Manuka, Inc. - Annual Report: 2017 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

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

 

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017

 

OR

 

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

 

FOR THE TRANSITION PERIOD FROM __________ TO _____________

 

COMMISSION FILE NUMBER: 0-24431

 

ARTEMIS THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE	84-1417774
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification no.)
18 EAST 16TH STREET, SUITE 307, NEW YORK, NY	10003
(Address of principal executive offices)	(Zip code)

 

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (646) 233-1454

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, par value $0.01 per share

 

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

 

Yes ☐    No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

Yes ☐    No ☒

 

 

Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒    No ☐

 

 

Yes ☒    No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller Reporting Company ☒   Emerging Growth Company ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐    No ☒

 

ii

TABLE OF CONTENTS

 

 

 

EXPLANATORY NOTE 

Unless otherwise specified, all dollar amounts are expressed in United States dollars. Except as otherwise indicated by the context, references in this report to the “Company”, “Artemis”,  “we,” “us” and “our” are references to Artemis Therapeutics Inc., a Delaware corporation, together with its consolidated subsidiaries. All share amounts have been retroactively adjusted to reflect a 1-for-50 reverse stock split, which was effectuated on December 20, 2016.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include all statements that do not relate solely to the historical or current facts, and can be identified by the use of forward looking words such as “may”, “believe”, “will”, “expect”, “expected”, “project”, “anticipate”, “anticipated,” estimates”, “plans”, “strategy”, “target”, “prospects” or “continue”. These forward looking statements are based on the current plans and expectations of our management, and are subject to various uncertainties and risks that could significantly affect our current plans and expectations, as well as future results of operations and financial condition. The factors discussed herein, including those risks described in Item 1A. Risk Factors, and expressed from time to time in our filings with the Securities and Exchange Commission, or the SEC, may cause our actual results, performances or achievements to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. Except as required by law, we do not assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such forward-looking statements.

 

PART I

 

ITEM 1.                 BUSINESS.

 

Company Overview

We are a biopharmaceutical company dedicated to the development of novel agents for the treatment of severe and life-threatening infectious diseases. Our lead product candidate, Artemisone, is a clinical-stage small molecule with antiviral and antiparasitic properties. We plan to advance Artemisone as (a) an antiparasitic treatment for individuals infected with Plasmodium falciparum, (b) as an antiviral agent to address unmet clinical needs in immunocompromised patients infected with human cytomegalovirus (“HCMV”), and (c) potentially other viral or infectious diseases. Artemisone is a known compound which has been extensively studied and the license agreement (“License Agreement”) by and among the Company, Hadasit Medical Research Services and Development Ltd. (“Hadasit”), the technology transfer company for Hadassah Medical Organization (“HAD”), and Hong Kong University of Science and Technology R and D Corporation Limited (“RDC”) provides us with the right to certain data, information, know-how, and patents to further develop Artemisone as a potential therapeutic treatment in various indications world-wide.

Products/Technology

Artemis’ lead product candidate, Artemisone, is a 10-alpha-amino derivative of artemisinin and can be formulated for either oral (e.g. tablet) or intravenous administration. Artemisone was developed via a semi-synthetic chemistry process on an artemisinin derivative to produce a new compound with characteristics preferred over those of a structurally-related molecule, artemisinin, and its clinically-used derivatives. Notably, artemisinin and its derivatives are responsible for saving millions of lives and its discovery led to the award of a one-half share of the 2015 Nobel Prize in Physiology or Medicine. Artemisone was selected as a drug candidate by RDC based on certain desirable physicochemical properties which may make it preferable to existing artemisinins, including ease and low cost of production, higher solubility, stability, minimal predicted and in vitro-demonstrated neurotoxicity, a different metabolic pathway to current clinical artemisinins, and higher antiparasitic efficacy than other compounds which were synthesized and evaluated. Additionally, preclinical laboratory research conducted by HAD has demonstrated the antiviral potency of Artemisone against HCMV is as robust as the currently-approved agent, ganciclovir, and approximately ten times greater than that of a related compound, artesunate. In vitro data demonstrated higher efficacy of Artemisone compared to first generation artemisinin derivatives, with evidence for a novel mechanism of action in HCMV.

 

Business Strategy

Artemis’s mission is to improve the lives of patients through the creation of novel, safe, and effective anti-infective agents. Consistent with this objective, Artemis plans to adopt the following business strategy:

•

Rapidly and efficiently advance our lead product candidate, Artemisone, through clinical development for the treatment of P. falciparum infection, HCMV infection in immunocompromised patients, and potentially other clinical indications.

•

Identify and enter into strategic collaborations with other companies or investment entities which can increase the value of  Artemisone by extending its commercial potential and/or provide development capital to further our research activities. This may include partnerships that could expand our geographic reach, allow us to expand into additional indications, or involve the out-licensing of rights owned by us in exchange for development capital or other assets.

•

Develop a pipeline of anti-infective agents either through internal drug discovery efforts or by acquiring (in-licensing) external experimental or commercial agents and redeveloping them as anti-infective agents in novel patient populations. We also may consider acquiring assets and entering fields other than infectious diseases.

Artemis licensed pre-clinical and clinical data from Hadasit for the treatment of HCMV and RDC for the treatment of malaria. We currently plan to develop Artemisone as a treatment for malaria and HCMV in several patient settings, which may include severe, cerebral, and/or uncomplicated malaria, hematopoietic stem cell transplantation, solid organ transplants, and congenital HCMV. At this stage, our efforts are focused on determining our optimal clinical and regulatory path for each program, so our future research and development costs are not known and it is likely we will incur significant loses before generating any revenues, if at all.  Our specific development plans, including our clinical and regulatory strategy, staffing, capital investments, and other significant matters, will vary throughout the development of Artemisone and will necessarily depend on market conditions, clinical trial results, and many other factors.

Our current effort focuses on identifying an optimal development plan for Artemisone in multiple indications. We have engaged, and will continue to engage, experienced consultants on a part-time or hourly basis to assist us in evaluating our options and devising our development plan for Artemisone. We currently work on an hourly or project basis with between 10-20 advisors and consultants in key functional areas including clinical development, regulatory affairs, manufacturing, toxicology, finance, commercialization, and other areas relevant to the Company’s business. Additionally, we have engaged, and will continue to engage, disease-specific anti-infective experts as advisors and consultants to the Company. We currently outsource all of our research activities and a significant portion of our business operations. We pursue an outsourced business model and do not currently have plans to enter into a short- or long-term lease agreement or acquire additional physical assets. Currently, we have one full-time employee, our Chief Executive Officer. As our product candidate advances and/or further operational capital is secured, we anticipate we will hire additional full-time employees in various capacities.

To date, our interactions with the United States Food & Drug Administration (the “FDA”) and other regulatory agencies have been limited and we have not yet proposed or received comments on a clinical protocol or regulatory pathway potentially leading to marketing approval of Artemisone in malaria or HCMV in any territory. We believe our malaria program will be reviewed by the Office of Antimicrobial Products (OAP) and our HCMV program will be reviewed by the Division of Antiviral Products (DAVP). We intend to request a meeting with the appropriate Division for each program and submit a meeting package in support of a malaria and HCMV development path. Until such paths are proposed, and the Company has received specific feedback from the relevant FDA Division(s), it is not possible to determine with meaningful accuracy our development costs, necessary headcount, or other matters customarily employed in the pursuit of regulatory approval in the United States or any other marketplace.

Our upcoming development plans include manufacturing and formulating several kilograms of GMP drug substance, formulating Artemisone drug product for clinical trials, pharmacokinetic modeling of intravenous and oral routes of administration, developing bioanalytical methods, conducting bridging toxicology studies, and specifically for our malaria program, preparing a meeting package and holding a pre-IND meeting with the FDA.

 

Description of Markets

Malaria

Malaria is an infectious disease caused by transmission of the Plasmodium parasite through a mosquito bite into a human host where the parasite firstly enters in the liver, then emerges into the blood stream where parasite replication is associated with the febrile aspects of the disease. Malaria is found most commonly in Africa, South East Asia, and South America and affects an estimated 200 million people annually. More than 400,000 people die from malaria each year, a large percentage of whom are young children. Initial symptoms of malaria include headache, fatigue, abdominal discomfort, vomiting, chills, fever and more. In later and more severe stages of the disease, the host’s condition deteriorates rapidly (within hours) and becomes life threatening if untreated. Symptoms can include coma, metabolic acidosis, anemia, hypoglycemia, acute renal failure or acute pulmonary edema.

Various agents have been utilized for the treatment of malaria. However, artemisinin, originally derived from the Chinese medicinal herb Artemisia annua, and its derivatives, collectively known as artemisinins, are highly effective and widely recognized as the preferred first-line treatment option for uncomplicated malaria throughout the world. Artemisinins have been highly effective in disease management, as evidenced by a reduction of 20% in newly-diagnosed cases and 30% of malaria-related deaths from 2010 to 2015. However, the effectiveness of artemisinin-based drugs began to diminish as a result of increased parasite resistance, attributable in part to the use of single-agent artemisinin. To improve artemisinin-based therapy, artemisinin is now recommended by the World Health Organization to be administered in combination with additional, “long-acting” anti-malarials; this is known as Artemisinin-based Combination Therapy (“ACT”). However, starting with field reports which emerged in 2007, there are now increasing reports and concerns about parasite resistance to ACT and the ACT’s ability to control malaria. To help counter the potential rise in malaria, the global malaria spend is estimated to be approximately $3 billion dollars annually, according to the WHO, with the United States as the largest contributor. In 2016, various national malaria control programs procured an estimated 409 million treatment courses of artemisinin-based combination therapy, which is a 31% increase from 311 million in 2015. We believe that a novel agent could gain significant market share following approval.

According to the Centers for Disease Control and Prevention (“CDC”), malaria was eliminated from the U.S. in 1951. There are now fewer than 2,000 cases reported annually in the U.S., mostly due to travelers returning from malaria-infected countries. While the incidence of malaria in the U.S. is relatively low, the CDC is proactive in monitoring suspected cases and in 2013 published guidelines for U.S. clinicians treating malaria. According to the CDC, the recommended line of treatment for uncomplicated malaria includes one of the following agents: chloroquine, atovaquone-proguanil (Malarone®), artemether-lumefantrine (Coartem®), mefloquine (Lariam®), quinine, quinidine, doxycycline and clindamycin (used in combination with quinine). For the treatment of severe malaria, the CDC recommends quinidine plus one of the following: doxycycline, tetracycline, or clindamycin. In certain cases, the CDC can facilitate the use of artesunate (an artemisinin) for severe malaria, but only via an Investigational New Drug procedure. If utilized, artesunate should be followed by one of the following: atovaquone-proguanil (Malarone™), doxycycline (clindamycin in pregnant women), or mefloquine. Notably, no single-agent artemisinin or artemisinin combinations are currently approved by the FDA to treat severe malaria.

 

Human Cytomegalovirus Infection

According to a study authored by Drs. Cannon, Schmid and Hyde titled “Review of cytomegalovirus seroprevalence and demographic characteristics associated with infection,” HCMV is believed to infect at least 50% of adults by age 50. Whereas HCMV infection in healthy individuals is mostly asymptomatic, HCMV can severely affect certain high-risk groups, including immunocompromised patients (for example, transplant recipients, patients with cancer, autoimmune disease, AIDS) and congenitally-infected infants, who acquire the infection in-utero through maternal exposure.  According to the publication titled “British Transplantation Society Guidelines for the Prevention and Management of CMV Disease after Solid Organ Transplantation, Third Edition,” HCMV infection occurs in approximately 60% of transplant patients as a result of immune suppression, and may lead to transplant rejection, serious illness, or death.  According to a study authored by Dr. Cannon titled “Congenital cytomegalovirus (CMV) epidemiology and awareness,” HCMV is also a major cause of birth defects, affecting > 5,500 infants annually in the U.S.

