Manuka, Inc. - Quarter Report: 2019 March (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 March 31, 2019
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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)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Stock, par value $0.01 per share
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ATMS
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OTCQB
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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, a non-accelerated filer, a 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.
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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 May 15, 2019.
2
ARTEMIS THERAPEUTICS, INC.
INDEX TO FORM 10-Q
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4
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6
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7
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8
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9
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20
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22
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23
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23
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24
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3
PART I. FINANCIAL INFORMATION
Artemis Therapeutics, Inc.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2019
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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8
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9 - 19
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4
Artemis Therapeutics, Inc.
Interim Condensed Consolidated Balance Sheets
(USD in thousands, except share data)
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As of March 31,
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As of
December 31,
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|||||||||||
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Note
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2019 (Unaudited)
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2018 (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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22
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7
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||||||||||
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Other accounts receivable and prepaid expenses
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16
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20
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||||||||||
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Total current assets
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38
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27
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||||||||||
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TOTAL ASSETS
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38
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27
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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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169
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161
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||||||||||
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Related parties
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20
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-
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||||||||||
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Derivative warrant liabilities
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7B
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-
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163
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|||||||||
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Total current liabilities
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189
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324
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||||||||||
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Total Liabilities
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189
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324
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||||||||||
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Shareholders’ 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 March 31, 2019 and December 31, 2018
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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 March 31, 2019 and December 31, 2018
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(*
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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 March 31, 2019 and December 31, 2018
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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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1,894
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1,571
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|||||||||
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Accumulated deficit
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(2,097
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)
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(1,920
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)
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||||||||
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Total stockholders' equity
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(151
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)
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(297
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)
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||||||||
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
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38
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27
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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.
Interim Condensed Consolidated Statements of Comprehensive Income (Loss)
(USD in thousands, except share data)
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Three Months Ended March 31, 2019
(Unaudited)
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Three Months Ended March 31, 2018
(Unaudited)
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|||||||
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Research and development expenses
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-
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71
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||||||
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General and administrative
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20
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229
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||||||
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Operating (loss)
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(20
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)
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(300
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)
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||||
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Finance income (Expense)
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(1
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) |
89
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|||||
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Net loss
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(21
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) |
(211
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)
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||||
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Net income (loss) per share, basic and diluted (Note 6)
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(0.00
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) |
(0.03
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)
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||||
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Weighted average number of common stock used in calculation of net loss per share:
Basic and diluted
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5,153,380
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5,153,380
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||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements
6
Artemis Therapeutics, Inc.
Interim Condensed Statements of Stockholders’ Equity (Unaudited)
(USD in thousands)
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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
|
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, 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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1,571
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(1,920
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)
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(297
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)
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|||||||||||||||||||||||
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Adoption of ASU 2017-11 (see Note 2J)
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319
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(156
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)
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163
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||||||||||||||||||||||||||||||||
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Share based compensation
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4
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4
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||||||||||||||||||||||||||||||||||
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Net loss
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(21
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)
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(21
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)
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||||||||||||||||||||||||||||||||
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Balance as of March 31, 2019
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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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1,894
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(2,097
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)
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(151
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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
|
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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101
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101
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||||||||||||||||||||||||||||||||||
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Net loss
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(211
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)
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(211
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)
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||||||||||||||||||||||||||||||||
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Balance as of March 31, 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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1,558
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(1,618
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)
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(8
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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 Consolidated Statement of Cash Flows (Unaudited)
(USD in thousands)
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Three Months Ended March 31, 2019
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Three Months Ended March 31, 2018
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|||||||
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Net cash used in operating activities
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||||||||
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Net (loss)
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(21
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)
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(211
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)
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||||
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Share based compensation expenses
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4
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101
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||||||
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Decrease in other accounts receivable and prepaid expenses
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4
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14
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||||||
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Increase (decrease) in accrued expenses and other payables
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8
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(1
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)
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|||||
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Change in the fair value of derivative warrant liability
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-
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(89
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)
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|||||
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Net cash used in operating activities
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(5
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)
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(186
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)
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||||
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Cash flows from financing activities
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||||||||
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Related party proceeds
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20
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-
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||||||
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Cash flows from financing activities
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20
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-
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||||||
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Increase (Decrease) in cash and cash equivalents
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15
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(186
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)
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|||||
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Cash and cash equivalents at the beginning of the period
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7
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525
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||||||
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Cash and cash equivalents at the end of the period
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22
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339
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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
8
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 1 - GENERAL
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A.
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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.
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9
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.
