Manuka, Inc. - Quarter Report: 2018 September (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2018
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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(Commission file number 0-24431)
________________
ARTEMIS THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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84-1417774
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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18 East 16th Street, Suite 307, New York, NY
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10003
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(Address of principal executive offices)
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(Zip Code)
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(646) 233-1454
(Registrant’s telephone number, including area code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by 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
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☒
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Smaller reporting company ☒
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Emerging growth company ☐
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares of Common Stock of the registrant outstanding was 5,153,380 as of November 8, 2018
2
ARTEMIS THERAPEUTICS, INC.
INDEX TO FORM 10-Q
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4
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7
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9
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10
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20
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23
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24
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24
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25
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3
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FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL STATEMENTS
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Artemis Therapeutics, Inc.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2018
U.S. DOLLARS IN THOUSANDS
(UNAUDITED)
INDEX
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PAGE
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5
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6
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7
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9
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10-19
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4
Artemis Therapeutics, Inc.
(USD in thousands, except share data)
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As of
September 30,
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As of
December 31,
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|||||||||||
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Note
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2018 (Unaudited)
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2017 (Audited)
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||||||||||
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ASSETS
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||||||||||||
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Current assets
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||||||||||||
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Cash and cash equivalents
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38
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525
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||||||||||
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Other accounts receivable and prepaid expenses
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26
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58
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||||||||||
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Total current assets
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64
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583
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TOTAL ASSETS
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64
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583
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||||||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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||||||||||||
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Current liabilities
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||||||||||||
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Accrued expenses and other payables
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144
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53
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||||||||||
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Total current liabilities
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144
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53
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||||||||||
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Long Term liabilities
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||||||||||||
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Derivative warrant liabilities
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7B
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169
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428
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|||||||||
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Commitments and Contingencies
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3
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-
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-
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|||||||||
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Total long term liabilities
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169
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428
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||||||||||
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Total Liabilities
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313
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481
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||||||||||
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Stockholders' equity
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||||||||||||
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Series A convertible preferred stock, $0.01 par value - authorized: 10,000,000 shares; issued and outstanding: 453 shares as of September 30, 2018 and December 31, 2017
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(*
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)
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(*
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)
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||||||||
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Series C convertible preferred stock, $0.01 par value - authorized: 250 shares; issued and outstanding: 250 shares as of September 30, 2018 and December 31, 2017
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(*
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)
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(*
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)
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Common stock, $0.01 par value - authorized: 51,000,000; issued and outstanding: 5,153,380 as of September 30, 2018 and December 31, 2017
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52
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52
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||||||||||
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Additional paid in capital
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7
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1,566
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1,457
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|||||||||
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Accumulated deficit
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(1,867
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)
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(1,407
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)
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Total stockholders' equity
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(249
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)
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102
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
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64
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583
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||||||||||
(*) Represents an amount lower than 1,000 USD
The accompanying notes are an integral part of these interim condensed consolidated financial statements
5
Artemis Therapeutics, Inc.
(USD in thousands, except share data)
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Nine Months Ended September 30, 2018
(Unaudited)
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Nine Months Ended September 30, 2017
(Unaudited)
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Three Months Ended September 30, 2018
(Unaudited)
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Three Months Ended September 30, 2017
(Unaudited)
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|||||||||||||
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Research and development expenses
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189
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224
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60
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78
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||||||||||||
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General and administrative
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526
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429
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143
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149
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||||||||||||
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Operating loss
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715
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653
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203
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227
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||||||||||||
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Finance Income (Expense)
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255
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5
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95
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-
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||||||||||||
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Net loss
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460
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648
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108
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227
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||||||||||||
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Net loss per share, basic and diluted (Note 6)
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0.08
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0.12
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0.02
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0.04
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||||||||||||
| Weighted average number of common stock used in calculation of net loss per share: | ||||||||||||||||
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Basic and diluted
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5,153,380
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4,830,512
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5,153,380
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4,853,380
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||||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements
6
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Common Stock
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Preferred Stock A
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Preferred Stock C
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Additional
paid-in Capital
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Accumulated
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Total stockholders'
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|||||||||||||||||||||||||||||||
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Number of Shares
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USD
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Number
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Amount
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Number
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Amount
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(deficiency)
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Equity
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|||||||||||||||||||||||||||||
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Balance as of December 31, 2017
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5,153,380
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52
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453
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(*
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)
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250
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(*
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)
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1,457
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(1,407
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)
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102
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||||||||||||||||||||||||
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Share based compensation
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109
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109
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||||||||||||||||||||||||||||||||||
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Net loss
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(460
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)
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(460
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)
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||||||||||||||||||||||||||||||||
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Balance as of September 30, 2018
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5,153,380
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52
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453
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(*
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)
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250
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(*
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)
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1,566
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(1,867
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)
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(249
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)
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|||||||||||||||||||||||
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Common Stock
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Preferred Stock A
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Preferred Stock C
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Additional
paid-in Capital
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Accumulated
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Total stockholders'
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|||||||||||||||||||||||||||||||
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Number of Shares
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USD
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Number
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Amount
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Number
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Amount
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(deficiency)
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Equity
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|||||||||||||||||||||||||||||
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Balance as of June 30, 2018
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5,153,380
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52
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453
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(*
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)
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250
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(*
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)
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1,570
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(1,759
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)
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(137
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)
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|||||||||||||||||||||||
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Share based compensation
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(4
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)
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(4
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)
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||||||||||||||||||||||||||||||||
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Net loss
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(108
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)
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(108
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)
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||||||||||||||||||||||||||||||||
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Balance as of September 30, 2018
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5,153,380
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52
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453
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(*
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)
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250
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(*
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)
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1,566
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(1,867
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)
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(249
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)
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|||||||||||||||||||||||
(*) Represents an amount lower than 1,000 USD
The accompanying notes are an integral part of these interim condensed consolidated financial statements
7
Artemis Therapeutics, Inc.
