U.S. DOLLARS IN THOUSANDS
The accompanying notes are an integral part of these interim condensed consolidated financial statements
The accompanying notes are an integral part of these interim condensed consolidated financial statements
The accompanying notes are an integral part of these interim condensed consolidated financial statements
The accompanying notes are an integral part of these interim condensed consolidated financial statements
A.
|
New York Global Innovations Inc. (the "Predecessor Company") was originally incorporated under the laws of the State of Nevada, on April 22, 1997. On July 8, 2003, the Predecessor Company effected a reincorporation from Nevada to Delaware through a merger with and into its wholly-owned subsidiary, Inksure Technologies (Delaware) Inc., which was incorporated on September 30, 2003. The surviving corporation in the merger was Inksure Technologies (Delaware) Inc., which thereupon renamed itself Inksure Technologies Inc. In 2014, following the sale of its assets to Spectra Systems Corporation, the Predecessor Company changed its name to New York Global Innovations Inc.
|
On August 23, 2016, the Predecessor Company consummated an agreement and plan of merger (the “Merger Agreement”) with Artemis Pharma Inc. (formerly, Artemis Therapeutics Inc.), a Delaware corporation (“Artemis”). Pursuant to the terms of the Merger Agreement, in exchange for the outstanding shares of Artemis, the Company issued to Artemis stockholders a total of 460,000 shares (as adjusted to reflect the reverse stock split) of the Predecessor Company's common stock and series B convertible preferred stock convertible into 3,426,384 shares (as adjusted to reflect the reverse stock split) (the “Merger”). All series B preferred shares were converted to common shares prior to December 31, 2016. Immediately following the consummation of the Merger Agreement, Artemis stockholders owned approximately 82% of the Company’s common stock, on a fully diluted basis. Following the issuance and sale of the Company’s Series A Preferred Stock and common stock to an investor, ownership was reduced, after which Artemis stockholders owned approximately 70% of the Company’s common stock, on a fully diluted basis. (refer to note 7).
As a result of the Merger, Artemis became a wholly owned subsidiary of the Company. Artemis’ fiscal year end is December 31.
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
The Merger between the Predecessor Company and Artemis was accounted for as a reverse recapitalization and, as a result of the Merger, the Predecessor Company ceased to be a shell company. As the stockholders of Artemis received the largest ownership interest in the Predecessor Company, Artemis was determined to be the "accounting acquirer" in the reverse acquisition. As a result, the historical financial statements of the Predecessor Company were replaced with the historical financial statements of Artemis. Following the Merger, the Predecessor Company and its subsidiary, Artemis, are collectively referred to as the "Company".
B.
|
Establishment of Artemis (the "accounting acquirer"):
|
Artemis was incorporated in the State of Delaware on April 19, 2016. Artemis is engaged in the development of agents for the prevention and treatment of severe and potentially life-threatening infectious diseases. Artemis’s lead product candidate, Artemisone, is a clinical-stage synthetic artemisinin derivative with antiviral and antiparasitic properties. Artemis expects to advance Artemisone initially as an antiviral agent to address unmet clinical needs in the growing population of immunocompromised patients infected with human cytomegalovirus (HCMV), and other related clinical indications.
On May 31, 2016, Artemis entered into a license agreement with Hadasit Medical Research Services & Development Ltd. (“Hadasit”), and Hong Kong University of Science and Technology R and D Corporation Limited (“RDC”), pursuant to which Artemis acquired a worldwide, royalty-bearing license to make any and all use of certain patents and know-how owned by the Hadasit and RDC relating to Artemisone. Artemis will rely primarily on the license agreement with respect to the development of Artemisone, its lead product candidate.
GOING CONCERN:
To date, Artemis has not generated revenues from its activities and has incurred substantial operating losses. Management expects Artemis to continue to generate substantial operating losses and to continue to fund its operations primarily through, additional raises of capital.
