Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definitions of “large accelerated
filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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 check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Unless the context otherwise requires, “Tikcro,” “us,” “we” and “our” refer to Tikcro Technologies Ltd., an Israeli company. References to “U.S. dollars,” and “$” are to the lawful currency of the
United States of America, and references to “NIS” are to new Israeli shekels. As of December 31, 2019, the exchange rate published by the Bank of Israel was NIS 3.456 per $1.00.
Statements in this Annual Report concerning our business outlook or future economic performance; anticipated revenues, expenses or other financial items; and
statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters, are “forward-looking statements” as that term is defined under the United States Federal Securities Laws. In some cases, you
can identify forward-looking statements by our use of words such as “expect,” “anticipate,” “believe,” “intend,” “plan,” “seek” and “estimate” and similar expressions. Forward-looking statements are subject to risks, uncertainties and other
factors which could cause actual results to differ materially from those stated in such statements. Factors that could cause or contribute to such differences include, but are not limited to, those set forth under “Risk Factors” and elsewhere in
this Annual Report as well as our reports on Form 6-K submitted to the Securities and Exchange Commission. The forward-looking statements contained in this Annual Report reflect our views and assumptions
as of the effective date of this Annual Report. Except as required by law, we assume no responsibility for updating any forward-looking statements. We qualify all of our forward-looking statements by these
cautionary statements.
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ITEM 1.
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Identity of Directors, Senior Management and Advisors
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Not applicable.
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ITEM 2.
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Offer Statistics and Expected Timetable
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Not applicable.
A. Selected Financial Data
We have derived the following selected financial data, with respect to the five years from 2015 through 2019, from the audited financial statements of Tikcro, which have been
prepared in accordance with U.S generally accepted accounting principles.
The selected financial data set forth below as of December 31, 2018 and 2019 and for each of the years ended December 31, 2017, 2018 and 2019 are derived from our audited financial statements which
are incorporated by reference into this Annual Report.
The selected financial data as of December 31, 2015, 2016 and 2017 and for the years ended December 31, 2015 and 2016 are derived from our audited financial statements which are not included in
this Annual Report.
You should read the selected financial data together with Item 5 “Operating and Financial Review and Prospects” and our financial statements included elsewhere or incorporated
by reference in this Annual Report.
We have developed a new anti-cytotoxic T-lymphocyte-associated protein 4, or CTLA-4, antibody for cancer treatment. Pre-clinical results show that it has enhanced properties over the marketed
CTLA-4 antibody. Our antibody is a product of a collaboration with Yeda Research and Development Company Ltd. ("Yeda"), the technology transfer arm of the Weizmann Institute of Science (the "Weizmann Institute") in Israel. We jointly developed this new antibody originating from research at the Weizmann Institute addressing receptors and ligands of the immune system for anti-cancer treatment. A novel immunization approach
was used to generate this antibody with high selectivity and blocking qualities towards certain cancer immune modulators. We have equal ownership rights with Yeda in the CTLA-4 antibodies.
In the fourth quarter of 2019, we closed our laboratory facilities and ceased pre-clinical development efforts, prior to promoting a commercial production process, due to the significant expected
costs associated with production and clinical trials, as well as the evolution of the immune therapy antibody market and other drug candidates. We continue to explore strategic opportunities for this antibody program and to explore the best
course of action for Tikcro, including to attempt to merge or effect a business combination with an operating entity in another area of operations or to distribute our net cash to our shareholders. Accordingly, the data presented below are not
indicative of our future operating results or financial position. Please see Item 4.B “Business Overview” for more information.