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Establishment of Artemis (the "accounting acquirer"):
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Artemis was incorporated in the State of Delaware on April 19, 2016. Until January 10, 2019, the Company was engaged in the development of agents for the prevention and treatment of severe and potentially life-threatening infectious diseases.
On January 10, 2019, Artemis received a notice regarding the immediate termination of a certain license agreement, dated May 31, 2016 (the “License Agreement”), executed by and between the Company, Hadasit Medical Research Services and Development Ltd. (“Hadasit”) and the Hong Kong University of Science and Technology R and D Corporation Limited (“RDC”). Artemis relied primarily on the License Agreement with respect to the development of Artemisone, its lead product candidate. Since the termination of the License Agreement, Artemis no longer has any operating business.
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.
As discussed above, on January 10, 2019, Artemis received a notice regarding the immediate termination of the License Agreement.
Based on the lack of Company business activities since the termination of the License Agreement, our Company is classified as a “shell” company as defined by the Securities and Exchange Commission (the “SEC”).
10
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
| A. |
Basis of Presentation:
|
The financial statements have been prepared in conformity with accounting principles generally accepted in United Sates of America ("US GAAP").
| B. |
Use of estimates in the preparation of financial statements:
|
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect reported amounts and disclosures made. Actual results could differ from those estimates.
| C. |
Cash and cash equivalents:
|
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with maturities of three months or less as of the date acquired.
| D. |
Fair value of financial instruments:
|
The carrying values of cash and cash equivalents, other receivable and other accounts payable approximate their fair value due to the short-term maturity of these instruments.
The Company measures the fair value of certain of its financial instruments (such as the derivative warrant liabilities) on a recurring basis. The method of determining the fair value of derivative warrant liabilities is discussed in Note 7B.
A fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
| E. |
Financial statement in U.S. dollars:
|
The functional currency of the Company is the U.S dollar ("dollar") since the dollar is the currency of the primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future.
Transactions and balances denominated in dollars are presented at their original amounts. Transactions and balances denominated in foreign currencies have been re-measured to dollars in accordance with the provisions of Accounting Standards Codification (“ASC”) 830-10, "Foreign Currency Translation".
All transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses, as appropriate.
11
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
| F. |
Basic and diluted net loss per share:
|
Basic loss per share is computed by dividing the net loss applicable to holders of common stock by the weighted average number of shares of common stock outstanding during the year. Diluted loss per share is computed by dividing the net loss applicable to holders of common stock by the weighted average number of shares of common stock outstanding plus the number of additional shares of common stock that would have been outstanding if all potentially dilutive common stock had been issued, using the treasury stock method, in accordance with ASC 260-10 "Earnings per Share". Potentially dilutive shares of common stock were excluded from the diluted loss per share calculation because they were anti-dilutive.
The weighted average number of shares outstanding has been retroactively restated for the equivalent number of shares received by the accounting acquirer as a result of the reverse merger as if these shares had been outstanding as of the beginning of the earliest period presented.
| G. |
Research and development expenses, net:
|
Research and development expenses are charged to the statement of operations as incurred.
H. Income Tax:
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”. This topic prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities. As such, deferred taxes are computed based on the tax rates anticipated (under applicable law as of the balance sheet date) to be in effect when the deferred taxes are expected to be paid or realized.
| I. |
Share-based compensation:
|
The Company applies ASC 718-10, "Share-Based Payment,” which requires the measurement and recognition of compensation expenses for all share-based payment awards made to service providers, employees and directors including stock options under the Company's stock plans based on estimated fair values.
ASC 718-10 requires companies to estimate the fair value of stock options using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's statement of operations.
The Company estimates the fair value of stock options granted as share-based payment awards using a Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the most significant are share price, expected volatility and the expected option term (the time from the grant date until the options are exercised or expire). Expected volatility is estimated based on volatility of similar companies in the technology sector for equity awards granted prior to the Merger and on the Company's trading share price for equity awards granted subsequent to the Merger. The Company has historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from governmental zero-coupon bonds with an equivalent term. The expected stock option term is calculated for stock options granted to employees and directors using the "simplified" method. Grants to non-employees are based on the contractual term. Changes in the determination of each of the inputs can affect the fair value of the stock options granted and the results of operations of the Company.
12
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| J. |
Recent Accounting Standards:
|
In February 2016, the Financial Accounting Standards Board (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 the standard has no impact on the Company's consolidated financial statements.