Such conditions raise substantial doubts about the Company’s ability to continue as a going concern. Management’s plan includes raising funds from outside potential investors. However, there is no assurance such funding will be available to the Company or that it will be obtained on terms favorable to the Company or will provide the Company with sufficient funds to meet its objectives. These financial statements do not include any adjustments relating to the recoverability and classification of assets, carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to continue as a going concern.
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A.
|
Unaudited Interim Financial Statements
|
The
accompanying unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included (consisting only of
normal
recurring adjustments except as otherwise discussed). For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Operating results for the three and six months ended June 30, 2018, are not necessarily indicative of the results that may be expected for the year ended December 31, 2018.
B.
|
Significant Accounting Policies
|
The significant accounting policies followed in the preparation of these unaudited interim
condensed
consolidated financial statements are identical to those applied in the preparation of the latest annual financial statements.
C.
|
Recent
Accounting Standards:
|
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued a new standard to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of the promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is effective with respect to the Company beginning in the first quarter of 2018; early adoption is prohibited. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company has not yet generated revenues to date, therefore the standard had no impact on its consolidated financial statements at transition date.
In February 2016, the FASB issued a new lease accounting standard requiring the recognition of lease assets and liabilities on the balance sheet. This standard is effective beginning in the first
quarter
of 2019; early adoption is permitted. To date, the Company is not engaged in lease agreements and accordingly does not expect the standard to have a material impact on its financial statements.
In July 2017, the FASB issued ASU 2017-11, which includes Part I “Accounting for Certain Financial Instruments with Down Round Features” and Part II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily
Redeemable Non-controlling Interests With a Scope Exception”. The ASU makes limited changes to the Board’s guidance on classifying certain financial instruments as either liabilities or equity. The ASU’s objective is to improve (1) the accounting for instruments with “down-round” provisions and (2) the readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite deferral of certain pending content with scope exceptions. This standard is effective beginning in the first quarter of 2019; early adoption is permitted. The Company has derivative warranty liabilities as
discussed
in Note 7B which upon adoption of the new standard are expected to be classified as equity.
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Agreement with Hadasit and RDC
On May 31, 2016, Artemis entered into the License Agreement with Hadasit and RDC, pursuant to which Artemis acquired a worldwide, royalty-bearing license based on net sales to make any and all use of certain patents and know-how owned by Hadasit and RDC relating to Artemisone. Artemis will rely primarily on the License Agreement with respect to the development of Artemisone, its lead product candidate.
In addition, Artemis agreed to certain development milestones, including the completion of Chemistry, Manufacturing and Controls (CMC) development and manufacturing for Phase I by the fourth quarter of 2017, completion of a Phase I study by the fourth quarter of 2019, completion of Phase IIa by the fourth quarter of 2022, and the first regulatory submission by the fourth quarter of 2027. Additionally, Artemis agreed to certain investment milestones, including the requirement to obtain financing of not less than $700,000 within seven months of the closing of the Merger on August 23, 2016 (such time, the “Effective Time”), $1 million within 12 months of the Effective Time and $2 million within 24 months of the Effective Time. In the event that Artemis fails to meet development or investment milestones as set forth in the License Agreement, Hadasit has the right to terminate the License Agreement. Artemis has regular communication with representatives from Hadasit and, to date, the Company has received no notices from Hadasit or RDC about its development progress or the investment milestones and no indication that Hadasit or RDC intend to terminate the License Agreement for non-compliance. To date, the Company has not met the development and financing milestones set forth in the License Agreement. The Company has had discussions with Hadasit relating to amending the development and financial milestones set forth in the License Agreement but there are no guarantees that the Company will be successful in amending the License Agreement.
NOTE 4 - INCOME TAX
A.
|
Tax rates applicable to the income
|
U.S. corporate tax
The maximum statutory federal tax rate in the U
.
S
.
in 2017 and 2016 is 35%. The Company is not subject to current federal taxes, as it has incurred losses in 2016 and 2017.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law in the United States. The Tax Act, among other provisions, introduces changes in the U
.