Interim Condensed Statements of Changes in Stockholders' Equity (Unaudited)
(USD in thousands, except share data)
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Common Stock
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Preferred
Stock A
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Preferred Stock C
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Additional
paid-in Capital
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Accumulated
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Total stockholders'
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|||||||||||||||||||||||||||||||
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Number of Shares
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USD
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Number
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Amount
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Number
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Amount
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(deficiency)
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Equity
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|||||||||||||||||||||||||||||
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Balance as of December 31, 2016
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4,818,178
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49
|
453
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(*
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)
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1,129
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(264
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)
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914
|
|||||||||||||||||||||||||||
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Share based compensation
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58
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58
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||||||||||||||||||||||||||||||||||
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Exercised Option
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35,202
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(
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*)
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(*
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)
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|||||||||||||||||||||||||||||||
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Net loss
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(648
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)
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(648
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)
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||||||||||||||||||||||||||||||||
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Balance as of September 30, 2017
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4,853,380
|
49
|
453
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(*
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)
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1,187
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(912
|
)
|
(324
|
)
|
||||||||||||||||||||||||||
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Common Stock
|
Preferred Stock A
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Preferred Stock C
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Additional
paid-in Capital
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Accumulated
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Total stockholders'
|
|||||||||||||||||||||||||||||||
|
Number of Shares
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USD
|
Number
|
Amount
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Number
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Amount
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(deficiency)
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Equity
|
|||||||||||||||||||||||||||||
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Balance as of June 30,2017
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4,818,178
|
49
|
453
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(*
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)
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1,176
|
(685
|
)
|
540
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|||||||||||||||||||||||||||
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Share based compensation
|
11
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11
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||||||||||||||||||||||||||||||||||
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Exercised Option
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35,202
|
(
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*)
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(*
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)
|
|||||||||||||||||||||||||||||||
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Net loss
|
(227
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)
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(227
|
)
|
||||||||||||||||||||||||||||||||
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Balance as of September 30, 2017
|
5,151,243
|
49
|
453
|
(*
|
)
|
1,187
|
(912
|
)
|
(324
|
)
|
||||||||||||||||||||||||||
(*) Represents an amount lower than 1,000 USD
The accompanying notes are an integral part of these interim condensed consolidated financial statements
8
|
Nine Months Ended September 30, 2018
|
Nine Months Ended September 30, 2017
|
Three Months Ended September 30, 2018
|
Three Months Ended September 30, 2017
|
|||||||||||||
|
Net cash used in operating activities
|
||||||||||||||||
|
Net Loss
|
(460
|
)
|
(648
|
)
|
(108
|
)
|
(227
|
)
|
||||||||
|
Share based compensation expenses
|
109
|
58
|
(4
|
)
|
11
|
|||||||||||
|
Decrease in other accounts receivable and prepaid expenses
|
32
|
35
|
7
|
10
|
||||||||||||
|
Decrease (increase) in accrued expenses and other payables
|
91
|
(7
|
)
|
91
|
(4
|
)
|
||||||||||
|
Change in the fair value of derivative warrant liability
|
(259
|
)
|
-
|
(96
|
)
|
-
|
||||||||||
|
Net cash used in operating activities
|
(487
|
)
|
(562
|
)
|
(110
|
)
|
(210
|
)
|
||||||||
|
(Decrease) in cash and cash equivalents
|
(487
|
)
|
(562
|
)
|
(110
|
)
|
(210
|
)
|
||||||||
|
Cash and cash equivalents at the beginning of the period
|
525
|
907
|
148
|
555
|
||||||||||||
|
Cash and cash equivalents at the end of the period
|
38
|
345
|
38
|
345
|
||||||||||||
(*) Represents an amount lower than 1,000 USD
The accompanying notes are an integral part of these interim condensed consolidated financial statements
9
Artemis Therapeutics, Inc.
