NEW YORK, March 20 /PRNewswire-FirstCall/ -- XTL
Biopharmaceuticals, Ltd. (NASDAQ:XTLB)(LSE:XTL)(TASE:XTL), a
biotechnology company focused on the acquisition, development and
commercialization of therapeutics for the treatment of infectious
diseases, with a focus on hepatitis C, today announced its
financial results for year ended December 31, 2005. Earlier today,
XTL announced that it has entered into definitive agreements with
institutional investors relating to a private placement of $28
million in gross proceeds through the issuance of ordinary shares,
represented by American Depositary Receipts (ADRs), and warrants.
JPMorgan Securities Inc. acted as the lead-placement agent. Brean
Murray, Carret & Co., LLC, Oppenheimer & Co., Inc., and
Punk, Ziegel & Company, L.P. served as co-placement agents in
the transaction. The Company has agreed to register the ordinary
shares, including those issuable upon exercise of the warrants,
under the Securities Act of 1933, list the ADRs for trading on the
Nasdaq Stock Market and to apply to the UK Listing Authority for
the new ordinary shares to be admitted to trading on the London
Stock Exchange. The proceeds of the private placement will be held
in escrow until the securities are registered and listed for
trading. The Company believes that proceeds raised from this
offering will be sufficient to fund its operations into 2008. At
December 31, 2005, the Company had cash and cash equivalents of
$13.4 million, compared to cash, cash equivalents and short-term
bank deposits of $22.9 million at December 31, 2004. The
year-over-year decrease of $9.5 million is attributable primarily
to operating expenses associated with the development of our
hepatitis C product candidates, XTL-2125 and XTL-6865, as well as
to the development of the DOS hepatitis C pre-clinical program,
recently acquired from Vivo Quest, Inc. This decrease was partially
offset by approximately $1.5 million in proceeds from the exercise
of share options during 2005. The loss for the year ended December
31, 2005 was $14,015,000, or $0.08 per ordinary share, compared to
the loss of $16,473,000, or $0.12 per ordinary share, for the year
ended December 31, 2004, representing a decrease in net loss of
$2,458,000. The decrease in loss was primarily attributable to a
decrease of $4,672,000 in research and development costs and due to
a $583,000 reduction in business development costs. This was
partially offset by a $1,783,000 charge associated with acquired
in-process research and development pursuant to the VivoQuest
license and asset purchase agreements that were completed in
September 2005, and an increase of $1,323,000 in general
administrative expenses. In 2005, general and administrative
expenses included a non-cash compensation charge of $2,641,000
associated with stock options in accordance with FAS 123R, that was
adopted by the Company in 2005. Ron Bentsur, Chief Executive
Officer of XTL, commented, "First, I want to take this opportunity
to thank the investors who participated in our highly successful
private placement which priced yesterday in which we raised $28
million. This transaction serves as a strong first step in
introducing XTL to the U.S. marketplace. Mr. Bentsur added, "2005
was an important year for the Company. We completed a refocusing
plan designed to enable the Company to focus its resources on the
development of its lead programs through to clinical proof-of
principle. We initiated a Phase 1 clinical trial of XTL-6865 for
the treatment of hepatitis C chronic patients in September 2005 and
we are weeks away from commencing dosing into our
placebo-controlled Phase 1 study for XTL-2125, also in hepatitis C
chronic patients. We further strengthened our hepatitis C program
with the completion of the Vivo Quest transaction in September
2005. On the HepeX-B front, we successfully completed the
transition of the HepeX-B development activities to Cubist and were
very pleased with the Phase 2b clinical trial results released at
year's end." Contacts: XTLbio Ron Bentsur, Chief Executive Officer
Tel: +1-212-531-5971 ABOUT XTL BIOPHARMACEUTICALS LTD. XTL
Biopharmaceuticals Ltd. ("XTL") is engaged in the acquisition,
development and commercialization of therapeutics for the treatment
of infectious diseases, with a focus on hepatitis C. XTL is
developing XTL-2125 - a small molecule, non-nucleoside inhibitor of
the hepatitis C virus polymerase. XTL-2125 is expected to enter
Phase 1 clinical trial in chronic hepatitis C patients in 1H 2006.