In addition to the foregoing, the hematopoietic stem cell transplant (“HSCT”) population is rapidly growing, as stem cell transplantation is increasingly utilized for treatment of multiple hematological and non-hematological diseases. According to a study conducted by Drs. Wolf, Shmueli, Or, Shapira, Resnick, Caplan, and Bdolah-Abram published in the Journal of Infectious Diseases (the “Wolf Study”), approximately 65% of HSCT patients are at risk for HCMV reactivation.  According to a study conducted by Drs. Boeckh and Nichols titled “The impact of cytomegalovirus serostatus of donor and recipient before hematopoietic stem cell transplantation in the era of antiviral prophylaxis and preemptive therapy” (the “HSCT Study”), during the first year following allogeneic HSCT, the rate of non-relapse mortality is approximately 20%, with a significant proportion of these deaths attributable to HCMV.

 

Treatment paradigms have evolved for addressing viral infection in HSCT and solid organ transplantation (SOT) patients, but toxicities associated with the currently available therapies have limited the significant evolution of treatment. Proof of concept for the prevention of HCMV in transplant patients (prophylactic treatment beginning at or before transplant and continuing through the first 3-12 months, or preemptive treatment instituted upon viral reactivation) was established decades ago. Nonetheless, treatment-related toxicities have stalled the standard of care among HSCT recipients at “pre-emptive" therapy, where HCMV reactivation is closely monitored for in the blood, and treatment is initiated immediately after confirmation of active HCMV infection.  According to the Wolf Study and HSCT Study, although this treatment paradigm has greatly lessened fatalities associated with HCMV in transplant patients, there is still a high mortality rate and drug resistance rates are increasing.

According to a study contained in the British Transplantation Society Guidelines for the Prevention and Management of CMV Disease after Solid Organ Transplantation, there is a consensus that the standard of care must evolve to preventive treatment with the development of safer, more tolerable, and effective HCMV therapies.  However, at present, no therapies are approved for preventive treatment of HCMV disease. Hence, there is a great unmet need for an alternative therapy with an improved safety and tolerability profile appropriate for immunocompromised patients, which might also be extended to the setting of maternal/congenital infection.

Malaria Market Opportunity

In light of the limitations associated with current agents indicated to treat severe malaria in the U.S., which are principally older drugs encumbered by resistance concerns, Artemis is evaluating the opportunity to develop Artemisone initially as an agent to treat severe malaria in the U.S., followed by a more comprehensive evaluation of Artemisone as a component of an ACT for worldwide use. From 2000 to 2014, there were an estimated 22,029 malaria-related hospitalizations (4.88 cases per 1 million in population) in the United States, including 182 in-hospital deaths and 4,823 severe malaria cases. (Am. J. Trop. Med. Hyg., 97(1), 2017, pp. 213–221.)

Notably, in 2007 the U.S. government established section 524 of the Federal Food, Drug, and Cosmetic Act (the “FDCA”), establishing the Priority Review Voucher (“PRV”) program as an incentive to develop drugs in certain diseases. A PRV is available to a company that receives FDA approval for a drug which is used against specific “neglected” tropical diseases. Malaria is one of 19 tropical diseases specifically named as eligible for the PRV program and as such, a successful pivotal clinical trial and subsequent approval by the FDA for Artemisone is expected to provide eligibility for, and a grant of, such a voucher to Artemis. The PRV can be used to accelerate the FDA review process and because it is transferable, it may be sold to a third party. Approximately ten vouchers have been sold.

 

In addition to new treatments for severe malaria, there is an urgent and worldwide need for antimalarials that are effective against artemisinin-resistant strains of P. falciparum. The artemisinins are a well-established class of drug, but much like antibiotics in the U.S. and elsewhere, their extensive use has inevitably led to the emergence of resistant strains, especially in malaria endemic areas such as South-East Asia. Artemisone is currently being tested at a prominent U.S. facility against a number of artemisinin-resistant strains taken from patients in South-East Asia. Artemis believes the mechanism of action of Artemisone may be sufficiently novel vis-à-vis the current artemisinins as to be more effective towards resistant parasites. Thus, Artemisone may exhibit the potency which makes it the preferred option over currently-used artemisinins. Furthermore, given the emergence of malaria that is resistant both to conventional antimalarial drugs, and to current clinical artemisinins, recent emphasis in the field has been placed on developing new drugs that can block transmission of resistant parasite phenotypes.  To this end, it is already established that Artemisone, in contrast to the current clinical artemisinins, is highly active against transmissible blood stages of the malaria parasite that are taken up by the mosquito during a blood meal, and additionally, is active against in-mosquito stages of the malaria parasite. Artemisone therefore has the potential to act as a transmission-blocking drug. Depending on the outcome of ongoing and future studies, we may elect to pursue the unmet global need of treating artemisinin-resistant uncomplicated malaria (which may include suppression of transmission) in addition to or in lieu of our efforts to treat severe malaria.

HCMV Market Opportunity

We believe that there is a clear, unmet medical need in the field of HCMV prevention and treatment for safer and more effective therapies. Late CMV disease and development of resistance are significant concerns with preemptive and prophylactic therapy strategies, and whereas congenital CMV infection and disease also remain an unmet clinical need, we expect the competitive landscape to remain open to new entrants. We believe antiviral agents with novel, alternative mechanisms of action are sorely needed.

In particular, as with HIV and HCV, antiviral combination approaches hold promise for more efficient HCMV prevention and eradication. We expect Artemisone may be developed in part based on its different antiviral mode of action and effect on HCMV resistance patterns, which may open opportunities for its use a combination drug as well as a stand-alone agent.

Stem-Cell and Solid Organ Transplantations

Approximately 80,000 hematopoietic stem cell transplants and 100,000 solid organ transplantations (“SOT”) are performed annually throughout the world. The majority of these transplants occur at a relatively small number of treatment facilities in the United States and the European Union.  This disease landscape, set within two closely-linked regulatory environments, provides an opportunity for meaningful market penetration with clearly defined clinical development parameters.

Congenital CMV Infection

HCMV can affect newborns, who are believed to acquire the virus via the mother’s placenta. According to a study published by Manicklal, Emery, Lazzarotto, Boppana and Gupta titled “The ‘silent’ global burden of congenital cytomegalovirus”, the overall birth prevalence of congenital HCMV infection is ~ 0.7%, with higher prevalence (1-5%) reported in developing countries. The study further showed that approximately 25% of congenitally infected newborns develop permanent hearing loss and a wide range of neurodevelopmental disabilities. Currently, there are no established prenatal or neonatal measures for prevention of congenital HCMV infection and disease. According to a study titled “Valganciclovir for Symptomatic Congenital Cytomegalovirus Disease” published in the New England Journal of Medicine, postnatal treatment with intravenous ganciclovir for 6 weeks, or with oral valganciclovir for 6 months has been shown to partially improve neurodevelopmental and auditory and neurodevelopmental outcomes. However, concerns over short- and long-term toxicity usually limit use of these agents to children who are symptomatic at birth. If an acceptable safety profile can be demonstrated with Artemisone, maternal/child health indication may be evaluated as an additional market opportunity.

 

Market Strategy

Subject to successful clinical development and receiving marketing approval for any of our product candidates, we may elect to utilize strategic partners, distributors, or a contract sales force to assist in the commercialization of any of our products. In certain cases, we may seek to build our own commercial infrastructure.

Competition

The pharmaceutical and biotechnology industries are characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. Any product candidates that we successfully develop and commercialize likely will compete with existing therapies or therapies that may become available in the future.

We compete in the segments of the pharmaceutical, biotechnology and other related markets that target the prevention and treatment of viral and parasitic infections. There are other companies working to develop therapies for the prevention and treatment of viral and parasitic infections and additional companies may enter the field.

In the HCMV field, vaccines, off-the-shelf cytotoxic T-cells, and better predictive immunodiagnostic testing methods may improve stem cell transplant outcomes, but, to our knowledge, among the four experimental compounds intended to treat CMV and which reached late-stage clinical development, only Letermovir from Merck & Co. has been approved by FDA (for CMV prophylaxis in CMV-seropositive HCT recipients). Maribavir from Viropharma Incorporated and Brincidofovir from Chimerix Inc. both failed to meet their pre-specified endpoints in their respective Phase 3 clinical trials. ASP0113, an investigational DNA vaccine being developed by Vical Incorporated and Astellas Pharma Inc. for cytomegalovirus (CMV)-seropositive hematopoietic stem cell transplant (HSCT) recipients, also recently did not meet its primary or secondary endpoints in the Phase 3 HELIOS trial. As late CMV disease and development of resistance are concerns with preemptive therapy strategies, we expect the competitive marketplace to remain open to new entrants.

In the malaria field, as of the fourth quarter of 2017, two applications for one drug had been submitted to FDA for marketing approval. In November, GlaxoSmithKline PLC (“GSK”) and The Medicines for Malaria Venture, Geneva (“MMV”) announced the submission of a new drug application (“NDA”) by GSK to the FDA, seeking approval of single-dose tafenoquine for the radical cure (prevention of relapse) of Plasmodium vivax (P. vivax) malaria in patients 16 years of age and older. In December 2017, 60 Degrees Pharmaceuticals (“60P”) announced it has submitted an NDA to the FDA for the use of Tafenoquine to prevent malaria in adults traveling to areas where malaria is prevalent. In August 2017, Novartis International AG and MMV launched a Phase IIb trial for KAF156, a next-generation antimalarial compound with the potential to treat drug-resistant strains of the malaria parasite. In addition to novel agents, companies could bring fixed-dose combination products of already approved drugs to the market or expand into the pediatric market with pediatric-specific formulations. We are not aware of any Phase II or Phase III programs focused on treating severe or cerebral malaria patients in the United States.

Overall, our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved medicines than we do. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize medicines that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any medicines we may develop. Our competitors also may obtain FDA or other regulatory approval for their medicines more rapidly than we may obtain approvals for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

 

 

Intellectual Property

Pursuant to the terms of the License Agreement entered into with Hadasit and RDC on May 31, 2016, Artemis acquired a worldwide, royalty-bearing, sub-licensable license to make any and all use of certain patents and know-how owned by the Licensors relating to Artemisone. The licensed know-how consists of data, processes, methods, and techniques relating to the licensed patents, including but not limited to preclinical and clinical study data and reports, manufacturing and analytical procedures, and regulatory materials and filings developed and prepared by Hadasit and/or Bayer Healthcare, owned by Hadasit, and as it relates to Artemisone.

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. We have regular communication with representatives from Hadasit and, to date, we have received no notices from Hadasit or RDC about our development progress or the investment milestones and no indication that Hadasit or RDC intend to terminate the License Agreement for non-compliance. To date, we have not met the development and financing milestones set forth in the License Agreement. We have had discussions with Hadasit relating to amending the development and financial milestones set forth in the License Agreement but there are no guarantees that we will be successful in amending the agreement.

Artemis is working towards achieving the development and investment milestones required by the License Agreement. In the fourth quarter of 2017, we entered into a contractual agreement with a contract manufacturing organization for the manufacture of a 100-gram batch of non-GMP Artemisone with the option, at our election, to manufacture several kilograms of GMP drug substance suitable for formulation as clinical trial material. Upon our instruction, and subject to adequate financing, we anticipate clinical trial material will be available in late 2018.

Pursuant to the terms of the License Agreement, Artemis agreed to first offer Dr. Wolf’s laboratory at Hadassah Medical Organization, over equivalent alternatives, the option to perform all pre-clinical, research and development activities within Dr. Wolf’s expertise and her laboratory’s capabilities, each such provision of services to be conducted under a separate agreement between Artemis and Hadasit, the terms of which to be mutually agreed between Artemis and Dr. Wolf (each a “Sponsored Research Agreement”). Pursuant to the terms of the License Agreement, the cost of such Sponsored Research Agreement shall total an aggregate of $200,000.