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(Dollars in thousands)
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Statement of Operations Data:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Research and development
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$
|
247
|
|
|
$
|
601
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|
|
$
|
678
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|
|
$
|
692
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|
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$
|
442
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|
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General and administrative expenses
|
|
|
609
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|
|
|
676
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|
|
|
618
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|
|
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766
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|
|
|
581
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Operating loss
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$
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(856
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)
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$
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(1,277
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)
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$
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(1,296
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)
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$
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(1,458
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)
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$
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(1,023
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)
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Financial income (expenses), net
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(29
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)
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|
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(3
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)
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|
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45
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|
|
|
53
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|
|
|
94
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|
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Loss before taxes
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|
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(885
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)
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|
|
(1,280
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)
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|
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(1,251
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)
|
|
|
(1,405
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)
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|
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(929
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)
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Net loss
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Basic net loss per share
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|
|
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|
|
|
|
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Diluted net loss per share
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Number of shares used in computing basic net loss per share
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Number of shares used in computing diluted net loss per share
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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(Dollars in thousands)
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Cash and cash equivalents
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$
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8,560
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|
|
$
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7,426
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|
|
$
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6,449
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|
|
$
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280
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|
|
$
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4,273
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|
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Short-term deposits
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|
|
-
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|
|
|
-
|
|
|
|
-
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|
|
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4,937
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|
|
|
-
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Restricted cash
|
|
|
-
|
|
|
|
81
|
|
|
|
113
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|
|
|
78
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|
|
|
83
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Working capital
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8,507
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|
|
|
7,359
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|
|
|
6,274
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|
|
|
5,047
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|
|
|
4,196
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Total assets
|
|
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8,800
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|
|
|
7,732
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|
|
|
6,708
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|
|
|
5,447
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|
|
|
4,422
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|
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Shareholders' equity
|
|
|
8,574
|
|
|
|
7,495
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|
|
|
6,399
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|
|
|
5,147
|
|
|
|
4,222
|
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__________________
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
The following information sets forth risk factors that could cause our actual results to differ materially from those contained in forward-looking statements we have made in
this Annual Report and those we may make from time to time. You should carefully consider the risks described below, in addition to the other information contained in this Annual Report, before making an investment decision. Our business, financial
condition or results of operations could be harmed by any of these risks. The risks and uncertainties described below are not the only ones we face. Additional risks not presently known to us or other factors not perceived by us to present
significant risks to our business at this time also may impair our business operations. We believe that the occurrence of any one or some combination of the following factors could have a material adverse effect on our business, financial condition
and results of operations.
We currently do not conduct significant business activities.
In the fourth quarter of 2019, we closed our laboratory facilities and ceased pre-clinical development efforts. We continue to explore strategic opportunities for our antibody program and to
explore the best course of action for Tikcro, including to attempt to merge or effect a business combination with an operating entity in another area of operations or to distribute our net cash to our shareholders. We do not currently conduct other
operations.
We may not be successful in identifying, evaluating and consummating suitable strategic opportunities for our antibody program or suitable business opportunities
for a business combination.
We do not have an agreement with respect to strategic opportunities for our antibody program or engaging in a business combination with another company. We expect to incur expenses in the course of
this evaluation, whether or not such evaluation results in a transaction. There can be no assurance that we will be successful in identifying, evaluating and consummating suitable strategic opportunities for our antibody program or suitable
business opportunities for business combination. If we consummate a business combination with a company that is not interested in furthering our antibody program, it may be difficult or costly to preserve the value of such program for the benefit
of our shareholders.
We may enter into a business combination with a business entity having no significant operating history, losses, limited or no potential for immediate earnings, limited assets, negative net worth
or other negative characteristics. In the event that we complete a business combination, it is likely to result with a new board composition and management. The success of our operations will be dependent upon a new management of the company and
other factors beyond our control. There is no assurance that we will be able to negotiate a business combination on terms favorable to us, or at all.
Our shareholders may be subject to dilution of the value of our shares upon a business combination.
A business combination normally will involve the issuance of a significant number of additional shares. Depending upon the value of the target company or assets acquired in such business
combination, the per share value of our ordinary shares may change, in either direction, significantly.
We may need additional financing following a business combination.
If we consummate a strategic opportunity for our antibody program or a business combination, we may need to raise funds through a public or private financing. We may be unable to obtain additional
financing on acceptable terms or at all.
Risks relating to our efforts to monetize the rights in our CTLA-4 antibody
There is no assurance that we will succeed in monetizing the rights in our CTLA-4 antibody.
We generated a new full human functional CTLA-4 antibody addressing cancer immune modulators. We concluded a series of pre-clinical trials which show enhanced properties in in-vitro and animal
trials over the only commercially approved antibody. We are looking for strategic opportunities with third parties for this antibody program, such as sub-licensing in order to advance its clinical development. There is no assurance that we will be
successful in this aim. Market conditions and competitive drug candidates and the risks inherent in the development and commercialization of our CTLA-4 antibody (see the risk factors below) may deter third parties from undertaking this project.