XTL is also developing XTL-6865 - a combination of two monoclonal
antibodies against the hepatitis C virus - presently in Phase 1
clinical trials in patients with chronic hepatitis C. XTL's
hepatitis C pipeline also includes several families of pre-clinical
hepatitis C small molecule inhibitors. In addition, XTL has
out-licensed to Cubist Pharmaceuticals an antibody therapeutic
against hepatitis B, HepeX-B, which has recently completed a Phase
2b clinical study in transplant patients. XTL is publicly traded on
the NASDAQ, London, and Tel-Aviv Stock Exchanges
(NASDAQ:XTLB)(LSE:XTL)(TASE:XTL). Cautionary Statement Some of the
statements included in this press release, particularly those
anticipating future financial performance, clinical and business
prospects for our clinical compounds for hepatitis C, XTL-2125 and
XTL-6865, growth and operating strategies and similar matters, may
be forward-looking statements that involve a number of risks and
uncertainties. For those statements, we claim the protection of the
safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. Among the factors that
could cause our actual results to differ materially are the
following: our ability to successfully complete cost-effective
clinical trials for the drug candidates in our pipeline which would
affect our ability to continue to fund our operations with our
available cash reserves, we may not be able to meet anticipated
development timelines for the drug candidates in our pipeline due
to recruitment, clinical trial results, manufacturing capabilities
or other factors; and other risk factors identified from time to
time in our reports filed with the Securities and Exchange
Commission and the London Stock Exchange . Any forward-looking
statements set forth in this press release speak only as of the
date of this press release. We do not intend to update any of these
forward-looking statements to reflect events or circumstances that
occur after the date hereof. This press release and prior releases
are available at http://www.xtlbio.com/. The information in our
website is not incorporated by reference into this press release
and is included as an inactive textual reference only. XTL
BIOPHARMACEUTICALS LTD. (A Development Stage Company) CONSOLIDATED
BALANCE SHEETS (in thousands of U.S. dollars) December 31 2005 2004
___________ ___________ A s s e t s CURRENT ASSETS: Cash and cash
equivalents 13,360 12,788 Short-term bank deposits -- 10,136
Accounts receivable - trade -- 543 Accounts receivable - other 431
306 ___________ ___________ T o t a l current assets 13,791 23,773
___________ ___________ EMPLOYEE SEVERANCE PAY FUNDS 449 830
___________ ___________ RESTRICTED LONG-TERM DEPOSIT 110 113
___________ ___________ PROPERTY AND EQUIPMENT, NET 762 908
___________ ___________ INTANGIBLE ASSETS, NET -- 39 ___________
___________ T o t a l assets 15,151 25,624 ========= =========
Liabilities and shareholders' equity CURRENT LIABILITIES: Accounts
payable and accruals 2,007 3,134 Deferred gain 399 399 ___________
___________ T o t a l current liabilities 2,406 3,533 ___________
___________ LIABILITY IN RESPECT OF EMPLOYEE SEVERANCE OBLIGATIONS
695 1,291 DEFERRED GAIN 798 1,198 ___________ ___________
COMMITMENTS AND CONTINGENCIES (Note 7) T o t a l liabilities 3,899
6,022 ___________ ___________ SHAREHOLDERS' EQUITY: Ordinary shares
of NIS 0.02 par value (authorized: 300,000,000 as of December 31,
2005 and 2004; issued and outstanding: 173,180,441 as of December
31, 2005 and 168,079,196 as of December 31, 2004) 864 841
Additional paid in capital 110,179 104,537 Deficit accumulated
during the development (99,791) (85,776) stage ___________
___________ T o t a l shareholders' equity 11,252 19,602
___________ ___________ T o t a l liabilities and shareholders'
equity 15,151 25,624 ========= ========= Michael Weiss Ron Bentsur
Chairman of the Board of Chief Executive Officer Directors Date of
approval of the financial statements: March 17, 2006 The
accompanying notes are an integral part of the financial
statements. XTL BIOPHARMACEUTICALS LTD. (A Development Stage
Company) CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands of
U.S. dollars, except share and per share amounts) Period from March
9, 1993* Year ended December 31 to December 31, 2005 2004 2003 2005
(Unaudited) ___________ ___________ ___________ ___________
REVENUES: Reimbursed out-of-pockets expenses 2,743 3,269 -- 6,012
License 454 185 -- 639 ___________ ___________ ___________
__________ 3,197 3,454 -- 6,651 COST OF REVENUES: Reimbursed
out-of-pockets expenses 2,743 3,269 -- 6,012 License (with respect
to 54 32 -- 86 royalties) ___________ ___________ ___________