In July 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-11 (“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. The Company elected to adopt the standard using the modified retrospective approach by means of a cumulative-effect adjustment to the balance sheet as of January 1, 2019. As discussed in Note 7B, the Company had derivative warrant liabilities which due to the adoption of this standard have been re-classified as equity. The following table provides a reconciliation of the derivative warrant liabilities, additional paid-in capital and accumulated deficit on the consolidated balance sheet as of January 1, 2019:
|
As of
January 1, 2019
|
Adjustment
|
As of
December 31,
2018
|
||||||||||
|
Derivative warrant liability
|
-
|
(163
|
)
|
163
|
||||||||
|
Additional paid-in capital
|
1,890
|
319
|
1,571
|
|||||||||
|
Accumulated deficit
|
(2,076
|
)
|
(156
|
)
|
(1,920
|
)
|
||||||
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 fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The adoption of this standard has no impact on the Company's financial statements.
13
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Agreement with Hadasit and RDC
On May 31, 2016, Artemis entered into the License Agreement with Hadasit and RDC, pursuant to which Artemis acquired a worldwide, royalty-bearing license based on net sales to make any and all use of certain patents and know-how owned by Hadasit and RDC relating to Artemisone. Artemis will rely primarily on the License Agreement with respect to the development of Artemisone, its lead product candidate.
In addition, Artemis agreed to certain development milestones, including the completion of Chemistry, Manufacturing and Controls (CMC) development and manufacturing for Phase I by the fourth quarter of 2017, completion of a Phase I study by the fourth quarter of 2019, completion of Phase IIa by the fourth quarter of 2022, and the first regulatory submission by the fourth quarter of 2027. Additionally, Artemis agreed to certain investment milestones, including the requirement to obtain financing of not less than $700,000 within seven months of the closing of the Merger on August 23, 2016 (such time, the “Effective Time”), $1 million within 12 months of the Effective Time and $2 million within 24 months of the Effective Time. In the event that Artemis fails to meet development or investment milestones as set forth in the License Agreement, Hadasit has the right to terminate the License Agreement.
On January 10, 2019, the Company received the Notice from Hadasit regarding the immediate termination of the License Agreement. The License Agreement was terminated as a result of the non-payment for certain sponsored research fees, patent expenses, patent maintenance fees and consulting fees.
NOTE 4 - INCOME TAX
| A. |
Tax rates applicable to the income
|
U.S. corporate tax
The maximum statutory federal tax rate in the US in 2018 is 21%.The Company is not subject to current federal taxes, as it has incurred losses.
Israel corporate tax
The Company's subsidiary in Israel is subject to income tax at a regular corporate tax of 23%.
14
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 4 - INCOME TAX (Cont.)
| B. |
Deferred income taxes
|
As the Company 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 March 31, 2019
|
As of December 31, 2018
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Deferred taxes due to carryforward losses
|
2,857
|
2,864
|
||||||
|
Valuation allowance
|
(2,857
|
)
|
(2,864
|
)
|
||||
|
Net deferred tax asset
|
-
|
-
|
||||||
C. Tax loss carry-forwards
Net operating loss carry-forwards as of March 31, 2019 and December 31, 2018 are as follows:
|
As of March 31, 2019
|
As of December 31, 2018
|
|||||||
|
Israel
|
4,814
|
4,799
|
||||||
|
United States (*)
|
8,331
|
8,385
|
||||||
|
13,145
|
13,184
|
|||||||
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.
15
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
NOTE 5 – WARRANTS ISSUED TO INVESTORS
The Company issued warrants to purchase common stock to investors. The below table lists these warrants and their material terms.
|
ISSUANCE DATE
|
NUMBER OF WARRANTS OUTSTANDING as 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).
NOTE 6 - Computation of Net Loss per Share
Basic loss per share is computed by dividing the net loss, as adjusted, to include the dividend participation rights of preferred shares outstanding during the relevant fiscal year, by the weighted average number of shares of common stock outstanding during the relevant fiscal year. Diluted loss per share is computed by dividing the net loss, as adjusted, to include the dividend participation rights of preferred shares outstanding during the relevant fiscal year as well as of preferred shares that would have been outstanding if all potentially dilutive preferred shares had been issued, by the weighted average number of shares of common stock outstanding during the relevant fiscal year, plus the number of shares of common stock that would have been outstanding if all potentially dilutive common stock had been issued, using the treasury stock method, in accordance with ASC 260-10 “Earnings 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):
|
|
Three Months
Ended March 31, 2019
|
Three Months
Ended March 31, 2018
|
||||||
|
Net Income (loss) available to stockholders of the company
|
(21
|
)
|
(211
|
)
|
||||
|
Net Income (loss) attributable to stockholders of preferred shares
|
(3
|
)
|
(32
|
)
|
||||
|
|
||||||||
|
Net Income (loss) used in the calculation of basic loss per share
|
(18
|
)
|
(179
|
)
|
||||
|
|
||||||||
|
Net Income (loss) per share
|
(0.00
|
)
|
(0.03
|
)
|
||||
|
|
||||||||
|
Weighted average number of common stock used in the calculation of net loss per share
|
5,153,380
|
5,153,380
|
||||||
16
Artemis Therapeutics, Inc.