(USD in thousands)
NOTE 1 - GENERAL
|
A.
|
New York Global Innovations Inc. (the "Predecessor Company") was originally incorporated under the laws of the State of Nevada, on April 22, 1997. On July 8, 2003, the Predecessor Company effected a reincorporation from Nevada to Delaware through a merger with and into its wholly-owned subsidiary, Inksure Technologies (Delaware) Inc., which was incorporated on September 30, 2003. The surviving corporation in the merger was Inksure Technologies (Delaware) Inc., which thereupon renamed itself Inksure Technologies Inc. In 2014, following the sale of its assets to Spectra Systems Corporation, the Predecessor Company changed its name to New York Global Innovations Inc.
On August 23, 2016, the Predecessor Company consummated an agreement and plan of merger (the “Merger Agreement”) with Artemis Pharma Inc. (formerly, Artemis Therapeutics Inc.), a Delaware corporation (“Artemis”). Pursuant to the terms of the Merger Agreement, in exchange for the outstanding shares of Artemis, the Company issued to Artemis stockholders a total of 460,000 shares (as adjusted to reflect the reverse stock split) of the Predecessor Company's common stock and series B convertible preferred stock convertible into 3,426,384 shares (as adjusted to reflect the reverse stock split) (the “Merger”). All series B preferred shares were converted to common shares prior to December 31, 2016. Immediately following the consummation of the Merger Agreement, Artemis stockholders owned approximately 82% of the Company’s common stock, on a fully diluted basis. Following the issuance and sale of the Company’s Series A Preferred Stock and common stock to an investor, ownership was reduced, after which Artemis stockholders owned approximately 70% of the Company’s common stock, on a fully diluted basis. (refer to note 7).
As a result of the Merger, Artemis became a wholly owned subsidiary of the Company. Artemis’ fiscal year end is December 31.
|
10
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 1 - GENERAL (cont.)
The Merger between the Predecessor Company and Artemis was accounted for as a reverse recapitalization and, as a result of the Merger, the Predecessor Company ceased to be a shell company. As the stockholders of Artemis received the largest ownership interest in the Predecessor Company, Artemis was determined to be the "accounting acquirer" in the reverse acquisition. As a result, the historical financial statements of the Predecessor Company were replaced with the historical financial statements of Artemis. Following the Merger, the Predecessor Company and its subsidiary, Artemis, are collectively referred to as the "Company".
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B.
|
Establishment of Artemis (the "accounting acquirer"):
|
Artemis was incorporated in the State of Delaware on April 19, 2016. Artemis is engaged in the development of agents for the prevention and treatment of severe and potentially life-threatening infectious diseases. Artemis’s lead product candidate, Artemisone, is a clinical-stage synthetic artemisinin derivative with antiviral and antiparasitic properties. Artemis expects to advance Artemisone initially as an antiviral agent to address unmet clinical needs in the growing population of immunocompromised patients infected with human cytomegalovirus (HCMV), and other related clinical indications.
On May 31, 2016, Artemis entered into a license agreement with Hadasit Medical Research Services & Development Ltd. (“Hadasit”), and Hong Kong University of Science and Technology R and D Corporation Limited (“RDC”), pursuant to which Artemis acquired a worldwide, royalty-bearing license to make any and all use of certain patents and know-how owned by the Hadasit and RDC relating to Artemisone. Artemis will rely primarily on the license agreement with respect to the development of Artemisone, its lead product candidate.
Going Concern:
To date, Artemis has not generated revenues from its activities and has incurred substantial operating losses. Management expects Artemis to continue to generate substantial operating losses and to continue to fund its operations primarily through, additional raises of capital.
Such conditions raise substantial doubts about the Company’s ability to continue as a going concern. Management’s plan includes raising funds from outside potential investors. However, there is no assurance such funding will be available to the Company or that it will be obtained on terms favorable to the Company or will provide the Company with sufficient funds to meet its objectives. These financial statements do not include any adjustments relating to the recoverability and classification of assets, carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to continue as a going concern.
11
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
|
A.
|
Unaudited Interim Financial Statements
|
The accompanying unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included (consisting only of normal recurring adjustments except as otherwise discussed). For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Operating results for the three and nine months ended September 30, 2018, are not necessarily indicative of the results that may be expected for the year ended December 31, 2018.
B. Significant Accounting Policies
The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual financial statements.
C. Recent Accounting Standards:
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued a new standard to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of the promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is effective with respect to the Company beginning in the first quarter of 2018; early adoption is prohibited. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company has not yet generated revenues to date, therefore the standard had no impact on its consolidated financial statements at transition date.
In February 2016, the FASB issued a new lease accounting standard requiring the recognition of lease assets and liabilities on the balance sheet. This standard is effective beginning in the first quarter of 2019; early adoption is permitted. To date, the Company is not engaged in lease agreements and accordingly does not expect the standard to have a material impact on its financial statements.
