the Company’s Ordinary Shares to the Participant.

The terms of the Option Grant are as follows:

3.1.

Number of Options: _______ (____________________).

3.2.

Vesting Schedule – as defined in the Plan / ___________________. [Choose the relevant alternative]

3.3.

Vesting Commencement Date: _____ __, 200_.

3.4.

Exercise Price per options: US$____ per share.

3.5.

[Acceleration Terms: ________________________]

The grant of the Option Grant is conditioned upon, and shall not become effective unless and until the Participant agreeing to the terms of this Agreement.

Contact details and personal details of the Participant as supplied by it:

5.1.

Full name: _________.

5.2.

Identification / registration number: _____________. [For Israeli citizens or entities]

5.3.

Address: ______________.

5.4.

Telephone (home): _________.

5.5.

Cellular Phone: ____________.

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5.6.

Facsimile: __________.

5.7.

E-mail: ____________.

The grant is made in accordance with the terms of the Plan.

Participant hereby confirms that he /she received reasonable opportunity to review the Plan and understand its terms, and that Participant agrees to the terms and provisions of the Plan.

Sincerely yours,


Alcobra Ltd.			____________________ [Participant]

By:			Name:
Title:

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Exhibit B

Form of Exercise Notice

To: Alcobra Ltd. (the “Company”)

Attention: Secretary, CFO

1. Exercise of Option. Effective as of today, _________ ___, 200_, I the undersigned ("Participant") hereby elects to exercise Participant's option to _________ Shares, each 0.01 NIS par value of the Company (hereinafter the: “Shares”), under and pursuant to the Company’s 2010 Incentive Option Plan (the "Plan") and the Option Grant Letter Agreement dated ________ __, 200_ (the "Option Agreement").

2. Delivery of Payment. Participant herewith delivers to the Company the full payment for the Shares, as set forth in the Option Agreement.

3. Representations of Participant. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.

4. Rights as Shareholder. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Shares, notwithstanding the exercise of the Option. The Shares shall be issued to Participant as soon as practicable after the Option is exercised. No adjustment shall be made for a dividend or other right for which the record date is prior to the date of issuance of the Shares.

5. Waiver of Rights. The Participant hereby waives any of the following rights to the extent such rights are attached to the Shares: (i) pre-emptive rights in relation to issuance of new securities in the Company; (ii) rights of first refusal in relation with any sale of shares of the Company; (iii) co-sale rights in relation with any sale of shares of the Company

5. Tax Consultation. Participant understands that Participant may suffer adverse tax consequences as a result of Participant's purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company or any Related Entity for any tax advice.

Submitted by:

PARTICIPANT

Signature:

Print Name:

Address:

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Exhibit C

ALCOBRA LTD.

IRREVOCABLE PROXY

The undersigned holder, being an [employee/service provider/Director] of Alcobra Ltd. (the “Company”), an Israeli corporation, or a subsidiary thereof, who holds (or will hold, after exercising options to purchase the Company’s Ordinary Shares) Ordinary Shares of the Company (the “Shares”), hereby appoint the Company’s Secretary (or another person, in the Company’s discretion) (the “Proxy Holder”) as my proxy to vote for me and on my behalf at shareholders meetings of the Company with respect to the Shares. The Proxy Holder is hereby appointed as my true and lawful proxy and attorney-in-fact, with full power of substitution and revocation, to attend meetings of the shareholders of the Company to be held at any time, or any continuation or adjournment thereof, to vote or take action by written consent with respect to the Shares, on all matters as the Proxy Holder shall determine in its discretion, including, without limitation, shareholders meetings, shareholders actions by written consent and waivers. In addition, the undersigned hereby appoint the Proxy Holder as my true and lawful proxy and attorney-in-fact, with full power of substitution, to receive all notices to which I am entitled to by virtue of contract or the Company’s Articles of Association. Furthermore, the undersigned hereby appoint the Proxy Holder as my exclusive true and lawful proxy and attorney-in-fact, with full power of substitution, to request from the Company and to receive all information or documentation which I am entitled to by virtue of contract, the Company’s Articles of Association or applicable law, as the Proxy Holder shall deem fit in its discretion.

This Proxy is irrevocable, for an indefinite time, or until another date as determined by the Company’s Compensation Committee or Board. Notwithstanding the foregoing, this Proxy shall terminate automatically upon the consummation of an initial public offering of the Company’s securities. The undersigned further agrees that this proxy is coupled with an interest.

In the case that the Shares shall be held for my benefit by a trustee (the “Trustee”), then this Proxy shall act as irrevocable instructions in writing to the Trustee, so the Trustee shall perform all of the above with respect to the Shares.

This Irrevocable Proxy shall be governed by and construed in accordance with the laws of the State of Israel, without regard to its conflict of laws principles.

This Irrevocable Proxy is effective as of ______, 200_.


Signature
Name:
Date:

Witness:
Witness Name:

	Acknowledged and Agreed to:

	Proxy Holder:

214\1\90400

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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 14, 2013 with respect to the financial statements of Alcobra Ltd. which appears in the Registration Statement on Form F-1 and related Prospectus of Alcobra Ltd., dated January 14, 2013.



Tel Aviv, Israel			/s/ KOST, FORER, GABBAY & KASIERER
January 14, 2013			A member of Ernst & Young Global