In addition, pursuant to the terms of the License Agreement, Artemis entered into a Consulting Agreement by and between Artemis, Dr. Wolf and Hadasit, effective as of the Effective Time (the “Consulting Agreement”). Pursuant to the terms of the Consulting Agreement, Dr. Wolf serves as the Chief Science Officer and a member of the Scientific Advisory Board of Artemis. Hadasit permits to make Dr. Wolf available to perform services for Artemis for up to 15 hours per month, unless otherwise agreed to by the parties. The term of the Consulting Agreement is 3 years, subject to automatic renewal terms of 12 months, unless earlier terminated by the parties. As consideration for the execution and performance of the Consulting Agreement, Artemis agreed to a monthly service fee to Dr. Wolf in the amount of $2,000 per month, plus value added tax, a fee of $300 per hour for any hour in excess of 15 hours worked by Dr. Wolf, $1,500 per day for trips made abroad by Dr. Wolf, as well as stock options subject to vesting.

 

 

Pursuant to the terms of the License Agreement, the potential royalty payments payable to Hadasit are in the low single digits. Artemis also has agreed to certain milestone payments to the Licensors, which total an aggregate of approximately $12 million upon the occurrence of various development and commercialization milestones.

As part of the License Agreement, we have obtained a license relating to a family of patents and patent applications derived from a single Patent Cooperation Treaty application filed on April 17, 2013. Specifically, U.S. Patent 9,616,067 and European Patent 2838903, which are jointly assigned to Hadasit and RDC, have been licensed to us. The claims of the issued U.S. patent that were granted are directed to methods of treating a herpes viral infection or suppressing herpes viral replication (method of use claims). Additionally, a continuation U.S. application serial No. 15/361150 was filed on November 25, 2016 with claims directed specifically to methods of treatment of HCMV. This patent family will be due to expire on April 17, 2033. There are pending counterpart patent applications in other territories, including Japan.

Research & Development

Malaria

In view of the urgent need for new and more effective antimalarial and antiviral drugs, Artemis’ vision is to combine innovative science and accelerated clinical development to obtain marketing approval for novel therapies against parasitic and viral infections. To date, Artemis’ principal research activities have been to evaluate the extensive research and development performed with Artemisone which was conducted by Bayer and Hadasit and which has been licensed for our use pursuant to the License Agreement.

Artemis’s lead product candidate, originally developed at RDC under a joint research and development program directed by Dr. Richard K. Haynes, firstly with Bayer AG Zentralforschung, and then with Bayer HealthCare AG, is an orally-administered, 10-alpha-amino artemisinin derivative named Artemisone. Artemisone was developed at RDC using semi-synthetic chemistry applied to an artemisinin derivative to produce a compound which was optimized along certain parameters. The early discovery and development work is described in an article entitled "Artemisone - a highly active antimalarial drug of the artemisinin class" published in the journal Angewandte Chemie International Edition. Specifically, Artemisone was selected based on its more desirable chemical and drug properties, including ease and low cost of production, high solubility, stability, lack of toxicity, distinct metabolic profile, single isomer, single crystal type, and superior antiparasitic and antiviral efficacies over artemisinin compounds to which it was compared. Preclinical laboratory research, along with Phase I and Phase II studies in patients with uncomplicated non-severe malaria in Thailand conducted by Bayer HealthCare, support further development of Artemisone in malaria. Clinically, Artemisone has been administered to more than 150 subjects in three Phase I trials and a Phase II trial:

·

Phase 1 Single dose study (n=34)

·

Phase 1 Multiple dose study (n=24)

·

Phase 1 Bioavailability and food effect study (n=12)

·

Phase II Initial efficacy study (n=95)

 

Among the 95 subjects who were enrolled in the Phase II trial of uncomplicated malaria, 86 patients received a dose of Artemisone. Top-line published results were highlighted by:

·

100% cure in all cohorts.

·

More rapid parasite clearance time per dose compared to control.

·

No drug-related adverse events reported with Artemisone.

 

The authors of the Phase II study concluded that the data collected by Bayer and themselves revealed increased efficacy of Artemisone over artesunate when tested against P. falciparum in uncomplicated malaria patients.

 

Human Cytomegalovirus

Preclinical laboratory research conducted by Hadasit has demonstrated high antiviral potency of Artemisone against HCMV. In vitro data demonstrated higher efficacy of Artemisone compared to 1st generation artemisinin derivatives, with evidence for a novel mechanism of action. Artemisone also exhibited strong antiviral activity against ganciclovir-resistant strains in vitro. Ganciclovir is the current standard-of-care for HCMV infection.

Clinical work with artesunate suggested an antiviral effect against HCMV may be present with this member of the artemisinin class (“Artesunate as a Potent Antiviral Agent in a Patient with Late Drug Resistant Cytomegalovirus Infection following Hematopoietic Stem Cell Transplantation”, Clinical Infectious Diseases, 2008). Artesunate inhibits CMV in vitro and in an animal model. Further clinical and laboratory work performed by Hadasit suggested Artemisone may be a more potent and superior development option than artesunate for treatment of HCMV.

In light of preclinical and clinical studies of Artemisone conducted by Bayer HealthCare and others in various indications, the further development of Artemisone as an anti-infective is strongly supported. With no preventive therapy approved by the FDA for HCMV in HSCT recipients and no artemisinin-based therapy approved by the FDA for treatment of severe malaria, Artemis is moving Artemisone forward initially in these indications, while also continuing to evaluate other potential indications, including but not limited to other viral and parasitic infections.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining marketing approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.

In the United States, the FDA approves and regulates drugs under the FDCA, and implementing regulations. The failure to comply with requirements under the FDCA and other applicable laws at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities.

 

An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:

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completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA's Good Laboratory Practice regulations;

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submission to the FDA of an Investigational New Drug (“IND”), which must take effect before human clinical trials may begin;

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approval by an independent institutional review board, representing each clinical site before each clinical trial may be initiated;

 

 

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performance of adequate and well-controlled human clinical trials in accordance with good clinical practices (“GCP”), to establish the safety and efficacy of the proposed drug product for each indication;

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•preparation and submission to the FDA of an NDA, requesting marketing for one or more proposed indications;

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review by an FDA advisory committee, where appropriate or if applicable;

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satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with current Good Manufacturing Practices (“cGMP”), requirements and to assure that the facilities, methods and controls are adequate to preserve the product's identity, strength, quality and purity;

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satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;

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payment of user fees and securing FDA approval of the NDA; and

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compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy and the potential requirement to conduct post-approval studies.

In addition to regulations in the United States, a manufacturer is subject to a variety of regulations in foreign jurisdictions to the extent they choose to sell any drug products in those foreign countries. Even if a manufacturer obtains FDA approval of a product, it must still obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. For other countries outside of the European Union, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary.

In the European Union, marketing authorizations for medicinal products may be obtained through different procedures founded on the same basic regulatory process. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union Member States. The centralized procedure is compulsory for medicinal products produced by certain biotechnological processes, products designated as orphan medicinal products, and products with a new active substance indicated for the treatment of certain diseases. On the other hand, a decentralized procedure provides for approval by one or more other concerned European Union Member States of an assessment of an application for marketing authorization conducted by one European Union Member State, known as the reference European Union Member State. In accordance with the mutual recognition procedure, the sponsor applies for national marketing authorization in one European Union Member State. Upon receipt of this authorization the sponsor can then seek the recognition of this authorization by other European Union Member States.

 

Employees

 

As of December 31, 2017, the Company had 1 full-time employee and approximately 16 consultants and advisors who provide services on a part-time basis. The employee and consultants oversee day-to-day operations of the Company, including its management, strategy, contract manufacturing, regulatory affairs, research and development, and administration. We have no laboratory facility or unionized employees.

 

Corporate Overview

We were incorporated under the laws of the State of Nevada on April 22, 1997. On July 8, 2003, we effected a reincorporation from Nevada to Delaware through a merger with and into our wholly-owned subsidiary, InkSure Technologies (Delaware) Inc., which was incorporated on June 30, 2003. The surviving corporation in the merger was InkSure Technologies (Delaware) Inc., which thereupon renamed itself InkSure Technologies Inc. In 2014, we changed our name to New York Global Innovations Inc.  Upon the closing of the Merger, defined below, Artemis Subsidiary, defined below, became our wholly-owned subsidiary. The Merger closed on August 23, 2016, and such date is referred to as the “Effective Time.”

 

On August 23, 2016, we consummated a merger with Artemis Therapeutics Inc., a Delaware corporation (“Artemis Subsidiary”) and Artemis Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company (the “Merger Subsidiary”), pursuant to which Artemis Subsidiary merged with and into the Merger Subsidiary, with Artemis Subsidiary being the surviving entity (the “Merger”).  Following the Merger, we adopted the business plan of Artemis Subsidiary. Artemis Subsidiary was incorporated on April 19, 2016 under the laws of the State of Delaware. Between April 19, 2016 and August 23, 2016, Artemis’s business activities primarily consisted of negotiating and executing the License Agreement.

Pursuant to the Merger, the Merger Subsidiary merged with and into Artemis Subsidiary in a reverse merger, with Artemis Subsidiary surviving as our wholly-owned subsidiary. As consideration for the Merger, we issued an aggregate of 460,000 shares of common stock and 2,357.04 shares of our Series B Preferred Stock to the Artemis Subsidiary shareholders, such that each outstanding share of Artemis Subsidiary common stock was exchanged for the right to receive 50 shares of our common stock and 0.2562 shares of the Series B Preferred Stock (each share is convertible into 72,682.814 shares of the Company’s common stock) (collectively, the “Merger Shares”). In addition, we agreed to reserve for future issuance 40,000 shares of common stock and 204.96 shares of Series B Preferred Stock to Artemis Subsidiary option holders, including options issued to Dr. Wolf and Hadasit, as set forth in greater detail herein. For an understanding of their terms and provisions, reference should be made to the Merger Agreement attached as an Exhibit to this Annual Report on Form 10-K.

As a condition for the consummation of the Merger, the Company and Artemis Subsidiary agreed to the following covenants and closing conditions: (i) a requirement that a concurrent financing of not less than $590,000 shall have occurred immediately prior to the Effective Time; (ii) a requirement that the Company have a cash balance of at least $590,000, exclusive of the concurrent financing at the Effective Time; (iii) a requirement that Artemis Subsidiary, Hadasit Medical Research Services & Development, Ltd. and Hong Kong University of Science and Technology R and D Corporation Limited have entered into and finalized a license agreement with respect to HCMV technology; (iv) the resignation of Roberto Alonso Jimenez Arias, our former director, as a director of the Company at the Effective Time; (v) the appointment by Artemis Subsidiary of a new director; (vi) the right for Gadi Peleg, or his designee, to continue serving as a director of the Company for a period of one year from the closing of the Merger; and (vii) for a period of one year from the closing of the Merger, in the event that the Company desires to enter into a transaction involving the sale of securities at a pre-transaction valuation of $10,000,000 or less, the approval of Mr. Peleg, or his designee, shall be required prior to the Company entering into such transaction. The Company and Artemis Subsidiary agreed to waive the requirement that a concurrent financing of not less than $590,000 shall have occurred immediately prior to the Effective Time and that the Company have a cash balance of at least $590,000, exclusive of the concurrent financing at the Effective Time.