In May 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-09 “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting,” which clarifies when a change to terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the vesting condition, fair value or the award classification is not the same both before and after a change to the terms and conditions of the award. The new guidance became effective on January 1, 2018. The adoption of the standard did not have a material impact on the Company’s financial statements.
12
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| C. |
Recent Accounting Standards (Cont.):
|
In July 2017, the FASB issued ASU 2017-11, which includes Part I “Accounting for Certain Financial Instruments with Down Round Features” and Part II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests With a Scope Exception”. The ASU makes limited changes to the Board’s guidance on classifying certain financial instruments as either liabilities or equity. The ASU’s objective is to improve (1) the accounting for instruments with “down-round” provisions and (2) the readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite deferral of certain pending content with scope exceptions. This standard is effective beginning in the first quarter of 2019; early adoption is permitted. The Company has derivative warranty liabilities as discussed in Note 7B which upon adoption of the new standard are expected to be classified as equity.
In June 2018, the FASB issued ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, “Compensation - Stock Compensation,” (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, “Equity - Equity-Based Payments to Non-Employees.” The guidance is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, “Revenue from Contracts with Customers.” The Company is assessing ASU 2018-07 and does not expect it to have a material impact on its financial statements.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Agreement with Hadasit and RDC
On May 31, 2016, Artemis entered into the License Agreement with Hadasit and RDC, pursuant to which Artemis acquired a worldwide, royalty-bearing license based on net sales to make any and all use of certain patents and know-how owned by Hadasit and RDC relating to Artemisone. Artemis will rely primarily on the License Agreement with respect to the development of Artemisone, its lead product candidate.
In addition, Artemis agreed to certain development milestones, including the completion of Chemistry, Manufacturing and Controls (CMC) development and manufacturing for Phase I by the fourth quarter of 2017, completion of a Phase I study by the fourth quarter of 2019, completion of Phase IIa by the fourth quarter of 2022, and the first regulatory submission by the fourth quarter of 2027. Additionally, Artemis agreed to certain investment milestones, including the requirement to obtain financing of not less than $700,000 within seven months of the closing of the Merger on August 23, 2016 (such time, the “Effective Time”), $1 million within 12 months of the Effective Time and $2 million within 24 months of the Effective Time. In the event that Artemis fails to meet development or investment milestones as set forth in the License Agreement, Hadasit has the right to terminate the License Agreement. Artemis has regular communication with representatives from Hadasit and, to date, the Company has received no notices from Hadasit or RDC about its development progress or the investment milestones and no indication that Hadasit or RDC intend to terminate the License Agreement for non-compliance. To date, the Company has not met the development and financing milestones set forth in the License Agreement. The Company has had discussions with Hadasit relating to amending the development and financial milestones set forth in the License Agreement but there are no guarantees that the Company will be successful in amending the License Agreement.
13
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 4 - INCOME TAX
| A. |
Tax rates applicable to the income
|
U.S. corporate tax
The maximum statutory federal tax rate in the U.S. in 2017 and 2016 is 35%. The Company is not subject to current federal taxes, as it has incurred losses in 2016 and 2017.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law in the United States. The Tax Act, among other provisions, introduces changes in the U.S corporate tax rate, business related deductions and credits, and has international tax consequences for companies that operate globally. Most of the changes introduced in the Tax Act are effective beginning on January 1, 2018. As a result of the tax act the maximum statutory federal tax rate was reduced to 21% starting on January 1, 2018.
Israel corporate tax
The Company's subsidiary in Israel is subject to income tax at a regular corporate tax of 23% in 2018 and 24% in 2017.
In December 2016, legislation to amend the corporate income tax law was published. The legislation determined a decrease of the corporate income tax law as of January 1, 2017 to 24% (1% decrease) and as of January 1, 2018 to 23% (additional 1% decrease).
| B. |
Deferred income taxes
|
As the Company is still in its development stage and has not yet generated revenues, it is more likely than not that sufficient taxable income will not be available for the tax losses to be utilized in the future. Therefore, a valuation allowance was recorded to reduce the deferred tax assets to its recoverable amounts.
|
As of September 30, 2018
|
As of December 31, 2017
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Deferred taxes due to carryforward losses
|
2,853
|
2,763
|
||||||
|
Valuation allowance
|
(2,853
|
)
|
(2,763
|
)
|
||||
|
Net deferred tax asset
|
-
|
-
|
||||||
14
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 4 - INCOME TAX (Cont.)
C. Tax loss carry-forwards
Net operating loss carry-forwards as of September 30, 2018 and December 31, 2017 are as follows:
|
As of September 30, 2018
|
As of December 31, 2017
|
|||||||
|
Israel
|
4,795
|
4,762
|
||||||
|
United States (*)
|
9,149
|
8,633
|
||||||
|
13,944
|
13,395
|
|||||||
Net operating losses in Israel may be carried forward indefinitely. Net operating losses in the U.S. are available through 2027.