Notes to the Interim Condensed Consolidated Financial Statements
(USD in thousands)
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
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.
| 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 was not triggered and the anti- dilution protection expired in August 2018. In addition, the investor had an option to purchase through August 2018 up to an additional 100% of its preferred A shares at 120% of the per share purchase price paid in August 2016. This option was not exercised. 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 the Company’s 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 did not meet the specific conditions for equity classification as of the date of issuance of the warrants, the Company was required to classify the fair value of these warrants as a liability, with changes in fair value to be recorded as income (loss) due to change in fair value of warrant liability. The estimated fair value of such derivative warrant liability at issuance date, was approximately $319. As further described in Note 2J, upon adoption of ASU 2017-11, such warrants were retrospectively classified as equity.
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. 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 March 31, 2019 compensation expenses in the amount of $4 included in General & Administrative Expenses.
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.
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.
A summary of the Company's option activity and related information is found below.
|
For the three months ended
March 31, 2019
|
||||||||||||
|
Number of stock options
|
Weighted average exercise price
|
Aggregate intrinsic value
|
||||||||||
|
Outstanding at beginning of period
|
250,716
|
0.83
|
||||||||||
|
Granted
|
-
|
-
|
||||||||||
|
Exercised
|
-
|
-
|
||||||||||
|
Cancelled
|
109,188
|
1.30
|
||||||||||
|
Outstanding at end of period
|
141,528
|
0.47
|
22,891
|
|||||||||
|
Options exercisable at period end
|
106,111
|
0.19
|
22,891
|
|||||||||
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.):
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 March 31, 2019 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 March 31, 2019 and December 31, 2018, have been separated into exercise price, as follows:
|
Exercise price
|
Stock options outstanding as of March 31,
|
Stock options outstanding as of December 31,
|
Weighted average remaining contractual life – years as of March 31,
|
Weighted average remaining contractual life – years as of December 31,
|
Stock options exercisable as of March 31,
|
Stock options exercisable as of December 31,
|
||||||||||||||||||||
| $ |
2019
|
2018
|
2019
|
2018
|
2019
|
2018
|
||||||||||||||||||||
|
0.01
|
91,528
|
91,528
|
7.40
|
7.64
|
91,528
|
91,528
|
||||||||||||||||||||
|
1.30
|
-
|
60,660
|
-
|
8.61
|
-
|
60,660
|
||||||||||||||||||||
|
1.30
|
50,000
|
98,528
|
8.96
|
9.21
|
14,583
|
59,986
|
||||||||||||||||||||
|
0.83
|
141,528
|
250,716
|
7.95
|
8.46
|
106,111
|
212,174
|
||||||||||||||||||||
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
Until January 10, 2019, we were engaged in the development of agents for the prevention and treatment of severe and potentially life-threatening infectious diseases. On January 10, 2019, we received a notice regarding the immediate termination of a certain license agreement, dated May 31, 2016 (the “License Agreement”), executed by and between the Company, Hadasit Medical Research Services and Development Ltd. and the Hong Kong University of Science and Technology R and D Corporation Limited. We relied primarily on the License Agreement with respect to the development of Artemisone, our lead product candidate. Since the termination of the License Agreement, the Company no longer has any operating business.
We believe that we will continue to experience losses and increased negative working capital and negative cash flows in the near future and will not be able to return to positive cash flow without either obtaining additional financing in the near term or completing a business transaction. We have experienced difficulties accessing the equity and debt markets and raising capital and there can be no assurance that we will be able to raise such additional capital on favorable terms, or at all, or be able to complete a business transaction. If additional funds are raised through the issuance of equity securities or completing a business transaction, our existing stockholders will experience significant dilution. In order to conserve our cash and manage its liquidity, we have implemented cost-cutting initiatives including the reduction of employee headcount and overhead costs.
Our Board of Directors is exploring strategic alternatives, which may include future acquisitions, a merger with another company or the sale of the public shell company.