S
.
corporate tax rate, business related deductions and credits, and has international tax consequences for companies that operate globally. Most of the changes introduced in the Tax Act are effective beginning on January 1, 2018. As a result of the tax act the maximum statutory federal tax rate was reduced to 21% starting on January 1, 2018.
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 4 - INCOME TAX (Cont.)
A.
|
Tax rates applicable to the income
(cont.)
|
Israel corporate tax
The Company's subsidiary in Israel is subject to income tax at a regular corporate tax of 23% in 2018
and
24% in 2017.
In December 2016, legislation to amend the corporate income tax law was published. The
legislation
determined a decrease of the corporate income tax law as of January 1, 2017 to 24% (1% decrease) and as of January 1, 2018 to 23% (additional 1% decrease).
As the Company is still in its development stage and has not yet generated revenues, it is more
likely
than not that sufficient taxable income will not be available for the tax losses to be utilized in the future. Therefore, a valuation allowance was recorded to reduce the deferred tax assets to its recoverable amounts.
|
|
As of
June 30,
2018
|
|
|
As of
December 31,
2017
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Deferred taxes due to carryforward losses
|
|
|
2,840
|
|
|
|
2,763
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(2,840
|
)
|
|
|
(2,763
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
-
|
|
|
|
-
|
|
C.
|
Tax loss carry-forwards
|
Net operating loss carry-forwards as of June 30, 2018 and December 31, 2017 are as follows:
|
|
|
|
|
As of
December 31,
2017
|
|
Israel
|
|
|
4,753
|
|
|
|
4,684
|
|
United States (*)
|
|
|
8,320
|
|
|
|
7,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,073
|
|
|
|
12,672
|
|
Net operating losses in Israel may be carried forward indefinitely. Net operating losses in the U.S. are available through 2027.
(*) Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 5 – WARRANTS ISSUED TO INVESTORS
The Company issued warrants to purchase common stock to investors. The below table lists these warrants and their material terms.
ISSUANCE DATE
|
|
NUMBER OF WARRANTS OUTSTANDING as June 30, 2018
|
|
|
EXERCISE PRICE
|
|
EXERCISABLE THROUGH
|
|
|
|
|
|
|
|
|
October 2017 *
|
|
|
275,000
|
|
|
$
|
2.00
|
|
October 2022
|
* Warrants issued in connection with the October 2017 financing and which contain a full ratchet anti-dilution price protection (See note 7B).
In connection with historic
al
financings, New York Global Innovations Inc. issued 43,069 warrants in January 2010
,
which expired in April 2018.
NOTE 6 - Computation of Net Loss per Share
The loss and weighted average number of common stock used in the calculation of basic loss per share are as follows (in thousands, except share and per share data):
|
|
Six Months
Ended
June 30, 2018
|
|
|
Six Months
Ended
June 30, 2017
|
|
|
Three Months
Ended
June 30, 2018
|
|
|
Three Months
Ended
June 30, 2017
|
|
Net loss available to stockholders of the company
|
|
|
(352
|
)
|
|
|
(421
|
)
|
|
|
(141
|
)
|
|
|
(246
|
)
|
Net loss attributable to stockholders of preferred shares
|
|
|
53
|
|
|
|
50
|
|
|
|
21
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss used in the calculation of basic loss per share
|
|
|
300
|
|
|
|
371
|
|
|
|
120
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
0.06
|
|
|
|
0.08
|
|
|
|
0.02
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common stock used in the calculation of net loss per share
|
|
|
5,153,380
|
|
|
|
4,818,952
|
|
|
|
5,153,380
|
|
|
|
4,819,725
|
|
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
Shares of common stock confer upon their holders the right to receive notice to participate and
vote
in general meetings of
stockholders
of the Company, the right to receive dividends, if declared, and the right to receive a distribution of any surplus of assets upon liquidation of the Company.