__________ 2,797 3,301 -- 6,098 GROSS MARGIN 400 153 -- 553
___________ ___________ ___________ __________ RESEARCH AND
DEVELOPMENT COSTS (includes non-cash compensation of $112, $30 and
$0, in 2005, 2004 and 2003, respectively) 7,313 11,985 14,022
82,890 L E S S - PARTICIPATIONS -- -- 3,229 10,950 ___________
___________ ___________ __________ 7,313 11,985 10,793 71,940 IN -
PROCESS RESEARCH AND DEVELOPMENT COSTS 1,783 -- -- 1,783 GENERAL
AND ADMINISTRATIVE EXPENSES (includes non-cash compensation of
$2,641, $2 and $0, in 2005, 2004 and 2003, respectively) 5,457
4,134 3,105 29,012 BUSINESS DEVELOPMENT COSTS (includes non-cash
compensation of $10 in 2005, and $0, in 2004 and 2003, 227 810 664
4,513 respectively) __________ ___________ ___________ __________
OPERATING LOSS 14,380 16,776 14,562 106,695 FINANCIAL 443 352 352
7,143 INCOME - net __________ ___________ ___________ __________
LOSS BEFORE INCOME TAXES 13,937 16,424 14,210 99,552 INCOME TAXES
78 49 78 239 ___________ ___________ ___________ __________ LOSS
FOR THE 14,015 16,473 14,288 99,791 PERIOD ========= =========
========= ======== BASIC AND DILUTED LOSS PER ORDINARY SHARE $0.08
$0.12 $0.13 ========= ========= ========= WEIGHTED AVERAGE NUMBER
OF SHARES USED IN COMPUTING BASIC AND DILUTED LOSS PER ORDINARY
SHARE 170,123,003 134,731,766 111,712,916 ========= =========
========= * Incorporation Date The accompanying notes are an
integral part of the financial statements. XTL BIOPHARMACEUTICALS
LTD. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH
FLOWS (in thousands of U.S. dollars) Period from March 9, 1993 (a)
Year ended December 31 to December 31, 2005 2004 2003 2005
(Unaudited) ________ ________ ________ ________ CASH FLOWS FROM
OPERATING ACTIVITIES: Loss for the period (14,015) (16,473)
(14,288) (99,791) Adjustments to reconcile loss to net cash used in
operating activities: Depreciation and 242 319 440 2,829
amortization Linkage difference on 3 -- -- 3 restricted long-term
deposits Acquisition of in process 1,783 -- -- 1,783 research and
development Loss on disposal of 6 1 2 18 property and equipment
Increase (decrease) in liability in respect of employee severance
obligations (159) 30 129 1,228 Impairment charges 26 -- 354 380
Loss (gain) from sales of -- 13 (27) (410) available for sale
securities Stock based compensation expenses (employee and non-
employee) 2,763 32 -- 3,278 Loss (gain) on amounts funded in
respect of employee severance pay funds (6) (4) 5 (91) Changes in
operating assets and liabilities: Decrease (increase) in 543 (543)
-- -- accounts receivable - trade Decrease (increase) in (125) 400
(440) (431) accounts receivable - other Increase (decrease) in
(1,127) 133 499 2,007 accounts payable and accruals Increase
(decrease) in (400) 1,597 -- 1,197 deferred gain ______ ________
________ ________ Net cash used in (10,466) (14,495) (13,326)
(88,000) operating activities ________ ________ ________ ________
CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in short-term 10,136
7,193 14,724 -- deposits Restricted long-term -- 46 (20) (113)
deposits, net Investment in available -- -- (71) (3,363) for sale
securities Proceeds from sales of -- 722 1,048 3,773 available for
sale securities Employee severance pay (50) (136) (112) (891) funds
Purchase of property and (38) (180) (81) (4,021) equipment Proceeds
from disposals 27 5 2 149 of property and equipment Acquisition in
respect of (548) -- -- (548) license and purchase of ________
________ ________ ________ assets Net cash provided by 9,527 7,650
15,490 (5,014) (used in) investing ________ ________ ________
________ activities XTL BIOPHARMACEUTICALS LTD. (A Development
Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands of U.S dollars) Period from March 9, 1993 (a) Year
ended December 31 to December 31, 2005 2004 2003 2005 (Unaudited)
________ ________ ________ ________ CASH FLOWS FROM FINANCING
ACTIVITIES: Issuance of share capital - -- 15,430 -- 104,371 net of
share issuance expenses Exercise of share warrants and 1,511 19 4
2,003 stock options Proceeds from long-term debt -- -- -- 399
Proceeds from short-term debt -- -- -- 50 Repayment of long-term
debt -- -- -- (399) Repayment of short-term debt -- -- -- (50)
________ ________ ________ ________ Net cash provided by financing
1,511 15,449 4 106,374 activities ________ ________ ________
________ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 572
8,604 2,168 13,360 BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 12,788 4,184 2,016 -- ________ ________
________ ________ BALANCE OF CASH AND CASH EQUIVALENTS AT END OF
PERIOD 13,360 12,788 4,184 13,360 ======= ======= ======= =======
Supplementary information on investing and financing activities not