THREE MONTHS ENDED MARCH 31, 2019 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2018 (dollars in thousands)
REVENUES. We did not have any revenue producing operations for the three months ended March 31, 2019 or for the three months ended March 31, 2018.
PROFIT FROM SALE OF OPERATIONS, NET. We did not incur a profit from the sale of operations in the three months ended March 31, 2019 or the three months ended March 31, 2018.
20
COST OF REVENUES. We had no cost of revenues for the three months ended March 31, 2019 or for the three months ended March 31, 2018 due to the fact that we had no revenue-producing operations.
RESEARCH AND DEVELOPMENT EXPENSES. We incurred no research and development expenses for the three months ended March 31, 2019 compared to $71 for the three months ended March 31, 2018. 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 the termination of the License Agreement resulting in the Company no longer having business operations. 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 March 31, 2019 or for the three months ended March 31, 2018 due to us no longer having business operations.
GENERAL AND ADMINISTRATIVE EXPENSES. We incurred $20 in general and administrative expenses for the three months ended March 31, 2019 compared to $229 for the three months ended March 31, 2018, 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 us no longer having business operations.
FINANCIAL EXPENSE (INCOME), NET. We incurred $1 in financial expense for the three months ended March 31, 2019 as compared to financial income of $89 for the three months ended March 31, 2018. This increase in financial expense is primarily due to the adoption of a new accounting standard.
OTHER EXPENSES. We incurred no capital losses in the three months ended March 31, 2019 or March 31, 2018.
NET LOSS. We recognized net loss of $21 for the three months ended March 31, 2019 compared to incurring a net loss of $211 for the three months ended March 31, 2018. The decrease in net loss is primarily due to a decrease in operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2019, we had an accumulated deficit of $1,848,000 and a negative working capital (current assets less current liabilities) of $221,000. Losses will probably continue for the foreseeable future.
We do not have any material capital commitments for capital expenditures as of March 31, 2019.
Since the closing of our merger with Artemis Therapeutics Inc., a Delaware corporation and Artemis Acquisition Corp., a Delaware corporation and our wholly-owned subsidiary on August 23, 2016, 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 have resulted in a significant reduction in our cash reserves. Due to the termination of the License Agreement, we no longer have any business operations. We believe that we will continue to experience losses and negative cash flows in the near future and will not be able to return to positive cash flow without obtaining additional financing in the near term or entering into a business transaction. We have experienced difficulties accessing the equity and debt markets and raising capital or entering into a business transaction, and there can be no assurance that we will be able to raise such additional capital on favorable terms or at all or entering into a business transaction. If additional funds are raised through the issuance of equity securities or entering into a business transaction, our existing stockholders will experience significant further dilution. In order to conserve our cash and manage its liquidity, we have implemented cost-cutting initiatives including the reduction of employee headcount and overhead costs.
21
As of March 31, 2019, we had accumulated liabilities of $259,000.
As of March 31, 2019 we had cash and cash equivalents of $22,000 and negative cash flows from operating activities of $5,000 for the period then ended. The negative cash flow from operating activities in the period ended March 31, 2019 is attributable mainly to the net loss of $21,000, share-based compensation expenses of $4,000, a decrease in accrued expenses and other payables of $4,000, and a $8,000 increase in other accounts receivable and prepaid expenses.
We had positive cash flows of $20,000 from financing activities in the period ended March 31, 2019. The positive cash flow from financing activities in the period ended March 31, 2019 is due to proceeds of $20,000 from a related party.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
None
OFF BALANCE SHEET ARRANGEMENTS
None.
|
CONTROLS AND PROCEDURES
|
Under the direction of the Chief Financial Officer, we evaluated our disclosure controls and procedures. Based on the evaluation, and as a result of the material weaknesses described below, the Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2019.
No change in our internal control over financial reporting occurred during the quarter ended March 31, 2019, 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, 2018, 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.
22
None
The following exhibits are being filed or furnished with this Report:
|
EXHIBIT
NUMBER
|
|
DESCRIPTION
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
101.1
|
|
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 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 Condensed Consolidated 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.*
|
|
* Filed herewith
**Furnished herewith
23
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.
|
|
ARTEMIS THERAPEUTICS, INC.
|
|
|
|
|
Dated: May 15, 2019
|
By: /s/ Chanan Morris
|
|
|
Chanan Morris
|
|
|
Chief Financial Officer
|
|
|
(Principal Executive Officer and Principal Financial and Accounting Officer)
|
24