(*) Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.
NOTE 5 – WARRANTS ISSUED TO INVESTORS
The Company issued warrants to purchase common stock to investors. The below table lists these warrants and their material terms.
|
ISSUANCE DATE
|
|
NUMBER OF WARRANTS OUTSTANDING as September 30, 2018
|
|
|
EXERCISE PRICE
|
|
|
EXERCISABLE THROUGH
|
||
|
|
|
|
|
|
|
|
|
|
||
|
October 2017 *
|
275,000
|
$
|
2.00
|
October 2022
|
||||||
* Warrants issued in connection with the October 2017 financing and which contain a full ratchet anti-dilution price protection (See note 7B).
In connection with historic financings, New York Global Innovations Inc. issued 43,069 warrants in January 2010 ,which expired in April 2018.
15
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 6 - Computation of Net Loss per Share
The loss and weighted average number of common stock used in the calculation of basic loss per share are as follows (in thousands, except share and per share data):
|
|
Nine Months
Ended
September 30, 2018
|
Nine Months
Ended
September 30, 2017
|
Three Months
Ended
September 30, 2018
|
Three Months
Ended
September 30, 2017
|
||||||||||||
|
Net loss available to stockholders of the company
|
(460
|
)
|
(648
|
)
|
(108
|
)
|
(227
|
)
|
||||||||
|
Net loss attributable to stockholders of preferred shares
|
69
|
77
|
16
|
27
|
||||||||||||
|
|
||||||||||||||||
|
Net loss used in the calculation of basic loss per share
|
(391
|
)
|
(571
|
)
|
(92
|
)
|
(200
|
)
|
||||||||
|
|
||||||||||||||||
|
Net loss per share
|
0.08
|
0.12
|
0.02
|
0.04
|
||||||||||||
|
|
||||||||||||||||
|
Weighted average number of common stock used in the calculation of net loss per share
|
5,153,380
|
4,830,512
|
5,153,380
|
4,853,380
|
||||||||||||
NOTE 7 - STOCK CAPITAL
A. Stockholders Rights:
Shares of common stock confer upon their holders the right to receive notice to participate and vote in general meetings of stockholders of the Company, the right to receive dividends, if declared, and the right to receive a distribution of any surplus of assets upon liquidation of the Company.
The Series A convertible preferred shares confer upon their holders the right to receive dividends when paid to holders of common stock of the Company on an as-converted basis, and the right to receive a distribution of any surplus of assets upon liquidation of the Company before any distribution or payment shall be made to the holders of any common stock.
In December 2016, all Series B convertible preferred shares were converted into shares of common stock.
The Series C convertible preferred shares confer upon their holders the right to receive dividends when paid to holders of common stock of the Company on an as-converted basis. The shares of Series C convertible preferred stock have the right to receive a distribution of any surplus of assets upon liquidation of the Company before any distribution or payment shall be made to the holders of any other securities.
16
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 7 - STOCK CAPITAL (Cont.)
B. Issuance of Shares:
On August 19, 2016 and prior to consummation of the merger, Artemis issued 524 shares of common stock (221,307 shares as adjusted to reflect the reverse recapitalization and reverse stock split) for an aggregate purchase price of $127, which was received in October 2016.
In August 2016, immediately upon consummation of the Merger, the Company issued 68,321 shares of the Company’s common stock, as well as 453 shares of the Company’s newly designated Series A Convertible Preferred Stock convertible into 658,498 shares of common stock, to an investor for an aggregate purchase price of $481,000 (net of issuance expenses). These shares have anti-dilution protection for a period of twenty four months. The anti-dilution protection has not been triggered through the date of these financial statements. In addition, the investor within a 24-month period may purchase up to an additional 100% of its preferred A shares at 120% of the per share purchase price paid in August 2016. This additional purchase option was recorded in equity.
In October 2017, the Company issued 300,000 shares of the Company’s common stock, warrants to purchase 275,000 shares of common stock, as well as 250 shares newly designated Series C Convertible Preferred Stock to investors for an aggregate purchase price of $550,000 less issuance expenses. Each share of Series C Convertible Preferred Stock is convertible into 1,000 shares of common stock, subject to adjustments in the event of future financing at a price of less than the conversion price. Preferred shares confer upon their holders the right to receive dividends when paid to holders of common stock of the Company on an as-converted basis. The holders of shares of Series C Convertible Preferred Stock have the right to receive a distribution of any surplus of assets upon liquidation of the Company before any distribution or payment shall be made to the holders of any other securities.
The warrants to purchase 275,000 shares of common stock contain a full ratchet anti-dilution price protection so that, in most situations upon the issuance of any common stock or securities convertible into common stock at a price below the then-existing exercise price of the outstanding warrants, the warrant exercise price will be reset to the lower common stock sales price.