The Series A convertible preferred shares confer upon their holders the right to receive dividends when paid to holders of common stock of the Company on an as-converted basis, and the right to receive a distribution of any surplus of assets upon liquidation of the Company before any distribution or payment shall be made to the holders of any common stock.
In
December
2016, all Series B convertible preferred shares were converted into shares of common stock.
The Series C convertible preferred shares confer upon their holders the right to receive dividends when paid to holders of common stock of the Company on an as-converted basis. The shares of Series C convertible preferred stock have the right to receive a distribution of any surplus of assets upon liquidation of the Company before any distribution or payment shall be made to the holders of any other securities.
On August 19, 2016
,
and prior to consummation of the merger, Artemis issued 524 shares of common stock (221,307 shares as adjusted to reflect the reverse recapitalization and reverse stock split) for an aggregate purchase price of $127, which was received in October 2016.
In August 2016, immediately upon consummation of the Merger, the Company issued 68,321 shares of the Company’s common stock, as well as 453 shares of the Company’s newly
designated
Series A Convertible Preferred Stock convertible into 658,498 shares of common stock, to an investor for an aggregate purchase price of $481,000 (net of issuance expenses). These shares have anti-dilution protection for a period of twenty four months. The anti-dilution protection has not been triggered through the date of these financial statements. In addition, the investor within a 24-month period may purchase up to an additional 100% of its preferred A shares at 120% of the per share purchase price
paid in August 2016. This additional purchase option was recorded in equity.
In October 2017, the Company issued 300,000 shares of the Company’s common stock,
warrants
to purchase 275,000 shares of common stock, as well as 250 shares newly designated Series C Convertible Preferred Stock to investors for an aggregate purchase price of $550,000 less issuance expenses. Each share of Series C Convertible Preferred Stock is convertible into 1,000 shares of common stock, subject to adjustments in the event of future financing at a price of less than the conversion price. Preferred shares confer upon their holders the right to receive dividends when paid to holders of common stock of the Company on an as-converted basis. The holders of shares of Series C Convertible Preferred Stock have the right to receive a distribution of any surplus of assets upon liquidation of the Company before any distribution or payment shall be made to the holders of any other securities.
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 7 - STOCK CAPITAL (Cont.)
B.
|
Issuance of Shares (Cont.):
|
The warrants to purchase 275,000 shares of common stock contain a full ratchet anti-
dilution
price protection so that, in most situations upon the issuance of any common stock or securities convertible into common stock at a price below the then-existing exercise price of the outstanding warrants, the warrant exercise price will be reset to the lower common stock sales price.
As such anti-dilution price protection does not meet the specific conditions for equity classification the Company is required to classify the fair value of these warrants as a liability, with changes in fair value to be recorded as finance income (loss). The estimated fair value of our warrant liability at the date of issuance was approximately $319. The Company recorded finance income of $163 at June 30, 2018
,
and a finance expense of $109 at December 31, 2017
,
in respect of the change in the fair value of these warrants.
The Company uses the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company makes certain assumptions about risk-free interest rates, dividend yields, volatility, expected term of the warrants and other assumptions. Risk-free interest rates are derived from the yield on U.S. Treasury debt securities. Dividend yields are based on our historical dividend payments, which have been zero to date. Volatility is estimated from the historical volatility of our common stock as traded on NASDAQ. The expected term of the warrants is based on the time to expiration of the warrants from the date of measurement.
In accordance with ASC-820-10-50-2(g), the Company has performed a sensitivity analysis of the derivative warrant liabilities of the Company which are classified as level 2 financial instruments. The Company recalculated the value of warrants by applying a +/- 5% changes to the input variables in the Black-Scholes model that vary over time, namely, the volatility and the stock price. A 5.0% decrease or increase in volatility would not cause a material change in the value of the warrants. A 5.0% decrease or increase in the stock price would not have materially changed the value of the warrants; the value of the warrants is not strongly correlated with small changes in interest rates.