 

In addition, on August 23, 2016, the Company closed on a private placement pursuant to a Securities Purchase Agreement (the “Acumen SPA”) with Acumen Bioventures LLC (“Acumen”) with respect to the sale of an aggregate of $500,000 of 68,321 shares of the Company’s common stock and 453 shares of Series A Preferred Stock (each share is convertible into 1,453.656 shares of the Company’s common stock). The Acumen SPA provided that the Company will obtain shareholder approval within 90 days of the date thereof to increase its authorized capital or conduct a reverse stock split such that the Company will have reserved for issuance at least 200% of the number of shares issuable upon conversion of all of the Series A Preferred Stock or be subject to liquidated damages (the “Approval”). The Board of Directors and the stockholders holding a majority of the Company’s voting power approved a 1-for-50 reverse stock split (the “Reverse Stock Split”) on November 2, 2016 and November 9, 2016, respectively. The Company’s management and its largest shareholder provided the Company with their irrevocable consent to the Approval.  The Acumen SPA also provides the investor with a 24-month right to (i) participate in future financings, (ii) purchase up to 100% of its investment at 120% of the per share purchase price, (iii) be issued additional securities in connection with any subsequent dilutive issuance by the Company; and (iv) piggyback or demand registration rights.

 

In conjunction with the closing of the Merger, on August 23, 2016, Roberto Alonso Jimenez Arias resigned as a director of the Company. At the effective time of the Merger, the Company’s board of directors and officers were reconstituted by the appointment of Dana Wolf as our Chief Scientific Officer and Israel Alfassi as a director.

 

For financial accounting purposes, the Merger between the Company and Artemis Subsidiary was accounted for as a reverse recapitalization and, as a result of the Merger, the Company ceased to be a shell company. As the shareholders of Artemis Subsidiary received the largest ownership interest in the Company, Artemis Subsidiary was determined to be the “accounting acquirer” in the reverse recapitalization. As a result, the historical financial statements of the Company were replaced with the historical financial statements of Artemis Subsidiary. Following the Merger, the Company and its subsidiary, Artemis Subsidiary, are collectively referred to as the “Company”.

On November 2, 2016, the Board of Directors of the Company approved  (i) an amendment (the “Amendment”) to its Certificate of Incorporation to decrease the Company’s authorized Common Stock from 75,000,000 shares, with a par value of $0.01 per share, to 51,000,000 shares with a par value of $0.01 per share, as well as reduce the Company’s authorized Preferred Stock from 10,000,000 shares, with a par value of $0.01 per share, to 200,000 shares with a par value of $0.01 per share, and (ii) a 1-for-50 reverse stock split of the Company’s issued and outstanding shares of Common Stock, such that each 50 shares of Common Stock held by stockholders of record on or about December 13, 2016 be combined into one share of Common Stock, except to the extent that the actions described herein result in any of the Company’s stockholders holding a fractional share of Common Stock (in which instance, because such stockholder’s number of shares is not evenly divisible by the 50:1 ratio, such stockholder will be automatically entitled to receive an additional fraction of a share of Common Stock to round up to the next whole share).  On November 9, 2016, stockholders holding a majority of the Company’s voting power approved the Amendment and the Reverse Stock Split by written consent in lieu of a meeting, in accordance with the Delaware General Corporation Law. The Amendment and Reverse Stock Split took effect on December 20, 2016.

On October 23, 2017, the Company executed Securities Purchase Agreements (each, a “Securities Purchase Agreement”) with a total of 6 accredited investors relating to a private placement offering (the “Offering”) of an aggregate of 300,000 shares of the Company’s Common Stock at a purchase price of $1.00 per share, and of 250 shares of the Company’s newly designated Series C Convertible Preferred Stock (the “Series C Preferred Stock”), at a purchase price of $1,000.00 per share, with such shares of Series C Preferred Stock initially convertible into an aggregate of 250,000 shares of Common Stock. In addition, each investor received a warrant (each, a “Warrant”) to purchase fifty percent of the number of shares of Common Stock effectively purchased in the Offering, for an aggregate of 275,000 shares of Common Stock. The closing of the Offering took place on October 23, 2017.

 

The Securities Purchase Agreement provides each investor with (i) a 12 month right to participate in future financings, (ii) a 24 month right to be issued additional securities in connection with any subsequent dilutive issuance by the Company, and (iii) 24 month piggyback and demand registration rights.  Each Warrant is immediately exercisable at an exercise price of $2.00 per share, expires 5 years from the date of issuance, may be exercised for cash or on a cashless basis, and contains future price-based and customary stock-based anti-dilution protections.

Pursuant to the Certificate of Designation of Preferences, Rights and Limitations of the Series C Preferred Stock (the “Certificate of Designation”), the shares of Series C Preferred Stock are convertible into an aggregate of 250,000 shares of Common Stock based on a conversion price of $1.00 per share. Such conversion price is subject to future price-based and customary stock-based anti-dilution protections. The holders of the Series C Preferred Stock do not possess any voting rights but the Series C Preferred Stock does carry a liquidation preference for each holder equal to the investment made by such holder in the Offering. In addition, the holders of Series C Preferred Stock are eligible to participate in dividends and other distributions by the Company on an as converted basis.

 

THE FOLLOWING RISK FACTORS, AMONG OTHERS, COULD AFFECT OUR ACTUAL RESULTS OF OPERATIONS AND COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN FORWARD-LOOKING STATEMENTS MADE BY US. THOSE FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND WE ASSUME NO OBLIGATION TO UPDATE THAT INFORMATION. YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K BEFORE MAKING AN INVESTMENT DECISION. OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED BY ANY OF THESE RISKS. OUR COMMON STOCK IS CONSIDERED SPECULATIVE AND THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. THE FOLLOWING RISK FACTORS ARE NOT THE ONLY RISK FACTORS FACING US. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO AFFECT OUR BUSINESS.

WE ARE A DEVELOPMENT-STAGE COMPANY AND HAVE A LIMITED OPERATING HISTORY ON WHICH TO ASSESS OUR BUSINESS, HAVE INCURRED LOSSES SINCE OUR INCEPTION, AND ANTICIPATE THAT WE WILL CONTINUE TO INCUR SIGNIFICANT LOSSES FOR THE FORESEEABLE FUTURE.

We are a development-stage biopharmaceutical company with a limited operating history. To date we have not generated any revenues. It is not clear when we will generate revenues.  We cannot give assurances that we will be able to generate any revenues or income in the future.  There is no assurance that we will ever be profitable.

We have devoted substantially all of our financial resources to identify, acquire and license, our lead product candidate. To date, we have financed our operations primarily through the sale of equity securities. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations, or grants. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. With respect to our lead product candidate, we are in the early stages of clinical development. Even if we obtain regulatory approval to market our lead product candidate, our future revenue will depend upon the size of any markets in which our lead product candidate may receive approval, and our ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors, and adequate market share for our product candidates in those markets.

 

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

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continue our research and preclinical and clinical development of our lead product candidate;

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advance our programs into more expensive clinical studies;

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initiate additional preclinical, clinical, or other studies for our product candidates;

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change or add additional manufacturers or suppliers;

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

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establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

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make milestone or other payments under any license agreements;

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

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seek to attract and retain skilled personnel;

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create additional infrastructure to support our operations as a public company and our product development and planned future commercialization efforts; and

•

experience any delays or encounter issues with any of the above, including but not limited to failed studies, complex results, safety issues, or other regulatory challenges that require longer follow-up of existing studies, additional major studies, or additional supportive studies in order to pursue marketing approval.

Further, the net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance.

WE HAVE HAD NO REVENUES SINCE INCEPTION, AND WE CANNOT PREDICT WHEN WE WILL ACHIEVE PROFITABILITY.

Artemis has not been profitable and we cannot predict when we will achieve profitability. We have experienced net losses and have had no revenues since our inception in April 2016. We do not anticipate generating significant revenues until we successfully develop, commercialize and sell our proposed products, of which we can give no assurance. We are unable to determine when we will generate significant revenues, if any, from the sale of any of such products.

 

IF WE ARE UNABLE TO PROTECT THE CONFIDENTIALITY OF OUR TRADE SECRETS, OUR BUSINESS AND COMPETITIVE POSITION WOULD BE HARMED.

We plan to rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We will seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We will seek to protect our confidential proprietary information, in part, by entering into confidentiality and invention or patent assignment agreements with our employees and consultants. Moreover, to the extent we enter into such agreements, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed. In general, any loss of trade secret protection or other unpatented proprietary rights could harm our business, results of operations and financial condition.

 

DEPENDENCE ON PATENT AND OTHER PROPRIETARY RIGHTS AND FAILING TO PROTECT SUCH RIGHTS OR TO BE SUCCESSFUL IN LITIGATION RELATED TO SUCH RIGHTS MAY RESULT IN OUR PAYMENT OF SIGNIFICANT MONETARY DAMAGES OR IMPACT OFFERINGS IN OUR PRODUCT PORTFOLIOS.

Our long-term success largely depends on our ability to market technologically competitive products. If we fail to obtain or maintain adequate intellectual property protection, we may not be able to prevent third parties from using our proprietary technologies or may lose access to technologies critical to our products. Also, our future patent applications may not result in issued patents, and issued patents are subject to claims concerning priority, scope and other issues.

Furthermore, to the extent we do not file applications for patents domestically or internationally, we may not be able to prevent third parties from using our proprietary technologies or may lose access to technologies critical to our products in other countries.

WE HAVE INADEQUATE CAPITAL AND NEED FOR ADDITIONAL FINANCING TO ACCOMPLISH OUR BUSINESS AND STRATEGIC PLANS.

We have very limited funds, and such funds are not adequate to develop our current business plan. Our ultimate success may depend on our ability to raise additional capital. In the absence of additional financing or significant revenues and profits, the Company will have to approach its business plan from a much different and much more restricted direction, attempting to secure additional funding sources to fund its growth, borrowing money from lenders or elsewhere or to take other actions to attempt to provide funding. We cannot guarantee that we will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on terms satisfactory to us.

 

OUR LIKELIHOOD OF PROFITABILITY DEPENDS ON OUR ABILITY TO LICENSE AND/OR DEVELOP AND COMMERCIALIZE PRODUCTS BASED ON OUR LEAD PRODUCT CANDIDATE, ARTEMISONE, A PRE-CLINICAL-STAGE SYNTHETIC ARTEMISININ DERIVATIVE WITH ANTIVIRAL AND ANTIPARASITIC PROPERTIES. OUR LEAD PRODUCT CANDIDATE IS CURRENTLY IN THE DEVELOPMENT STAGE. IF WE ARE UNABLE TO COMPLETE THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS SUCCESSFULLY, OUR LIKELIHOOD OF PROFITABILITY WILL BE LIMITED SEVERELY.

We are engaged in the business of developing our lead product candidate, artemisone, a pre-clinical-stage synthetic artemisinin derivative with antiviral and antiparasitic properties. We have not realized a profit from our operations to date and there is little likelihood that we will realize any profits in the short or medium term. Any profitability in the future from our business will be dependent upon successful commercialization of our lead product candidate and/or licensing of our products, which will require significant additional research and development as well as substantial clinical trials.

WE WILL NEED TO RAISE ADDITIONAL FINANCING TO SUPPORT THE RESEARCH, DEVELOPMENT AND MANUFACTURING OF OUR PRODUCTS BUT WE CANNOT BE SURE WE WILL BE ABLE TO OBTAIN ADDITIONAL FINANCING ON TERMS FAVORABLE TO US WHEN NEEDED.  IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING TO MEET OUR NEEDS, OUR OPERATIONS MAY BE ADVERSELY AFFECTED OR TERMINATED.