If we succeed in consummating a transaction with a third party to pursue the development and commercialization of our CTLA-4 antibody, the consideration due to us is likely to be
contingent on future milestones which are not in our control and are subject to uncertainties.
Even if a third party undertakes to advance the development and commercialization of our CTLA-4 antibody, there are significant risks that it will not succeed with the project. It is likely that
the consideration payable to us for our rights in the antibody will be based on the generation of future milestone, such as regulatory approvals and commercial revenues, which are not in our control and are subject to uncertainties.
Our CTLA-4 antibody may not prove to have improved efficacy or a better safety profile in clinical trials.
In in vitro and small animal trials, our CTLA-4 antibody showed enhanced properties over the only commercially approved CTLA-4 antibody. Pre-clinical antibody comparison with an existing CTLA-4
antibody may not correlate with results from clinical trials for efficacy and side effects in humans. If the properties of our antibody fail to show similar benefits in advanced development stages and in clinical trials, there will not be a
commercial basis to pursue the development of our CTLA-4 antibody.
A number of biotechnology and pharmaceutical companies already have FDA-approved drugs targeting certain cancer immune modulators that have less adverse side effects, pursue
numerous clinical trials with other combination therapies in an effort to increase the efficacy of a combination treatment.
Our CTLA-4 antibody can show results in clinical trials for potential approval only in several years. This schedule may not allow our antibody to penetrate the markets because of competition from
major pharmaceutical and specialized biotechnology companies that pursue clinical trials for cancer indications with combinations of new immune therapy antibodies and their existing drugs. They are engaged in clinical development of product
candidates directed at the same or at similar cancer immune modulators and treat similar cancer indications.
A number of antibodies that address cancer immune modulators have obtained FDA approvals and are offered on the market. The majority of the industry’s revenues in 2019 derived in this field were
generated by Merck’s pembrolizumab and Bristol-Myers Squibb’s nivolumab. These two antibodies target the PD-1 receptor. Bristol-Myers Squibb has a CTLA-4 antibody, ipilimumab, which was first FDA approved in 2011 for the treatment of melanoma and
was approved in 2018 for sub-types of renal cancer and of colon cancer and in 2020 for hepatocellular carcinoma (HCC). All the clinical approvals of ipilimumab are in treatment combination with nivolumab. Merck has an ongoing clinical trial of a
treatment combination with a newly developed CTLA-4 antibody in combination with its pembrolizumab antibody.
Additional antibodies that target cancer immune modulator CTLA-4 which are in clinical development include, without limitation, AstraZeneca Medimmune's CTLA-4 antibody as well as a bi-specific
CTLA-4 and PD-1 antibody, Regeneron's CTLA-4 antibody and Agenus' CTLA-4 antibody. Each of these companies also promotes a PD-1 or PD-L1 antibody which are offered in clinical trials in treatment combinations with their respective CTLA-4
antibodies.
Numerous clinical trials for cancer treatment using new antibodies that target the modulation of other immune targets have commenced. The clinical success of PD-1 and PD-L1 antibodies and, to a
lesser extent, CTLA-4, drive this effort, which is expected to increase. In addition, there are other approved agents in advanced clinical trials, like T-cell modulators and anti-cancer vaccines that trigger an immune response against cancer cells.
In certain cancer indications, these agents resulted with superior clinical efficacy.
In addition, there are numerous pre-clinical programs pursued by biotechnology and pharmaceutical companies and academic centers for the development of
antibodies that target the same or other cancer immune modulators as our antibody. Some of these plans are in early clinical studies, such as bi-specific antibodies which target both CTLA-4 and a complementary or possibly synergistic immune
receptor. In addition, new generations of CTLA-4 antibodies are promoted in the clinic to either increase their potency by altering the crystallisable fragments (Fc) or, alternatively, to mask the antibody's variable domain and allow for a
selective un-masking and activation in the cancer tumor environment.
There is no assurance that our CTLA-4 antibody product, which is in pre-clinical stage of development, will be able to compete with the above antibodies and other therapeutic agents, alone or in
combination with other agents that trigger a superior immune response with less adverse side effects.
The existing approved CTLA-4 antibody, ipilimumab, is near a patent expiration date and a competitive pricing environment is expected.