involving cash flows: Issuance of ordinary shares in respect of
license, and purchase of 1,391 -- -- 1,391 assets Conversion of
convertible -- -- -- 1,700 subordinated debenture into shares
Supplemental disclosures of cash flow information: Income taxes
paid (mainly - tax advance in respect of excess expenses) 49 107
161 321 ======= ======= ======= ======= Interest paid -- -- -- 350
======= ======= ======= ======= (a) Incorporation Date The
accompanying notes are an integral part of the financial statements
XTL BIOPHARMACEUTICALS LTD. (A Development Stage Company) NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS 1) GENERAL The consolidated
financial statements of the Company are presented on a going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The
Company has experienced a significant loss from operations. For the
year ended December 31, 2005, the Company incurred a net loss of
$14 million and had an accumulated deficit of $100 million. These
matters raise substantial doubt about the Company's ability to
continue as a going concern. The Company's ability to continue as a
going concern will depend upon its ability to raise additional
capital in the short term. The Company is actively pursuing raising
additional capital to fund its operations although there is no
assurance that such capital will be available to the Company.
Failure to secure additional capital or to expand its revenue base
would result in the Company depleting its available funds and not
being able to pay its obligations when they become due. The
accompanying consolidated 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 possible
inability of the Company to continue as a going concern. RESEARCH
AND DEVELOPMENT COSTS AND PARTICIPATIONS Research and development
costs are expensed as they are incurred and consist primarily of
salaries and related personnel costs, fees paid to consultants and
other third-parties for clinical and laboratory development,
facilities-related and other expenses relating to the design,
development, testing, and enhancement of product candidates.
Participations from government (and from others) for development of
approved projects are recognized as a reduction of expense as the
related costs are incurred. In connection with purchase of assets,
amounts assigned to intangible assets to be used in a particular
research and development project that have not reached
technological feasibility and have no alternative future use are
charged to in- process research and development costs at the
purchase date. 2) REVENUE RECOGNITION The Company recognizes the
revenue from the licensing agreement with Cubist under the
provisions of the EITF 00-21 "Revenue Arrangements with Multiple
Deliverables" and SAB 104 "Revenue Recognition." Under those
pronouncements, companies are required to allocate revenues from
multiple-element arrangements to the different elements based on
sufficient objective and reliable evidence of fair value. Since the
Company does not have the ability to determine the fair value of
each unit of accounting, the agreement was accounted for as one
unit of accounting, after failing the separation criteria, and the
Company recognizes each payment on the abovementioned agreement
ratably over the expected life of the arrangement. In addition,
through 2005, Cubist had requested that the Company provide
development services to be reimbursed by Cubist. As required by
EITF 01-14 "Income Statement Characterization of Reimbursements
Received for "Out-of-Pocket" Expenses Incurred," amounts paid by
the Company, as a principal, are included in the cost of revenues
as reimbursable out-of-pocket expenses, and the reimbursements the
Company receives as a principal are reported as reimbursed
out-of-pocket revenues. 3) STOCK-BASED COMPENSATION Prior to
January 1, 2005, the Company accounted for employee stock-based
compensation under the intrinsic value model in accordance with
Accounting Principles Board Opinion No. 25 - "Accounting for Stock
Issued to Employees" ("APB 25") and related interpretations. Under
APB 25, compensation expense is based on the difference, if any, on
the date of the grant, between the fair value of the Company's
ordinary shares and the exercise price. When the number of the
underlying shares or the exercise price is not known at the grant
date, the Company updated, at each period, the compensation
expenses until such data becomes known. In addition, in accordance
with FAS 123 No. "Accounting for Stock-Based Compensation" ("FAS
123"), which was issued by the Financial Accounting Standards Board
("FASB"), the Company disclosed pro forma data assuming it had
accounted for employee share option grantsusing the fair