As such anti-dilution price protection does not meet the specific conditions for equity classification the Company is required to classify the fair value of these warrants as a liability, with changes in fair value to be recorded as finance income (loss). The estimated fair value of our warrant liability at the date of issuance was approximately $319. The Company recorded finance income of $259 at September 30, 2018 and a finance expense of $109 at December 31, 2017 in respect of the change in the fair value of these warrants.
The Company uses the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company makes certain assumptions about risk-free interest rates, dividend yields, volatility, expected term of the warrants and other assumptions. Risk-free interest rates are derived from the yield on U.S. Treasury debt securities. Dividend yields are based on our historical dividend payments, which have been zero to date. Volatility is estimated from the historical volatility of our common stock as traded on Nasdaq. The expected term of the warrants is based on the time to expiration of the warrants from the date of measurement.
In accordance with ASC-820-10-50-2(g), the Company has performed a sensitivity analysis of the derivative warrant liabilities of the Company which are classified as level 2 financial instruments. The Company recalculated the value of warrants by applying a +/- 5% changes to the input variables in the Black-Scholes model that vary over time, namely, the volatility and the stock price. A 5.0% decrease or increase in volatility would not cause a material change in the value of the warrants. A 5.0% decrease or increase in the stock price would not have materially changed the value of the warrants; the value of the warrants is not strongly correlated with small changes in interest rates.
17
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 7 - STOCK CAPITAL (Cont.)
C. Reverse Stock Split:
On December 16, 2016, the Company effected a one-for-fifty (1:50) reverse stock split of its issued and outstanding shares of common stock. Share data included in these financial statements is retroactively adjusted as if the reverse stock split had occurred at the beginning of the earliest period presented.
D. Options issued to employees and consultants:
On August 22, 2016, the Company granted 126,730 stock options to consultants. Each stock option is exercisable into a share of the Company’s common stock of and expires no later than 10 years from the date of grant.
One third of the options vested on the grant date, and one third of the options vest upon the first and second anniversaries of the grant date, with the option becoming fully vested on August 22, 2018. As a result, the Company recognized for the period ended September 30, 2018 compensation expenses in the amount of $13, included in Research and Development Expenses. 35,202 of these options were exercised in July 2017.
On August 1, 2017, the Company granted 242,640 stock options to the Company’s CEO. These options are subject to a 48 month vesting period whereby 5,055 options were vested on September 1, 2017 and 5,055 options become vested on the first day of each following month assuming the employment agreement has not been terminated. In addition, on March 15, 2018 the Company granted 48,528 stock options to the Company’s CEO and 50,000 stock options to the Company’s CFO. Each stock option is exercisable into a share of the Company’s common stock. The options granted to the CEO on March 15, 2018 vested on the grant date and the options granted to the CFO will vest over a 48-month period beginning February 1, 2018. These options will expire on March 15, 2028. As a result, the Company recognized for the period ended September 30, 2018 compensation expenses in the amount of $60 included in General & Administrative Expenses.
Upon termination of the CEO’s employment agreement any of the then unvested options, which were granted on August 1, 2017, expire immediately. All vested options may be exercised for a period of 90 days from the termination of the agreement.
As previously disclosed, on August 10, 2018, Brian Culley, the Company’s former Chief Executive Officer, resigned from his position as Chief Executive Officer of the Company, effective 60 days after such notice as provided in his employment agreement.
18
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 7 - STOCK CAPITAL (Cont.)
D. Options issued to employees and consultants (Cont.):
A summary of the Company's option activity and related information is found below.
|
For the Nine months ended
September 30, 2018
|
||||||||||||
|
Number of stock options
|
Weighted average exercise price
|
Aggregate intrinsic value
|
||||||||||
|
Outstanding at beginning of period
|
334,168
|
0.95
|
||||||||||
|
Granted
|
98,528
|
1.30
|
||||||||||
|
Exercised
|
-
|
-
|
||||||||||
|
Cancelled
|
181,980
|
1.30
|
||||||||||
|
Outstanding at end of period
|
250,716
|
0.83
|
63,154
|
|||||||||
|
Options exercisable at period end
|
209,049
|
0.74
|
63,154
|
|||||||||
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the fair market value of the Company’s common stock on September 30, 2018, and the exercise price, multiplied by the number of in-the-money stock options on those dates) that would have been received by the stock option holders had all stock option holders exercised their stock options on those dates.
The stock options outstanding as of September 30, 2018, have been separated into exercise price, as follows:
|
Exercise price
|
Stock options outstanding as of
September 30,
|
Weighted average remaining
contractual life – years as of
September 30,
|
Stock options exercisable as of
September 30,
|
|||||||||||
| $ |
2018
|
2018 | 2018 | |||||||||||
|
0.01
|
91,528
|
7.9
|
91,528
|
|||||||||||
|
1.30
|
60,660
|
0.17
|
60,660
|
|||||||||||
|
1.30
|
98,528
|
9.46
|
56,861
|
|||||||||||
|
0.83
|
250,716
|
6.64
|
209,049
|
|||||||||||
NOTE 8 - SUBSEQUENT EVENTS
In accordance with ASC 855 “Subsequent Events” the Company evaluated subsequent events through the date the condensed consolidated financial statements were issued. The Company concluded that no subsequent events have occurred that would require recognition or disclosure in the condensed consolidated financial statements.