It is highly likely that we will need to raise significant additional capital in the future.  Our current financial resources are limited and may not be sufficient to finance our operations until we become profitable, if that ever happens.  It is likely that we will need to raise additional funds in the near future in order to satisfy our working capital and capital expenditure requirements. Therefore, we are dependent on our ability to sell our securities for funds, receive grants or to otherwise raise capital. There can be no assurance that we will be able to obtain financing. Any sale of our common stock in the future will result in dilution to existing stockholders and could adversely affect the market price of our common stock. Also, we may not be able to borrow or raise additional capital in the future to meet our needs or to otherwise provide the capital necessary to conduct the development and commercialization of our potential products, which could result in the loss of some or all of one's investment in our common stock.

 

WE MAY NOT SUCCESSFULLY MAINTAIN OUR EXISTING LICENSE AGREEMENT WITH HADASIT MEDICAL RESEARCH SERVICES & DEVELOPMENT LTD. AND HONG KONG UNIVERSITY OF SCIENCE AND TECHNOLOGY R AND D CORPORATION LIMITED WHICH COULD ADVERSELY AFFECT OUR ABILITY TO DEVELOP AND COMMERCIALIZE OUR PRODUCT CANDIDATES.

We rely on our existing License Agreement with Hadasit Medical Research Services & Development Ltd. and Hong Kong University of Science and Technology R and D Corporation Limited with respect to the development of our lead product candidate. Our business also relies on establish new collaborative and licensing arrangements in the future. Our failure to maintain our existing license, or develop new collaborative and licensing arrangements in the future, could adversely affect our ability to develop and commercialize our product candidates and could adversely affect our business prospects, financial condition or ability to develop and commercialize our product candidates.

One of the elements of our business strategy is to license our technology to other companies. Our business strategy includes establishing collaborations and licensing agreements with one or more pharmaceutical or biotechnology companies. To date, we have entered into a license agreement with Hadasit and RDC. Notwithstanding, we may not be able to further establish or maintain such licensing and collaboration arrangements necessary to develop and commercialize our product candidates. Even if we are able to maintain or establish licensing or collaboration arrangements, these arrangements may not be on favorable terms and may contain provisions that will restrict our ability to develop, test and market our product candidates. Any failure to maintain or establish licensing or collaboration arrangements on favorable terms could adversely affect our business prospects, financial condition or ability to develop and commercialize our product candidates.

 

Our license agreement contains provisions that could give rise to disputes regarding the rights and obligations of the parties. These and other possible disagreements could lead to termination of the agreement or delays in collaborative research, development, supply, or commercialization of certain product candidates, or could require or result in litigation or arbitration. Moreover, disagreements could arise with our collaborators over rights to intellectual property or our rights to share in any of the future revenues of products developed by our collaborators. These kinds of disagreements could result in costly and time-consuming litigation. Any such conflicts with our collaborators could reduce our ability to obtain future collaboration agreements and could have a negative impact on our relationship with existing collaborators.

WE HAVE NOT MET THE DEVELOPMENT AND FINANCING MILESTONES SET FORTH IN THE LICENSE AGREEMENT. AS A RESULT, HADASIT AND/OR RDC MAY TERMINATE THE LICENSE AGREEMENT FOR OUR NON-COMPLIANCE.

Pursuant to the terms of the License Agreement, 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 Effective Time, $1 million within 12 months of the Effective Time and $2 million within 24 months of the Effective Time.

To date, we have not met the development and financing milestones set forth in the License Agreement. We have had discussions with Hadasit relating to amending the development and financial milestones set forth in the License Agreement but there are no guarantees that we will be successful in amending the agreement. If we are unable to amend the development and financing milestones set forth in the License Agreement, Hadasit and/or RDC have the right to terminate the License Agreement, the result of which will have a material negative impact on our business and financial results.

CLINICAL TRIALS ARE VERY EXPENSIVE, TIME-CONSUMING, DIFFICULT TO DESIGN AND IMPLEMENT AND INVOLVE AN UNCERTAIN OUTCOME.

Our only product candidate, artemisone,  is still in development and will require extensive clinical testing before we are prepared to submit an NDA for regulatory approval. We cannot predict with any certainty if or when we might submit an NDA for regulatory approval for artemisone or whether any such NDA will be approved by the FDA. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial process is also time-consuming. We estimate that clinical trials of artemisone will take at least several years to complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials.

The commencement and completion of clinical trials may be delayed by several factors, including:

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failure to obtain regulatory approval to commence a trial;

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unforeseen safety issues;

•

determination of dosing issues;

•

lack of effectiveness during clinical trials;

•

slower than expected rates of patient recruitment or failure to recruit suitable patients to participate in a trial;

•

failure to manufacture sufficient quantities of a drug candidate for use in clinical trials;

•

inability to monitor patients adequately during or after treatment; and

•

inability or unwillingness of medical investigators to follow our clinical protocols.

 

 

Further, we, the FDA or an institutional review board at a clinical trial site may suspend our clinical trials at any time if it appears that we or our collaborators are failing to conduct a trial in accordance with regulatory requirements.

 

EVEN IF WE OBTAIN FDA APPROVAL FOR ARTEMISONE IN THE UNITED STATES, WE MAY NEVER OBTAIN APPROVAL FOR OR COMMERCIALIZE IT IN ANY OTHER JURISDICTION, WHICH WOULD LIMIT OUR ABILITY TO REALIZE ITS FULL MARKET POTENTIAL.

In order to market any products in any particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA in the United States does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. We do not have any product candidates approved for sale in any jurisdiction, including in 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 any product we develop will be unrealized.

THIRD PARTIES MAY INITIATE LEGAL PROCEEDINGS ALLEGING THAT WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY RIGHTS, THE OUTCOME OF WHICH WOULD BE UNCERTAIN AND COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference proceedings before the U.S. Patent and Trademark Office. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party's intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. We may need to seek a license for one or more of these patents.  No assurances can be given that such a license will be available on commercially reasonable terms, if at all.  Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors are able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

 

 

POTENTIAL PRODUCT LIABILITY CLAIMS COULD ADVERSELY AFFECT OUR FUTURE EARNINGS AND FINANCIAL CONDITION.

We face an inherent business risk of exposure to product liability claims in the event that the use of our products results in adverse effects.  We may not be able to maintain adequate levels of insurance for these liabilities at reasonable cost and/or reasonable terms.  Excessive insurance costs or uninsured claims would add to our future operating expenses and adversely affect our financial condition.

WE MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN.

 

WE RELY ON HIGHLY SKILLED PERSONNEL AND, IF WE ARE UNABLE TO RETAIN OR MOTIVATE KEY PERSONNEL OR HIRE ADDITIONAL QUALIFIED PERSONNEL, WE MAY NOT BE ABLE TO GROW EFFECTIVELY.

Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization. Our continued ability to compete effectively depends on our ability to retain and motivate existing employees. Due to our reliance upon skilled laborers, the failure to attract, integrate, motivate, and retain current and/or additional key employees could have a material adverse effect on our business, operating results and financial condition. We do not maintain key person life insurance for any of our employees.

IF WE FAIL TO MANAGE GROWTH OR TO PREPARE FOR PRODUCT SCALABILITY EFFECTIVELY, IT COULD HAVE AN ADVERSE EFFECT ON OUR EMPLOYEE EFFICIENCY, PRODUCT QUALITY, WORKING CAPITAL LEVELS AND RESULTS OF OPERATIONS.

 

 

Aside from increased difficulties in the management of human resources, we may also encounter working capital issues, as we will need increased liquidity to finance the development of new products, and the hiring of additional employees. For effective growth management, we will be required to continue improving our operations, management, and financial systems and controls. Our failure to manage growth effectively may lead to operational and financial inefficiencies that will have a negative effect on our profitability. We cannot assure investors that we will be able to timely and effectively meet that demand and maintain the quality standards required by our existing and potential customers.

 

OUR MANAGEMENT TEAM MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS STRATEGIES.

If our management team is unable to execute on its business strategies, then our development, including the establishment of revenues and our sales and marketing activities would be materially and adversely affected. In addition, we may encounter difficulties in effectively managing the budgeting, forecasting and other process control issues presented by any future growth. We may seek to augment or replace members of our management team or we may lose key members of our management team, and we may not be able to attract new management talent with sufficient skill and experience.

 

IF WE ARE UNABLE TO RETAIN KEY EXECUTIVES AND OTHER KEY AFFILIATES, OUR GROWTH COULD BE SIGNIFICANTLY INHIBITED AND OUR BUSINESS HARMED WITH A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

           Our success is, to a certain extent, attributable to the management, sales and marketing, and operational and technical expertise of certain key personnel. Prof. Dana Wolf, our Chief Scientific Officer, performs key functions in the operation of our business. The loss of Dr. Wolf could have a material adverse effect upon our business, financial condition, and results of operations. If we lose the services of any senior management, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new personnel, which could severely disrupt our business and prospects.

INVESTORS MAY HAVE DIFFICULTIES ENFORCING A U.S. JUDGMENT, INCLUDING JUDGMENTS BASED UPON THE CIVIL LIABILITY PROVISIONS OF THE U.S. FEDERAL SECURITIES LAWS, AGAINST US OR OUR EXECUTIVE OFFICERS AND DIRECTORS, OR ASSERTING U.S. SECURITIES LAWS CLAIMS IN ISRAEL.

Other than our Chief Executive Officer, none of our other directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the United States. Service of process upon us or our non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against us or our non-U.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israeli courts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.

Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with another judgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.

 

OUR CERTIFICATE OF INCORPORATION CONTAINS ANTI-TAKEOVER PROVISIONS WHICH COULD ADVERSELY AFFECT THE VOTING POWER OR OTHER RIGHTS OF THE HOLDERS OF OUR COMMON STOCK.

 

Our certificate of incorporation authorizes the issuance of up to 200,000 shares of preferred stock and our Board of Directors is empowered, without stockholder approval, to issue a new series of preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of common stock. Such authority, together with certain provisions of Delaware law and of our certificate of incorporation and bylaws, may have the effect of delaying, deterring or preventing a change in control of us, may discourage bids for the common stock at a premium over the market price and may adversely affect the market price, and the voting and other rights of the holders of the common stock. Although we have no present intention to issue any additional shares of our preferred stock, we may do so in the future. The board of directors of a Delaware corporation may issue rights, options, warrants or other convertible securities, or rights entitling its holders to purchase, receive or acquire shares or fractions of shares of the corporation or assets or debts or other obligations of the corporation, upon such terms as are determined by the board of directors. Our Board of Directors is free, subject to their fiduciary duties to stockholders, to structure the issuance or exercise of the rights in a manner which may exclude significant stockholders from being entitled to receive such rights or to exercise such rights or in a way which may effectively prevent a takeover of the corporation by persons deemed hostile to management. Nothing contained in our certificate of incorporation will prohibit our Board of Directors from using these types of rights in this manner.

 

OUR EXECUTIVE OFFICERS AND CERTAIN STOCKHOLDERS POSSESS THE MAJORITY OF OUR VOTING POWER, AND THROUGH THIS OWNERSHIP, CONTROL OUR COMPANY AND OUR CORPORATE ACTIONS.

Our current executive officers and certain large shareholders of the Company hold approximately 61% of the voting power of our outstanding shares. These persons have a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. As such, our executive officers have the power to prevent or cause a change in control; therefore, without their consent we could be prevented from entering into transactions that could be beneficial to us.  The interests of our executive officers may give rise to a conflict of interest with the Company and the Company’s shareholders.

THERE IS A SUBSTANTIAL LACK OF LIQUIDITY OF OUR COMMON STOCK AND VOLATILITY RISKS.

 

Our common stock is traded on the over-the-counter market with quotations published on the OTCQB tier of the OTC Bulletin Board (the “OTCBB”), under the symbol “ATMS”. The trading volume of our common stock historically has been limited and sporadic, and the stock prices have been volatile. As a result of the limited and sporadic trading activity, the quoted price for our common stock on the over-the-counter market is not necessarily a reliable indicator of its fair market value. The price at which our common stock will trade in the future may be highly volatile and may fluctuate as a result of a number of factors, including, without limitation, any potential business combination that we announce, as well as the number of shares available for sale in the market.