value-based method defined in FAS 123. In December 2004, the FASB
issued the revised FAS No. 123R "Share - Based Payment" ("FAS
123R"), which addresses the accounting for share-based payment
transactions in which a company obtains employee services in
exchange for (a) equity instruments of a company or (b) liabilities
that are based on the fair value of a company's equity instruments
or that may be settled by the issuance of such equity instruments.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107
("SAB 107") regarding the SEC's interpretation of FAS 123R. FAS
123R eliminates the ability to account for employee share-based
payment transactions using APB 25, and requires instead that such
transactions be accounted for using the grant-date fair value based
method. FAS 123R is effective as of the annual reporting period
that begins after June 15, 2005. Early adoption of FAS 123R is
encouraged. FAS 123R applies to all awards granted or modified
after the effective date of the standard. In addition, compensation
cost for the unvested portion of previously granted awards that
remain outstanding on the effective date shall be recognized on or
after the effective date, as the related services are rendered,
based on the awards' grant-date fair value as previously calculated
for the pro-forma disclosure under FAS 123. The Company implemented
early adoption of FAS 123R, as of January 1, 2005, using the
modified prospective application transition method, as permitted by
FAS 123R. Under such transition method, the Company's financial
statements for periods prior to the effective date of FAS 123R
(January 1, 2005) have not been restated. As a result of the early
adoption, the Company reduced the deferred share-based compensation
against the additional paid in capital. The fair value of stock
options granted with service conditions, was determined using the
Black-Scholes valuation model, which is consistent with the
Company's valuation techniques previously utilized for options in
footnote disclosures required under FAS 123, as amended by FAS No.
148, "Accounting for Stock-Based Compensation - Transition and
Disclosure." Such value is recognized as an expense over the
service period, net of estimated forfeitures, using the
straight-line method under FAS 123R. The fair value of stock
options granted with market conditions, was determined using a
lattice model that incorporated a Monte Carlo Simulation method.
Such value is recognized as an expense using the graded method
under FAS123R. The estimation of stock awards that will ultimately
vest requires significant judgment, and to the extent actual
results or updated estimates differ from the Company's current
estimates, such amounts will be recorded as a cumulative adjustment
in the period those estimates are revised. The Company considers
many factors when estimating expected forfeitures, including types
of awards, employee class, and historical experience. Actual
results, and future changes in estimates, may differ substantially
from the Company's current estimates. Both the Black-Scholes model
and a lattice model incorporating the Monte Carlo simulation method
take into account a number of valuation parameters. The application
of FAS 123R had the following effect on reported amounts, for the
year ended December 31, 2005, relative to amounts that would have
been reported using the intrinsic value method under previous
accounting ($ in thousands, except per share amounts): Using Impact
of the As previous adoption of reported accounting FAS 123R
_____________ _____________ ___________ Loss for the year 12,130
1,885 14,015 Basic and diluted loss per (0.07) (0.08) ordinary
share The following table illustrates the effect on loss and loss
per share assuming the Company had applied the fair value
recognition provisions of FAS 123 to its stock-based employee
compensation, for years presented prior to the adoption of FAS
123R: Period from March 9, 1993* Year ended December 31 to December
31, 2004 2003 2004 (Unaudited) ($ in thousands except per share
amounts) ________________________________________ Loss for the
16,473 14,288 85,776 period, as reported Deduct: stock- based
employee compensation expense, included in -- -- (483) reported
loss Add: stock-based employee compensation expense determined
under fair value method for all 239 821 6,355 awards __________
__________ __________ Loss - pro-forma 16,712 15,109 91,648
__________ __________ __________ Basic and diluted loss per share:
As reported 0.12 0.13 ========= ========= Pro-forma 0.12 0.14
========= ========= The Company accounts for equity instruments
issued to third party service providers (non - employees) in