19
In this section, “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” references to “the Company” “we,” “us,” or “our,” refer to Artemis Therapeutics, Inc. and its consolidated subsidiaries and dollar amounts are in thousands, except as otherwise stated.
This Quarterly Report on Form 10-Q contains statements that may constitute “forward-looking statements.” Generally, forward-looking statements include words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “could,” “may,” “might,” “should,” “will,” the negative of such terms, and words and phrases of similar import. For example, when we discuss possible strategic alternatives, we are using forward-looking statements. Such statements are based on management’s current expectations and are subject to a number of risks and uncertainties, including, but not limited to, the risks detailed from time to time in our filings with the Securities and Exchange Commission, or the SEC. These risks and uncertainties could cause our actual results to differ materially from those described in our forward-looking statements. Any forward-looking statement represents our expectations or forecasts only as of the date it was made and should not be relied upon as representing its expectations or forecasts as of any subsequent date. Except as required by law, we undertake no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, even if our expectations or forecasts change.
The following discussion and analysis should be read in conjunction with the financial statements, related notes and other information included in this Quarterly Report on Form 10-Q and with the Risk Factors included in Part I, Item 1A of our Annual Report on Form 10-K.
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.
Our 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.
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 our wholly-owned subsidiary (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.
20
On May 31, 2016, we entered into the License Agreement, 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. Pursuant to the terms of the License Agreement, we agreed to certain development and investment milestones, 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.
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.”
THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2017 (dollars in thousands)
REVENUES. We did not have any revenue producing operations for the three months ended September 30, 2018, or for the three months ended September 30, 2017.
COST OF REVENUES. We had no cost of revenues for the three months ended September 30, 2018, or for the three months ended September 30, 2017 due to the fact that we had no revenue-producing operations.
PROFIT FROM SALE OF OPERATIONS, NET. We did not incur a profit from the sale of operations in the three months ended September 30, 2018, or the three months ended September 30, 2017.
RESEARCH AND DEVELOPMENT EXPENSES. We incurred research and development expenses in the amount of $60 for the three months ended September 30, 2018 compared to $78 for the three months ended September 30, 2017. The research and development expenses consisted primarily of consulting services, patent expenses and option expenses. The decrease in research and development expenses is primarily due to a decrease of $33 in option expenses and an increase of $15 in patent and other expenses. We did not capitalize research and development expenses as all such expenses were charged to operating expenses as incurred.
SELLING AND MARKETING EXPENSES. We did not incur any selling and marketing expenses for the three months ended September 30, 2018 or for the three months ended September 30, 2017 due to our being in our developmental stage.
GENERAL AND ADMINISTRATIVE EXPENSES. We incurred $143 in general and administrative expenses for the three months ended September 30, 2018 compared to $149 for the three months ended September 30, 2017, which consisted primarily of compensation costs for administrative, finance and general management personnel, insurance, legal, accounting and administrative costs and option expenses. The decrease in general and administrative expenses is primarily due to a decrease of payroll expenses of $35 and a $4 decrease of other expenses and partially offset by an increase of $33 in professional expenses.
FINANCIAL INCOME, NET. We incurred $95 in financial income for the three months ended September 30, 2018, as compared to $0 in financial expense for the three months ended September 30, 2017. This increase in financial income is primarily due to a decrease in a derivative warrant liability of $97 and an increase in other financial expenses of $2.
OTHER EXPENSES. We incurred no capital losses in the three months ended September 30, 2018, or September 30, 2017.
NET PROFIT (LOSS). We incurred a net loss of $108 in the three months ended September 30, 2018, compared to $227 for the three months ended September 30, 2017. The decrease in net loss is due to a decrease of $18 in research and development expenses, a decrease of $6 in our general and administrative expenses and a $95 increase in financial income.
NINE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2017 (dollars in thousands)
REVENUES. We did not have any revenue producing operations for the nine months ended September 30, 2018 or for the nine months ended September 30, 2017.
21
COST OF REVENUES. We had no cost of revenues for the nine months ended September 30, 2018 or for the nine months ended September 30, 2017 due to the fact that we had no revenue-producing operations.
PROFIT FROM SALE OF OPERATIONS, NET. We did not incur a profit from the sale of operations in the nine months ended September 30, 2018 or the nine months ended September 30, 2017.