 

 

The trading volume of our common stock may be limited and sporadic. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price.  We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained. As a result of such trading activity, the quoted price for our common stock on the OTCBB may not necessarily be a reliable indicator of our fair market value.  In addition, if our shares of common stock cease to be quoted, holders would find it more difficult to dispose of or to obtain accurate quotation as to the market value of, our common stock and as a result, the market value of our common stock likely would decline.

 

  The market price for our stock may be volatile and subject to fluctuations in response to factors, including the following:

 

 

Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including as to whether our common stock will sustain current market prices, or as to what effect that the sale of shares or the availability of common stock for sale at any time will have on the prevailing market price.

BECAUSE WE BECAME PUBLIC BY MEANS OF A “REVERSE MERGER,” WE MAY NOT BE ABLE TO ATTRACT THE ATTENTION OF MAJOR BROKERAGE FIRMS.

 

There may be risks associated with us becoming public through a “reverse merger.” Securities analysts of major brokerage firms and securities institutions may not provide coverage of us because there were no broker-dealers who sold our stock in a public offering that would be incentivized to follow or recommend the purchase of our common stock. The absence of such research coverage could limit investor interest in our common stock, resulting in decreased liquidity.  No assurance can be given that established brokerage firms will, in the future, want to cover our securities or conduct any secondary offerings or other financings on our behalf.

 

 

OUR COMMON STOCK MAY NEVER BE LISTED ON A MAJOR STOCK EXCHANGE.

 

While we may seek the listing of our common stock on a national or other securities exchange at some time in the future, we currently do not satisfy the initial listing standards and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange.  Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing, the trading price of our common stock could suffer, the trading market for our common stock may be less liquid, and our common stock price may be subject to increased volatility.

OUR STOCK PRICE MAY BE VOLATILE.

 

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies.  These market fluctuations may also materially and adversely affect the market price of our common stock.

 

OUR COMMON STOCK IS SUBJECT TO PRICE VOLATILITY UNRELATED TO OUR OPERATIONS.

 

The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting the Company’s competitors or the Company itself. In addition,  the OTCBB is subject to extreme price and volume fluctuations in general.  This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

 

A DECLINE IN THE PRICE OF OUR COMMON STOCK COULD AFFECT OUR ABILITY TO RAISE WORKING CAPITAL AND ADVERSELY IMPACT OUR ABILITY TO CONTINUE OPERATIONS.

 

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital.  A decline in the price of our common stock could be especially detrimental to our liquidity and our operations.  Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plan and operations, including our ability to develop new services and continue our current operations.  If our common stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from operations sufficient to meet our obligations.  If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal operations

SALES OF OUR CURRENTLY ISSUED AND OUTSTANDING STOCK MAY BECOME FREELY TRADABLE PURSUANT TO RULE 144 AND MAY DILUTE THE MARKET FOR YOUR SHARES AND HAVE A DEPRESSIVE EFFECT ON THE PRICE OF THE SHARES OF OUR COMMON STOCK.

 

A portion of the outstanding shares of Common Stock are “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”) (“Rule 144”).  As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that a non-affiliate who has held restricted securities for a period of at least six months may sell their shares of common stock.  Under Rule 144, affiliates who have held restricted securities for a period of at least six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company’s outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale (the four calendar week rule does not apply to companies quoted on the OTCBB).  A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop.

 

THE SECURITIES ISSUED IN CONNECTION WITH THE MERGER ARE RESTRICTED SECURITIES AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF REGISTRATION OR THE AVAILABILITY OF A RESALE EXEMPTION.

 

The shares of common stock being issued in connection with the Merger are being issued in reliance on an exemption from the registration requirements under Section 4(a)(2) of the Securities Act. Consequently, these securities will be subject to restrictions on transfer under the Securities Act and may not be transferred in the absence of registration or the availability of a resale exemption. In particular, in the absence of registration, such securities cannot be resold to the public until certain requirements under Rule 144 promulgated under the Securities Act have been satisfied, including certain holding period requirements. As a result, a purchaser who receives any such securities issued in connection with the Merger may be unable to sell such securities at the time or at the price or upon such other terms and conditions as the purchaser desires, and the terms of such sale may be less favorable to the purchaser than might be obtainable in the absence of such limitations and restrictions.

 

WE DO NOT PLAN TO DECLARE OR PAY ANY DIVIDENDS TO OUR STOCKHOLDERS IN THE NEAR FUTURE.

 

We have not declared any dividends in the past, and we do not intend to distribute dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant.  There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.

 

THE REQUIREMENTS OF BEING A PUBLIC COMPANY MAY STRAIN OUR RESOURCES AND DISTRACT MANAGEMENT.

 

As a public company, we are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). These requirements are extensive. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting.

 

  

We may incur significant costs associated with our public company reporting requirements and costs associated with applicable corporate governance requirements.  We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly.  This may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.  We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.  As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

 

FUTURE CHANGES IN FINANCIAL ACCOUNTING STANDARDS OR PRACTICES MAY CAUSE ADVERSE UNEXPECTED FINANCIAL REPORTING FLUCTUATIONS AND AFFECT REPORTED RESULTS OF OPERATIONS.

 

A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective.  New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future.  Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct business.

 

“PENNY STOCK” RULES MAY MAKE BUYING OR SELLING OUR COMMON STOCK DIFFICULT.

 

Trading in our common stock is subject to the “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer that recommends our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common stock.

 

 

 

Not applicable.

 

Our principal executive office is currently located at 18 East 16th Street, Suite 307, New York, NY, however, we are in search of new executive offices. Additionally, we utilize the clinical virology laboratory of the Hadassah Medical Center located in Jerusalem, Israel, where our Chief Scientific Officer, Dr. Wolf, conducts research relating to our licensed technology. The clinical virology laboratory is approximately 250 square meters in size. We do not currently own any properties.

We are not currently a party to or subject to any material legal proceedings.

ITEM 4.                 MINE SAFETY DISCLOSURES.

 

 

PART II

 

 

The following table sets forth, for the fiscal periods indicated, the high and low bid prices of a share of our common stock as reported by the OTCBB under the symbol “ATMS” for the periods indicated. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

 

 

We have not paid dividends on our common stock since inception and we do not intend to pay any dividends to our stockholders in the foreseeable future. We currently intend to retain earnings, since the Company has no current business or development projects. The declaration of dividends in the future will be at the election of our Board of Directors and will depend upon our earnings, capital requirements, financial position, general economic conditions, and other factors the Board of Directors deem relevant. 

 

 

ITEM 6.                 SELECTED FINANCIAL DATA.

 

Not applicable.

 

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) covers information pertaining to the Company for the year ended December 31, 2017, and should be read in conjunction with the audited financial statements and related notes of the Company as of and for the year ended December 31, 2017. Except as otherwise noted, the financial information contained in this MD&A and in the financial statements has been prepared in accordance with accounting principles generally accepted in the United States of America. All amounts are expressed in U.S. dollars unless otherwise noted. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors.

 

OVERVIEW

 

We are a biopharmaceutical company dedicated to the development of novel, safe, and effective agents for the prevention and treatment of severe and potentially life-threatening infectious diseases. Our lead product candidate, artemisone, is a clinical-stage synthetic artemisinin derivative with antiviral and antiparasitic properties. We expect to advance artemisone initially as an antiviral agent to address unmet clinical needs in the growing population of immunocompromised patients infected with HCMV, and other related clinical indications.

 

On May 31, 2016, we entered into the License Agreement with Hadasit and RDC, pursuant to which we 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. We will rely primarily on the License Agreement with respect to the development of artemisone, our lead product candidate.

To date, we have not generated revenue from the sale of our lead product candidate and do not anticipate generating any revenue for an extended period of time. Our financing activities are described below under “Liquidity and Capital Resources.”

 

TAXES

 

We have not recorded any income tax benefit for any period from inception to December 31, 2017. The utilization of these benefits depends on our ability to generate taxable income in the future. Because of the uncertainty of our generating taxable income, we have recorded a full valuation allowance with respect to these deferred assets.

 

CRITICAL ACCOUNTING POLICIES

 

Our financial statements are prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The significant accounting policies followed in the preparation of the financial statements, applied on a consistent basis and which have been prepared in accordance with the historical cost convention, are set forth in Note 2 to the consolidated financial statements contained elsewhere in this annual report.

 

Of these significant accounting policies, certain policies may be considered critical because they are most important to the portrayal of our financial condition and results, and they require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe the following critical accounting policies were affected by our more significant judgments and estimates used in the preparation of our consolidated financial statements until the Closing.

 

REVENUE RECOGNITION. Revenues from product sales were recognized in accordance with ASC Topic 605, “Revenue Recognition”, when delivery had occurred, persuasive evidence of an agreement existed, the vendor’s fee was fixed or determinable, no further obligation existed and collectability was probable. Delivery was considered to have occurred upon shipment of products. When and if a right of return existed, we deferred revenues until the right of return expired.  As a result of the Asset Sale, we no longer generate revenues.

 

INVENTORIES. Inventories were stated at the lower of cost or market. Cost was determined on a “first in, first out” basis. We regularly reviewed inventory values and quantities on hand and wrote down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. In making the determination, we considered future sales of related products and the quantity of inventory at the balance sheet date, assessed against each inventory item’s past usage rates and future expected usage rates. As a result of the Asset Sale, we no longer have inventories.

 

ALLOWANCE FOR DOUBTFUL ACCOUNTS. We performed credit evaluations of our customers’ financial condition. We maintained allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We recorded our bad debt expenses as general and administrative expenses. When we became aware that a specific customer was unable to meet its financial obligations to us, we recorded a specific allowance to reflect the level of credit risk in the customer’s outstanding receivable balance.

 

DEFERRED INCOME TAXES. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and any valuation allowance recorded against net deferred tax assets. Due to the fact that we have a history of losses, it is likely that the deferred tax will not be realized.  This will continue to be the case following the Closing.

 

 

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2017 COMPARED TO THE PERIOD ENDED DECEMBER 31, 2016 (dollars in thousands)

 

REVENUES. 

The Company did not have revenue-producing operations for the fiscal year ended December 31, 2017, or the fiscal period ended December 31, 2016.

COST OF REVENUES.  The Company has no cost of revenues for the fiscal year ended December 31, 2017, or the fiscal period ended December 31, 2016, due to the fact that the Company has no revenue-producing operations.

 

PROFIT FROM SALE OF OPERATIONS, NET. We did not incur a profit from the sale of operations in the fiscal year ended December 31, 2017, or the fiscal period ended December 31, 2016.

RESEARCH AND DEVELOPMENT EXPENSES. Our research and development expenses consisted primarily of consulting services.

Total research and development expenses for the year ended December 31, 2017, increased by 247% to $309 from $89 for the period ended December 31, 2016.  We do not capitalize research and development expenses, as all such expenses were charged to operating expenses as incurred.  This increase in research and development expenses during 2017 is mainly attributable to an increase of share compensation expenses from $36 to $75 and an increase in research activities.

SELLING AND MARKETING EXPENSES. Selling and marketing expenses were $0 for the year ended December 31, 2017, and the fiscal period ended December 31, 2016,  due to the Company being in its developmental stage.

GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses consisted primarily of compensation costs for administrative, finance and general management personnel, insurance, legal, accounting and administrative costs.

 

FINANCIAL INCOME (EXPENSES), NET. We incurred financial expenses of $104 in 2017, compared to $9 for the period ended December 31, 2016.  This increase is attributable to a warrant finance expense of $109 and Financial income, net primarily related to exchange rate changes and bank commissions.