accordance with the fair value method prescribed by FAS123, and as
of January 1, 2005, by FAS 123R, and the provisions Emerging Issues
Task Force Issue No. 96-18, "Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling Goods or Services" ("EITF 96-18"). 4) LICENSE
AGREEMENT WITH CUBIST The Company entered into a licensing
agreement with Cubist in June 2004, under which the Company granted
to Cubist an exclusive, worldwide license (with the right to
sub-license) to commercialize HepeX-B and any other product
containing an hMAb, or humanized monoclonal antibody, or fragment
directed at the hepatitis B virus owned or controlled by the
Company. See Note 3 for the revenue recognition treatment. In
August 2005, the Company amended its licensing agreement with
Cubist. Under the terms of the agreement, as amended, Cubist paid
the Company an initial up front nonrefundable payment of $1 million
upon the signing of the agreement, and a payment of $1 million (out
of which $454,000 and $185,000 was recorded as revenue in the years
ended December 31, 2005 and 2004, respectively) as collaboration
support paid in 2004 (instead of a total of $2 million to be paid
in installments through 2005, as per the original agreement).
Furthermore under the terms of the agreement, as amended, Cubist
shall make a payment in the amount of $3 million upon achievement
of certain regulatory milestones until the end of 2007 or an amount
of $2 million upon achievement of the same certain regulatory
milestones until the end of 2008. Under this agreement, as amended,
the Company was responsible for certain clinical and product
development activities of HepeX-B through August 2005, at the
expense of Cubist. The Company has transferred full responsibility
for completing the development of HepeX-B to Cubist. Cubist will be
responsible for completing the development and for registration and
commercialization of the product worldwide. The Company accounts
for the payments resulting from the agreement, as follows (i) the
$1 million up-front fee and the collaboration support payments are
recorded as deferred revenue upon receipt, and amortized through
2008 or date regulatory approval are reached, if earlier, and (ii)
the milestone contingent payments will be recorded as revenue when
regulatory approval milestones are obtained. Under the agreement,
the Company is entitled to receive royalties from net sales by
Cubist, if any, generally ranging from 10% to 17%, depending on
levels of net sales achieved by Cubist, subject to certain
deductions based on patent protection of HepeX-B in that territory,
total cost of HepeX-B development, third party license payments and
indemnification obligations. The agreement expires on the later of
the last valid patent claim covering HepeX-B to expire, or 10 years
after the first commercial sale of HepeX-B on a country-by-country
basis. Under a research and license agreement with Yeda, the
Company paid during 2004, $250,000 with respect to the $1 million
up front fee received in June 2004, out of which $54,000 and
$32,000 was recorded as cost of revenues in 2005 and 2004,
respectively. The balance of the deferred gain, related to the
revenue from Cubist, as of December 31, 2004 and 2005, was
presented in the balance sheet, net of the above mentioned payment,
as follows: December 31, 2005 2004 ($ in thousands)
______________________________ Deferred revenue 1,361 1,815 Less -
Deferred expenses related to 164 218 Yeda ________ ________
Deferred gain 1,197 1,597 ======= ======= 6. LICENSE AND ASSET
PURCHASE AGREEMENT WITH VIVOQUEST During September 2005, the
Company licensed perpetually from VivoQuest Inc. ("VivoQuest"), a
US privately-held company, which is a development stage enterprise,
exclusive worldwide rights to VivoQuest's intellectual property and
technology, covering a proprietary compound library, including
VivoQuest's lead hepatitis C compounds. In addition, the Company
acquired from VivoQuest certain assets, including VivoQuest's
laboratory equipment, assumed VivoQuest's lease of its laboratory
space and certain research and development employees. The Company
executed this transaction in order to broaden its pipeline and
strengthen its franchise in infectious diseases. In connection with
the VivoQuest transaction (the "Transaction"): (1) the Company
issued the fair value equivalent of $1,391,000 of its ordinary
shares for a total of 1,314,420 ordinary shares (calculated based
upon the average of the closing prices per share for the period
commencing two days before, and ending two days after the closing
of the transaction), made cash payments of approximately $400,000
to cover VivoQuest's operating expenses prior to the closing of the