On December 16, 2016, the Company effected a one-for-fifty (1:50) reverse stock split of its issued and outstanding shares of common stock. Share data included in these financial
statements
is retroactively adjusted as if the reverse stock split had occurred at the beginning of the earliest period presented.
D.
|
Options issued to employees and consultants:
|
On August 22, 2016, the Company granted 126,730 stock options to consultants. Each stock
option
is exercisable into a share of the Company’s common stock of and expires no later than 10 years from the date of grant.
One third of the options vested on the grant date, and one third of the options vest upon the
first
and second anniversaries of the grant date, with the option becoming fully vested on August 22, 2018. As a result, the Company recognized for the period ended June 30, 2018 compensation expenses in the amount of $11, included in Research and Development Expenses. 35,202 of these options were exercised in July 2017.
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 7 - STOCK CAPITAL (Cont.)
D.
|
Options issued to employees and consultants (Cont.):
|
On August 1, 2017, the Company granted 242,640 stock options to the Company’s CEO. In addition, on March 15, 2018
,
the Company granted 48,528 stock options to the Company’s CEO and 50,000 stock options to the Company’s CFO. Each stock option is exercisable into a share of the Company’s common stock. As a result, the Company recognized for the period ended June 30, 2018 compensation expenses in the amount of $102 included in General & Administrative Expenses.
Upon termination of the CEO’s employment agreement any of the then unvested options,
which
were granted on August 1, 2017
,
shall expire immediately. All vested options may be exercised for a period of 90 days from the termination of the agreement. These options are subject to a 48 month vesting period whereby 5,055 options were vested on September 1, 2017
,
and 5,055 options become vested on the first day of each following month assuming the employment agreement has not been terminated.
The options granted to the CEO on March 15, 2018
,
vested on the grant date and the options granted to the CFO will vest over a 48-month period beginning February 1, 2018. These options will expire on March 15, 2028.
A
summary
of the Company's option activity and related information is found below.
|
|
For the six months ended
June 30, 2018
|
|
|
|
Number of
stock options
|
|
|
Weighted average exercise price
|
|
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
334,168
|
|
|
|
0.95
|
|
|
|
|
Granted
|
|
|
98,528
|
|
|
|
1.30
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
432,696
|
|
|
|
1.03
|
|
|
|
6,529
|
|
Options exercisable at period end
|
|
|
153,570
|
|
|
|
0.89
|
|
|
|
23,665
|
|
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the fair market value of the Company’s common stock on June 30, 2018, and the exercise price, multiplied by the number of in-the-money stock options on those dates) that would
have
been received by the stock option holders had all stock option holders exercised their stock options on those dates.
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 7 - STOCK CAPITAL (Cont.)
D.
|
Options issued to employees and consultants (Cont.):
|
The stock options outstanding as of June 30, 2018, have been separated into exercise price, as follows:
Exercise price
|
|
|
Stock options
outstanding as of
June 30,
|
|
|
Weighted average
remaining contractual
life – years as of
June 30,
|
|
|
Stock options
exercisable as of
June 30,
|
|
$
|
|
|
2 0 1 8
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
91,528
|
|
|
|
8.15
|
|
|
|
49,284
|
|
|
1.30
|
|
|
|
242,640
|
|
|
|
9.20
|
|
|
|
50,550
|
|
|
1.30
|
|
|
|
98,528
|
|
|
|
9.72
|
|
|
|
53,736
|
|
NOTE 8 - SUBSEQUENT EVENTS
In accordance with ASC 855 “Subsequent Events” the Company evaluated subsequent events through the date the condensed consolidated financial statements were issued. The Company has analyzed its operations subsequent to June 30, 2018 and noted the following subsequent event:
On August 10, 2018, Brian Culley, the Company’s Chief Executive Officer, resigned from his position as Chief Executive Officer of the Company, effective 60 days after such notice as provided in his employment agreement. Mr. Culley’s resignation was not as a result of any disagreement or dispute with the Company.