 

 

NET LOSS. We incurred a net loss of $1,143 in the year ended December 31, 2017, as compared to a net loss of $264 for the period ended December 31, 2016.   These net losses were primarily related to our operational and financial expenses.

 

LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands)

 

As of December 31, 2017, and as of December 31, 2016, we had an accumulated deficit of $1,407 and $264, respectively, and a positive working capital (current assets less current liabilities) of $530 and $914, respectively. Losses will probably continue in the foreseeable future.

 

We do not have any material capital commitments for capital expenditures as of December 31, 2017, or December 31, 2016.

We have sustained significant operating losses in recent periods, which has resulted in a significant reduction in our cash reserves.  Artemis has not been profitable and we cannot predict when we will achieve profitability. Artemis has experienced net losses and has had no revenues since its inception in April 2016. We do not anticipate generating significant revenues until we successfully develop, commercialize and sell our proposed products, of which we can give no assurance. We are unable to determine when we will generate significant revenues, if any, from the sale of any of such products.  As of December 31, 2017, and December 31, 2016, we had accumulated liabilities of $53 and $58, respectively.

As of December 31, 2017, and December 31, 2016, we had cash and cash equivalents of $525 and $907 respectively, and negative cash flow from operating activities of $607 and $276, respectively, for the year and period then ended. The negative cash flow from operating activities in the year ended December 31, 2017 is attributable mainly to a net loss of $1,143, share based compensation expenses of $106, a decrease in other accounts receivable of $7, a decrease in accrued expenses of $5 and an increase in a long term warrant liability of $428.

 

We had positive cash flow from financing activities of $544 in 2017 and $1,182 in 2016. The positive cash flow from financing activities in 2017 was attributable mainly to the  issuance of common stock in the amount of $544.

 

We did not have any cash flows from or used for investing activities in 2017.

 

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

 

On May 31, 2016, Artemis entered into a License Agreement with Hadasit and 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 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.

 

 OFF BALANCE SHEET ARRANGEMENTS

 

None.

 

 

Not applicable.

 

 

 

The Financial Statements and Notes thereto can be found beginning on page F-1, following Part III of this Annual Report on Form 10-K.

 

 

None.

 

 

 

None.

 

 

PART III

 

 

 

BRIAN CULLEY was appointed as Chief Executive Officer in August 2017. Mr. Culley previously served as Mast Therapeutics, Inc.’s (“Mast”) Chief Executive Officer since February 2010 and was a member of its Board of Directors since December 2011, until Mast’s merger with Savara, Inc. (SVRA) in April 2017. Mr. Culley served from January 2007 to February 2010 as Mast’s Chief Business Officer and Senior Vice President, from February 2006 to January 2007 as Mast’s Senior Vice President, Business Development, and from December 2004 to February 2006 as Mast’s Vice President, Business Development. From 2002 until 2004, Mr. Culley was Director of Business Development and Marketing for Immusol, Inc. From 1999 until 2000, he worked at the University of California, San Diego (UCSD) department of technology transfer & intellectual property services and from 1996 to 1999 he conducted drug development research for Neurocrine Biosciences, Inc. Mr. Culley has 25 years of business and scientific experience in the life science industry. He received a B.S. in biology from Boston College, a masters in biochemistry and molecular biology from the University of California, Santa Barbara, and an M.B.A. from The Johnson School of Business at Cornell University.

CHANAN MORRIS was appointed as Chief Financial Officer in September 2014.  Since October 2011, Mr. Morris has also served as the Vice President of Finance at Mango DSP Ltd., which provides intelligent video solutions using video encoding appliances and intelligent video analytics.  He also provides CFO and business services to public companies and start-up companies. Prior to joining Mango, Mr. Morris served as the Vice President of Finance at Power Paper Ltd. Mr. Morris holds a B.A. in Accounting from Northeastern Illinois University.

ISRAEL ALFASSI was appointed as a Director in August 2016 in conjunction with the closing of the Merger and has served as the Chief Executive Officer and co-founder of Artemis Pharma Inc. since its inception. From 2007 to 2009, Mr. Alfassi served as a Director and Vice President of Products and Business Development for DVTel, later acquired by Flir Systems, Inc. (NASDAQ: FLIR), which provides video surveillance HW & SW solutions. During 2012 he served as the Vice President of Products, and from 2010 to 2011 as Director of Product management and Marketing, for 3i-Mind, a company which primarily provides advanced security solutions & services for governments. Mr. Alfassi has also served in various entrepreneurial roles as the co-founder of TraceTech Security, an Israeli company founded in 2009 focused on explosive and drug trace detection products, serving as the Chief Executive Officer of LoginWall, a cyber security company, in 2013, serving as the Vice President Products and Marketing in 2014 of Kaymera, a leading cyber security provider of secured mobile communication solutions and as a founder of AlgoCrowd Trading, a crowd wisdom based Algotrading Company. Mr. Alfassi’s prior investment and managerial experience make him suitable to serve as a director of the Company.

 

DANA WOLF was appointed as Chief Scientific Officer in August 2016 in conjunction with the closing of the Merger. From 2001 until the present, Dr. Wolf has served as the Head of Clinical Virology, and from 1996 until the present has served as a Senior physician for infectious diseases, at the Hadassah University Hospital in Jerusalem, Israel, where she had previously completed her Internal Medicine residency and her clinical fellowship in Infectious Diseases.   Dr. Wolf has also served as the Director of National Influenza Center in Israel from 2002 until the present, as well as served on the National Advisory Committee on Immunization practices and Infectious Diseases from 2005 until the present. In addition, Dr. Wolf has been a member of the National Epidemics Preparedness Team from 2009 to the present and from 2008 to 2013 served on the National Laboratory Advisory Committee. In 2014, Dr. Wolf was the recipient of the Landau Prize for the Science and Performing Arts in the field of virology. Dr. Wolf holds an M.D. from the Hadassah Hebrew University Medical School.

 

GADI PELEG was appointed as a director in August 2008. Since May 2003, Mr. Peleg has been the president of Cape Investment Advisors, Inc., a private investment firm. Mr. Peleg also serves on the Board of Directors of Atelier 4, Inc., a logistics firm specializing in the care and transport of fine art and antiquities, which he joined in November 2005. Mr. Peleg received his B.S. from Columbia School of Engineering and Applied Science in 1997, and completed the Owner/President Management Program of Harvard Business School in 2008.  Mr. Peleg’s diverse investment and managerial experience make him suitable to serve as a director of the Company.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and officers, and persons who own more than 10% of our common stock, to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of our common stock and our other equity securities. Officers, directors and greater than 10% beneficial owners are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.

 

To our knowledge, based solely on review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal period ended December 31, 2017, all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were filed on a timely basis.

 CODE OF ETHICS

 

We currently do not have a code of ethics in place, as we are in the process of revising our preexisting code of conduct and ethics subsequent to the consummation of the Merger.  Now that the Merger has been completed, we are developing and plan to adopt a code of conduct and ethics that will apply to all of our employees, our directors, principal executive and financial officers. Disclosure regarding the adoption of, any amendments to, or waivers from, provisions of the code of conduct and ethics that apply to our directors, principal executive and financial officers will be included in a Current Report on Form 8-K within four business days following the date of any such amendment or waiver.

 

CORPORATE GOVERNANCE

 

AUDIT COMMITTEE. Currently, the Board of Directors recommends to retain or terminate the services of our independent accountants, reviews annual financial statements, considers matters relating to accounting policy and internal controls and reviews the scope of annual audits.  We do not currently have any audit committee financial expert on our Board of Directors.

 

COMPENSATION COMMITTEE. The Board of Directors has not established a compensation committee primarily because the current composition and size of the Board of Directors permits candid and open discussion regarding compensation of the Company’s executive officers and administration of plans of the Company under which Company securities may be acquired by directors, executive officers, employees and consultants.

 

 

NOMINATING COMMITTEE. We do not have a standing nominating committee. The Board of Directors has not established a nominating committee primarily because the current composition and size of the Board of Directors permits candid and open discussion regarding potential new members of the Board of Directors. The entire Board of Directors currently operates as the nominating committee for us. There is no formal process or policy that governs the manner in which we identify potential candidates for the Board of Directors. Historically, however, the Board of Directors has considered several factors in evaluating candidates for nomination to the Board of Directors, including the candidate’s knowledge of the company and its business, the candidate’s business experience and credentials, and whether the candidate would represent the interests of all the company’s stockholders as opposed to a specific group of stockholders. We do not have a formal policy with respect to our consideration of Board of Directors nominees recommended by our stockholders. However, the Board of Directors will consider candidates recommended by stockholders on a case-by-case basis. A stockholder who desires to recommend a candidate for nomination to the Board of Directors should do so by writing to us at 18 East 16th Street, Suite 307, New York, NY 10003, Attn: Chairman of the Board.

 

The following table shows the particulars of compensation paid to our named executive officers for the fiscal years ended December 31, 2017, and 2016. We do not currently have any other executive officers.

 

Summary Compensation Table

(dollars in thousands)

 

Name and Principal Position		Year			Salary				Bonus				Equity Awards				Option Awards				All Other Compensation				Total
Chanan Morris,		2017			$	42	(1)							-				-				-			$	42
Chief Financial Officer		2016			$	35	(1)		$	2.5				-				-				-			$	37.5
Peter Payne,		2017			$	146				-				-				-				-			$	146
Chief Executive Officer		2016				-				-				-				-				-				-
Brian Culley,		2017			$	63				-				-				-				-			$	63
Chief Executive Officer		2016				-				-				-				-				-				-

 

(1)   For the period from January 1, 2016, through August 31, 2016, Mr. Morris received a monthly fee of $2,500 in connection with a consulting arrangement with the Company.  His monthly fee was increased to $3,500 per month starting on August 1, 2016.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

As of December 31, 2017, our named executive officers have outstanding equity awards as follows:

 

As described more fully below, on August 9, 2017, in conjunction with the execution of his employment agreement, we granted Brian Culley, our Chief Executive Officer, a non-statutory stock option to purchase 242,640 shares of the Company’s common stock, with an exercise price of $1.30 per share, with such option subject to a pro rata 48 month vesting period.

In connection with Mr. Culley’s appointment as Interim Chief Executive Officer, the Company agreed to issue Mr. Culley a non-statutory stock option to purchase 242,640 shares of the Company’s common stock, with an exercise price of $1.30 per share, with such option subject to a pro rata 48 month vesting period. In the event Mr. Culley’s employment is terminated without cause within 60 days of a change of control (as defined in the Culley Employment Agreement) then 50% of such outstanding and unvested options shall become immediately vested, and if Mr. Culley’s employment is terminated for a good reason within 60 days of a change of control (as defined in the Culley Employment Agreement), then 100% of such outstanding and unvested options shall become immediately vested. In addition, subject to the approval of the Board, Mr. Culley may be entitled to receive an additional, one time, fully vested non-statutory stock option grant to purchase up to 48,528 shares of the Company’s common stock.

As consideration for the execution and performance of the Consulting Agreement by and among the Company, effective as of August 23, 2016, Dr. Wolf was awarded an option to purchase: (i) 12,500 shares of the Company’s common stock, whereby 4,167 shares of common stock vests upon the date of grant and 4,167 shares of common stock vest upon the one and two year anniversaries of the grant date, with the option becoming fully vested on August 22, 2018, and (ii)  21.35 shares of Series B Preferred Stock which vest upon the date of grant and 21.35 shares of Series B Preferred Stock which vest upon the one and two year anniversaries of the grant date, with the option becoming fully vested on August 22, 2018. Such 64.05 shares of Series B Preferred Stock are exercisable into 93,576 shares of common stock. The option issued to Dr. Wolf contains an exercise price per share, on a common stock equivalent basis, of $0.01.