Transaction, and incurred $148,000 in direct expenses associated
with the Transaction; (2) the Company agreed to make additional
contingent milestone payments triggered by certain regulatory and
sales targets, totaling up to $34.6 million, $25.0 million of which
will be due upon or following regulatory approval or actual product
sales, and are payable in cash or ordinary shares at the Company's
election. No contingent consideration has been paid pursuant to the
license agreement as of the balance sheet date, because none of the
milestones have been achieved. The contingent consideration will be
recorded as part of the acquisition costs in the future; and (3)
the Company agreed to make royalty payments on future product
sales. As VivoQuest is a development stage enterprise that had not
yet commenced its planned principal operations, the Company
accounted for the Transaction as an acquisition of assets pursuant
to the provisions of FAS No. 142 "Goodwill and Other Intangible
Assets." Accordingly, the purchase price was allocated to the
individual assets acquired, based on their relative fair values,
and no goodwill was recorded. The purchase price consisted of: ($
in thousands) _____________ Fair value of the Company's ordinary
shares 1,391 Cash consideration paid 400 Direct expenses associated
with the 148 Transaction _____________ Total purchase price 1,939
=========== The tangible and intangible assets acquired consisted
of the following: ($ in thousands) _____________ Tangible assets
acquired - property and equipment 113 Intangible assets acquired:
In-process research and development 1,783 Assembled workforce 43
___________ Total intangible assets acquired 1,826 ___________
Total tangible and intangible assets 1,939 acquired ___________ The
fair value of the in-process research and development acquired was
estimated by management with the assistance of an independent
third-party appraiser, using the "income approach." In the income
approach, fair value is dependent on the present value of future
economic benefits to be derived from ownership of an asset. Central
to this approach is an analysis of the earnings potential
represented by an asset and of the underlying risks associated with
obtaining those earnings. Fair value is calculated by discounting
future net cash flows available for distribution to their present
value at a rate of return, which reflects the time value of money
and business risk. In order to apply this approach, the expected
cash flow approach was used. Expected cash flow is measured as the
sum of the average, or mean, probability-weighted amounts in a
range of estimated cash flows. The expected cash flow approach
focuses on the amount and timing of estimated cash flows and their
relative probability of occurrence under different scenarios. The
probability weighted expected cash flow estimates are discounted to
their present value using the risk free rate of return, since the
business risk is incorporated in adjusting the projected cash flows
to the probabilities for each scenario. The risk-free discount rate
assumed for the valuation of the license to the intellectual
property is 4.6%, based upon the yields on long-term U.S. treasury
securities, as of the valuation date. The fair value of the
assembled workforce acquired was estimated by management with the
assistance of an independent third-party appraiser, based upon the
cost approach. The cost approach measures the fair- value based on
the cost of reproducing or replacing an asset, less depreciation
and amortization from physical deterioration and functional or
economic obsolescence, if present and measurable. According to this
approach, the estimated fair-value of the assembled workforce is
based on the cost of replacing VivoQuest's key employees, which
were hired by the Company as a part of Transaction. The amount
allocated to in-process research and development represents the
relative fair value of purchased in-process research and
development that, as of the transaction date, have not reached
technological feasibility and have no proven alternative future
use. Accordingly, they were charged in the consolidated statement
of operations as "in- process research and development costs." The
assembled workforce that was acquired is being amortized using the
straight-line method over its estimated useful life of three years,
and is classified as "intangible assets" on the Company's balance
sheet. For the year ended December 31, 2005, amortization of the
assembled workforce was $4,000. Estimated amortization expenses of
the assembled workforce for future years subsequent to December 31,
2005 are $14,000 for 2006 and 2007, and $11,000 for 2008. 7.
SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION a. Short-term bank
deposits The deposits are denominated in dollars and bear a
weighted average annual interest rate of 4.23 % as of December 31,
2005 (as of December 31, 2004 - 1.81%). b. Accounts receivable -
other: December 31 2005 2004 ($ in thousands)
________________________ Prepaid expenses 285 165 Employees 75 24
Value added tax authorities 17 101 Other 54 16 __________
__________ 431 306 __________ __________ c. Accounts payable and
accruals: December 31 2005 2004 ($ in thousands)
________________________ Suppliers 655 1,108 Accrued expenses 940
1,337 Institutions and employees in respect of salaries and related
benefits 250 294 Provision for vacation pay and recreation 160 385
pay Other 2 10 _________ __________ 2,007 3,134 _________
__________ Statements of operations: d. Research and development
costs: Period from March 9, 1993 Year ended December 31 to December
31, 2005 2004 2003 2005 (Unaudited) ($ in thousands)
____________________________________________________ Wages,
salaries and related benefits (includes non-cash compensation of
$67 in 2005, and $0 in 2004 and 2,764 2,776 3,450 23,709 2003)
Outside 2,054 6,430 6,799 35,910 service providers Lab supplies 558
754 1,128 8,964 Consultants (includes non- cash compensation of $45
in 2005, $30 in 2004 531 549 494 3,725 and $0 in 2003) Rent and 752
725 866 4,756 maintenance Impairment 26 354 380 loss Depreciation
212 277 369 2,929 and amortization Other 416 474 562 2,517 ________
_________ __________ _________ 7,313 11,985 14,022 82,890 ________
_________ __________ _________ e. General and administrative
expenses: Period from March 9, 1993 Year ended December 31 to
December 31, 2005 2004 2003 2005 (Unaudited) ($ in thousands)
____________________________________________________ Wages,
salaries and related benefits (includes non-cash compensation of $5
in 2005, and $0 in 2004 and 2003) 454 1,890 1,244 11,534 Corporate
140 289 228 2,350 communications Professional 890 647 564 4,405
fees Director fees and related (includes non-cash compensation of
$2,636 in 2005, and 2,821 243 183 4,208 $0 in 2004 and 2003) Rent
and 91 90 104 956 maintenance Communications 25 34 33 220
Depreciation 30 42 70 619 and amortization Patent 174 271 125 1,191
registration fees Other 832 628 554 3,529 _________ ________
__________ __________ 5,457 4,134 3,105 29,012 _________ _______
__________ __________ f. Business development costs: Period from
March 9, 1993 Year ended December 31 to December 31, 2005 2004 2003
2005 (Unaudited) ($ in thousands)
____________________________________________________ Wages,
salaries and related Benefits (includes non-cash compensation of
$10 in 2005, and $0 in 171 410 408 2,672 2004 and 2003) Travel 22
36 136 764 Professional 34 364 120 1,077 fees _________ ________
__________ ________ 227 810 664 4,513 _________ ________ __________
________ g. Financial income, net: March 9, 1993 Year ended
December 31 to December 31, 2005 2004 2003 2005 (Unaudited) ($ in
thousands) ___________________________________________________
Financial income: Interest 503 297 458 9,228 income Foreign
exchange differences gain -- 67 -- 203 Gain from available for sale
securities -- 13 62 13 Other -- -- -- 156 ________ ________
________ ________ 503 377 520 9,600 ________ ________ ________
________ Financial expenses: Foreign exchange differences loss 39
-- 148 1,960 Interest -- -- 374 expense Loss from available for
sale securities -- -- -- 14 Other 21 25 20 109 ________ ________
________ ________ 60 25 168 2,457 ________ ________ ________
________ Financial 443 352 352 7,143 income, net ======== ========
======= ======== 8. SUBSEQUENT EVENT During March 2006, the Audit
Committee and the Board of Directors of the Company approved the
grant to the CEO of 7,000,000 options, to the Chairman 9,898,719
options and to a non-executive director 750,000 options, to
purchase ordinary shares of the Company. All of such options are
subject to vesting of which one-third is based on service period,
and the remainder is based on achievement of certain milestones
linked to the Company's valuation on the public markets. The option
grant to the Chairman and to the non-executive director is subbject
to shareholder approval DATASOURCE: XTL Biopharmaceuticals Ltd.
CONTACT: Contacts: XTLbio, Ron Bentsur, Chief Executive Officer
Tel: +1-212-531-5971
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