RESEARCH AND DEVELOPMENT EXPENSES. We incurred research and development expenses in the amount of $189 for the nine months ended September 30, 2018 compared to $224 for the nine months ended September 30, 2017. The research and development expenses consisted primarily of consulting services, patent expenses and option expenses. The decrease in research and development expenses is primarily due to a decrease of $70 in option expenses, a decrease of $14 in patent expenses and a decrease of $2 in other expenses and partially offset by an increase of $51 in license expenses. We did not capitalize research and development expenses as all such expenses were charged to operating expenses as incurred.
SELLING AND MARKETING EXPENSES. We did not incur any selling and marketing expenses for the nine months ended September 30, 2018 or for the nine months ended September 30, 2017 due to our being in our developmental stage.
GENERAL AND ADMINISTRATIVE EXPENSES. We incurred $526 in general and administrative expenses for the nine months ended September 30, 2018 compared to $429 for the nine months ended September 30, 2017, which consisted primarily of compensation costs for administrative, finance and general management personnel, insurance, legal, accounting and administrative costs and option expenses. The increase in general and administrative expenses is primarily due to an increase of $128 in option expenses, a $36 increase in professional expenses and increase of $12 in other expenses and partially offset by a decrease of $79 in payroll expenses.
FINANCIAL INCOME, NET. We incurred $255 in financial income for the nine months ended September 30, 2018 as compared to $5 in financial income for the nine months ended September 30, 2017. This increase in financial income is primarily due to a decrease in a derivative warrant liability of $259 and an increase in other financial expenses of $9.
OTHER EXPENSES. We incurred no capital losses in the nine months ended September 30, 2018 or September 30, 2017.
NET PROFIT (LOSS). We incurred a net loss of $460 in the nine months ended September 30, 2018 compared to $648 for the nine months ended June 30, 2017. The decrease in net loss is due to a decrease of $35 in research and development expenses, a $250 increase in financial income and partially offset by an increase of $97 in our general and administrative expenses.
22
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2018, we had an accumulated deficit of $1,867,000 and a negative working capital (current assets less current liabilities) of $80,000. Losses will probably continue for the foreseeable future.
We do not have any material capital commitments for capital expenditures as of September 30, 2018.
Since the closing of the Merger, we have financed our operations primarily through private placements of our securities. On October 23, 2017, we executed securities purchase agreements relating to a private placement offering of an aggregate of 300,000 shares of our common stock at a purchase price of $1.00 per share, and of 250 shares of the our Series C Convertible 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 to purchase fifty percent of the number of shares of common stock effectively purchased in the offering. The closing of the offering took place on October 23, 2017.
We have sustained significant operating losses in recent periods, which has resulted in a significant reduction in our cash reserves. We have not been profitable and we cannot predict when we will achieve profitability. We experienced net losses and have had no revenues since 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 September 30, 2018, we had accumulated liabilities of $313,000.
As of September 30, 2018 we had cash and cash equivalents of $38,000 and negative cash flows from operating activities of $487,000 for the period then ended. The negative cash flow from operating activities in the period ended September 30, 2018 is attributable mainly to the net loss of $460,000, share-based compensation expenses of $109,000, a $32,000 decrease in other accounts receivable and prepaid expenses, a $91,000 increase in accrued expenses and other payables and a change in the fair value of a derivative warrant liability of $259,000.
We did not have any cash flows from or used for financing or investing activities for the period ended September 30, 2018.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
On May 31, 2016, Artemis entered into the 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. We will rely primarily on the License Agreement with respect to the development of Artemisone.
OFF BALANCE SHEET ARRANGEMENTS
None.
Under the direction of the Chief Financial Officer, we evaluated our disclosure controls and procedures. Based on the evaluation, the Chief Financial Officer concluded that our disclosure controls and procedures were not effective as September 30, 2018.
No change in our internal control over financial reporting occurred during the quarter ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
Our management has worked, and continues to work, to strengthen our internal control over financial reporting. We are committed to ensuring that such controls are designed and operating effectively. We intend to remediate the material weakness in internal controls identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, subject to possessing sufficient financial means to do so, by hiring internal staff to our financial department to assist our Chief Financial Officer as well as intend to form an audit committee comprised of independent directors with sufficient financial reporting experience.
23
|
PART II.
|
OTHER INFORMATION
|
The following exhibits are being filed or furnished with this Report:
|
EXHIBIT
NUMBER
|
|
DESCRIPTION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.1
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The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Interim Condensed Consolidated Balance Sheets, (ii) the Interim Condensed Consolidated Statements of Comprehensive Loss, (iii) the Interim Condensed Statements of Shareholders Equity, (iv) the Interim Condensed Consolidated Statements of Cash Flows and (v) related notes to these financial statements, tagged as blocks of text and in detail.*
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* Filed herewith
**Furnished herewith
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ARTEMIS THERAPEUTICS, INC.
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Dated: November 13, 2018
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By:
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/s/ Chanan Morris
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Chanan Morris
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Chief Financial Officer
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(Principal Executive Officer, Principal Financial and Accounting Officer)
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