 

DIRECTOR COMPENSATION

 

The Company did not pay any fees to their respective directors for attendance at meetings of the board; however, the Company may adopt a policy of making such payments in the future.  The Company may reimburse out-of-pocket expenses incurred by directors in attending board and committee meetings.

 

 

CONSULTING, EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS

Artemis entered into a Consulting Agreement by and between Artemis, Dr. Wolf and Hadasit, effective as of the Effective Time (the “Consulting Agreement”). Pursuant to the terms of the Consulting Agreement, Dr. Wolf will serve as the Chief Science Officer and a member of the Scientific Advisory Board of Artemis and shall oversee research and development activities for Artemis. Hadasit shall permit to make Dr. Wolf available to perform services for Artemis for up to 15 hours per month, unless otherwise agreed to by the parties. The term of the Consulting Agreement is 3 years, subject to automatic renewal terms of 12 months, unless earlier terminated by the parties. Artemis may terminate the Consulting Agreement within 21 days of Hadasit filing a petition for bankruptcy or liquidation, immediately in the event Hadasit or Dr. Wolf breaches a material term of the Consulting Agreement and such breach is not cured, if curable, within 21 days of delivery to Hadasit of written notice of such breach. Hadasit may terminate the Consulting Agreement within 21 days of Artemis filing a petition for bankruptcy or liquidation, immediately in the event the Company breaches a material term of the Consulting Agreement, License Agreement or Sponsored Research Agreement and such breach is not cured, if curable, within 21 days of delivery to the Company of written notice of such breach. Dr. Wolf may terminate the Consulting Agreement upon 60 days prior notice. As consideration for the execution and performance of the Consulting Agreement, Artemis agreed to a monthly service fee to Dr. Wolf in the amount of $2,000 per month, plus value added tax, a fee of $300 per hour for any hour in excess of 15 hours worked by Dr. Wolf, $1,500 per day for trips made abroad by Dr. Wolf, as well as stock options in the amount of an aggregate of 300 shares to Hadasit (entitled to 50 of such option shares) and Dr. Wolf (entitled to 250 of such option shares), representing 3% of the issued and outstanding common stock of Artemis on a fully diluted basis, each subject to vesting. In that regard, Dr. Wolf was awarded an option to purchase 105,608 shares of the Company’s common stock, whereby 35,202 shares of common stock vests upon the date of grant and 35,203 shares of common stock vest upon each of the first and second anniversaries of the grant date, with the option becoming fully vested on August 22, 2018. The option issued to Dr. Wolf has an exercise price per share, on a common stock equivalent basis, of $0.01. In addition, Hadasit was awarded an option to purchase 21,122 shares of the Company’s common stock, whereby 7,040 shares of common stock vests upon the date of grant and 7,041 shares of common stock vest upon each of the first and second anniversaries of the grant date, with the option becoming fully vested on August 22, 2018. The option issued to Hadasit has an exercise price per share, on a common stock equivalent basis, of $0.01.

Effective as of January 10, 2017, the Company appointed Mr. Peter N. Payne, age 57, to serve as the Company’s Chief Executive Officer.  For his services as Chief Executive Officer, Mr. Payne received an annual salary in the amount of $180,000.  Mr. Payne was also entitled to receive an annual bonus at the discretion of the Company’s Board of Directors.

On August 7, 2017, Peter Payne resigned from his position as Chief Executive Officer of the Company, effective as of August 18, 2017.  On August 9, 2017, the Board of Directors of the Company appointed Brian Culley as Interim Chief Executive Officer.

In connection with Mr. Culley’s appointment, the Company entered into an employment agreement with Mr. Culley, dated August 9, 2017 (the “Culley Employment Agreement”). Pursuant to the Culley Employment Agreement, the Company agreed to pay him an annual base salary of $150,000. In addition, if the Company receives a capital investment in an aggregate amount that exceeds $2 million (a “Capital Raise”) by December 31, 2017, Mr. Culley’s annual base salary will be increased to $300,000. The Culley Employment Agreement further provides that Mr. Culley will be entitled to an annual bonus equal to up to 50% of the annual base salary, up to a maximum of $120,000 in the aggregate, subject to certain performance goals to be determined by the Board. In addition, in the event of a successful Capital Raise prior to December 31, 2017, Mr. Culley will also be eligible to receive a one time bonus of $12,500 for each month he is employed by the Company prior to the date of such investment.

Also, in connection with Mr. Culley’s appointment, the Company agreed to issue Mr. Culley a non-statutory stock option to purchase 242,640 shares of the Company’s common stock, with an exercise price of $1.30 per share, with such option subject to a pro rata 48 month vesting period. In the event Mr. Culley’s employment is terminated without cause within 60 days of a change of control (as defined in the Culley Employment Agreement) then 50% of such outstanding and unvested options shall become immediately vested, and if Mr. Culley’s employment is terminated for good reason within 60 days of a change of control (as defined in the Culley Employment Agreement), then 100% of such outstanding and unvested options shall become immediately vested. In addition, subject to the approval of the Board, Mr. Culley may be entitled to receive an additional, one time, fully vested non-statutory stock option grant to purchase up to 48,528 shares of the Company’s common stock.

 

On January 3, 2018, the Company and Mr. Culley entered into a amendment to the Culley Employment Agreement pursuant to which the date by which Mr. Culley would be entitled to an increase in his annual base salary, from $150,000 to $300,000 in the event the Company receives a capital investment in an aggregate amount that exceeds $2 million, was extended from December 31, 2017 to March 31, 2018.

 

The number of shares beneficially owned is determined under rules promulgated by the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. The shares in the tables does not, however, constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares. 

* less than 1%

 

 

 

EQUITY COMPENSATION PLAN INFORMATION

 

The following table provides information about shares of our common stock that may be issued whether directly or upon the exercise of options and warrants under all of our existing compensation plans as of December 31, 2017. Our stockholder approved equity compensation plan consists of: (i) the Company’s 2002 Employee, Director and Consultant Option Plan, or the Option Plan, and (ii) the Company’s 2011 Employees, Directors and Consultants Stock Plan, or the Stock Plan.

 

Under the Option Plan, we grant options in order to attract and retain employees, directors, officers and certain consultants. Such options become exercisable under vesting schemes as approved by the Board of Directors or by the compensation committee, if delegated by the Board of Directors. Normally, the options are vested ratably as long as the optionee still serves with the Company and expire after five years from the grant date. We have a number of options and warrants which were granted pursuant to equity compensation plans not approved by security holders and such securities are aggregated in the table below.

 

In September 2011, the Company’s stockholders approved and ratified the Stock Plan. The purpose of the Stock Plan is to encourage eligible employees, directors and other individuals who render services to the Company and its subsidiaries to continue their association with the Company and its subsidiaries by providing opportunities for them to participate in the ownership of the Company and in its future growth through the issuance to such persons of restricted shares of Common Stock of the Company. The total number of shares that can be issued under the Stock Plan shall be determined from time to time by the Board of Directors, provided, however, that such number, together with the number of shares that may be issued under the Option Plan, and options granted outside the Option Plan, shall not exceed 200,000 shares. The Stock Plan is administered by the Board of Directors.

 

 

 

 

TRANSACTIONS WITH RELATED PERSONS

 

As of the Effective Time, Artemis entered into the Consulting Agreement by and between Artemis, Dr. Wolf and Hadasit. Pursuant to the terms of the Consulting Agreement, Dr. Wolf will serve as the Chief Science Officer and a member of the Scientific Advisory Board of Artemis and shall oversee research and development activities for Artemis. Hadasit shall permit to make Dr. Wolf available to perform services for Artemis for up to 15 hours per month, unless otherwise agreed to by the parties. The term of the Consulting Agreement is 3 years, subject to automatic renewal terms of 12 months, unless earlier terminated by the parties. Artemis may terminate the Consulting Agreement within 21 days of Hadasit filing a petition for bankruptcy or liquidation, immediately in the event Hadasit or Dr. Wolf breaches a material term of the Consulting Agreement and such breach is not cured, if curable, within 21 days of delivery to Hadasit of written notice of such breach. Hadasit may terminate the Consulting Agreement within 21 days of Artemis filing a petition for bankruptcy or liquidation, immediately in the event the Company breaches a material term of the Consulting Agreement, License Agreement or Sponsored Research Agreement and such breach is not cured, if curable, within 21 days of delivery to the Company of written notice of such breach. Dr. Wolf may terminate the Consulting Agreement upon 60 days prior notice. As consideration for the execution and performance of the Consulting Agreement, Artemis agreed to a monthly service fee to Dr. Wolf in the amount of $2,000 per month, plus value added tax, a fee of $300 per hour for any hour in excess of 15 hours worked by Dr. Wolf, $1,500 per day for trips made abroad by Dr. Wolf, as well as stock options in the amount of an aggregate of 300 shares to Hadasit (entitled to 50 of such option shares) and Dr. Wolf (entitled to 250 of such option shares), representing 3% of the issued and outstanding common stock of Artemis on a fully diluted basis, each subject to vesting.

 

In that regard, Dr. Wolf was awarded an option to purchase 105,608 shares of the Company’s common stock, whereby 35,202 shares of common stock vests upon the date of grant and 35,203 shares of common stock vest upon the each of the first and second anniversaries of the grant date, with the option becoming fully vested on August 22, 2018. The option issued to Dr. Wolf has an exercise price per share, on a common stock equivalent basis, of $0.01. In addition, Hadasit was awarded an option to purchase 21,122 shares of the Company’s common stock, whereby 7,040 shares of common stock vests upon the date of grant and 7,041 shares of common stock vest upon each of the first and second anniversaries of the grant date, with the option becoming fully vested on August 22, 2018. The option issued to Hadasit has an exercise price per share, on a common stock equivalent basis, of $0.01.  

DIRECTOR INDEPENDENCE

 

As our common stock is currently traded on the OTCBB, we are not subject to the rules of any national securities exchange which require that a majority of a listed Company’s directors and specified committees of the Board of Directors meet independence standards prescribed by such rules. Nonetheless, none of the directors currently serving on the Board of Directors is an independent director within the meaning of NASDAQ Rule 5605(a)(2).

 

 

ITEM 14.               PRINCIPAL ACCOUNTANT FEES AND SERVICES (dollars in thousands).

 

The following table presents fees for professional audit services rendered by Brightman Almagor Zohar & Co., CPA, a member firm of Deloitte Touche Tohmatsu Limited, or BAZ, for the audit of our annual financial statements for the years ended December 31, 2017 and December 31, 2016 and fees billed for other services rendered by BAZ during the same periods.

 

 

 

POLICY ON BOARD OF DIRECTORS PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS

 

Our Board of Directors appoints, sets compensation and oversees the work of the independent registered public accounting firm. The Board of Directors has established a policy to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm.

 

Prior to engagement of the independent registered public accounting firm for the next year’s audit, management will submit an estimate of fees for the services expected to be rendered during that year for each of four categories of services to the Board of Directors for approval.

 

 

 

 

 

Prior to engagement, the Board of Directors pre-approves these services by category of service. The fees are budgeted and the Board of Directors requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the Board of Directors approves these services before engaging the independent registered public accounting firm.

 

The Board of Directors may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Board of Directors at its next scheduled meeting. The Board of Directors pre-approved all the above listed fees in accordance with its policy.

 

 

PART IV

 

ITEM 15.               EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

 

 

 

 

* Management contract or compensatory plan or arrangement.

** Filed herewith.

*** Furnished herewith.

 

ITEM 16.       10-K SUMMARY.

None.

 

 

SIGNATURE PAGE

 

Pursuant to the requirements Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

ARTEMIS THERAPEUTICS, INC.

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

 

 

44

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