The existing approved CTLA-4 antibody ipilimumab is expected to reach expiration of patent protection in Europe and the United States between 2020 and 2022. Bio-generic companies have plans to
bring to market off-patent versions of ipilimumab. We do not expect regulatory approval for marketing of a drug based on our CTLA-4 antibody to be requested before ipilimumab becomes off-patent. Therefore, with an expected increased competition for
ipilimumab from bio-generic offerings, our new CTLA-4 antibody is likely to face an intensely competitive environment.
Certain clinical indications approved by the FDA for ipilimumab, a CTLA-4 antibody treatment, are based on limited clinical data which may conflict with future clinical results.
A CTLA-4 antibody has been approved by the FDA for sub-types of melanoma, renal cancer, colon cancer and hepatocellular carcinoma (HCC). Except for melanoma which was first approved in 2011,
certain clinical indications were approved in the United States in 2018 through 2020, and their approval is based on a limited set of clinical data. Certain of these FDA approvals are contingent upon verification and description of clinical benefit
in confirmatory trials, which could show conflicting results. If any of the FDA approvals granted to these indications is dropped, the potential market for our CTLA-4 antibody may be reduced and negatively impact the commercial basis for its
development.
The clinical approvals for an anti-CTLA-4 antibody treatment are in combination treatment with a PD-1 antibody. This is likely to affect the clinical plan and commercial
considerations relating to our CTLA-4 antibody.
Significantly all the clinical approvals of an anti-CTLA-4 antibody are based on a combination treatment with a certain PD-1 antibody, namely, with nivolumab. The promotion of our new CTLA-4
antibody will need to either rely on a treatment combination with a PD-1 antibody or to target new clinical indications for a monotherapy or in combination with other drugs. Neither of these approaches was trialed with our antibody, and there is
high uncertainty and risks associated with the clinical outcomes for such approach. Potential third-party licensees or other candidates which may pursue the development and clinical trial of our CTLA-4 antibody may not have a PD-1 antibody or other
drugs to use in combination. As a result, we may not be able to reach favorable terms for a collaboration.
If we will rely on third parties for the development for production and clinical trials, those third parties may not perform satisfactorily, including failing to meet applicable
regulatory requirements.
If we assign or sub-license our CTLA-4 technology to a third party for the development and clinical trials, we will have to rely on such third party to advance the development, production and
clinical trials in respect of our CTLA-4 antibody. Our reliance on third parties for research and development activities and for production reduces our control over these activities and may increase the risks of successful completion. Delays in the
regulatory approval process would increase expenses and the risk of earlier market launch of competing drugs.
Clinical drug development is expensive, time consuming and uncertain, and regulatory approvals for the commercialization of products based on our CTLA-4 antibody ultimately might
not be obtained.
The manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to extensive regulation by the U.S. FDA, European Union, and EU Member State legislators and
agencies, such as the European Medicines Agency, or EMA, which enforce regulations that differ from country to country. The production of our antibodies for clinical trials is required to follow Good Manufacturing Protocol, or GMP, which adds risks
for a timely completion of this process. The manufacturing of antibodies is based on a biological process and is subject to risks such as low yields, lack of repeatability and contamination. Marketing drug candidates in the United States is subject
to the receipt of approval of a biologics license application, or BLA, from the FDA and from applicable regulatory authorities outside the United States for any other country. Obtaining approval of a BLA or other marketing application can be a
lengthy, expensive and uncertain process, and delay or failure can occur at any stage of the process.
Product candidates based on our CLTA-4 antibody, if promoted to clinical trials, will face a variety of risks and uncertainties, including the following:
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future clinical trial results may show that the product is not effective, the clinical trial designs are flawed or the clinical trial subjects do not comply with trial protocols;
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•
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an available anti-CTLA-4 antibody, ipilimumab, in combination with a PD-1 antibody is associated with adverse side effects. Our new CTLA-4 antibody drug candidate may not be well tolerated or may cause more adverse side effects,
which could be deemed not acceptable by the regulatory approval agencies;
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•
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even if a product is shown to be safe and effective for its intended purposes, there may be significant or unforeseen difficulties in obtaining or manufacturing sufficient quantities or at reasonable prices;
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•
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even if a product is successfully developed, commercially produced and receives all necessary regulatory approvals, there is no guarantee that there will be market acceptance; and
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•
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competitors have developed competing antibodies and invest significant efforts to develop therapeutics or other treatments that may be superior to or with less adverse side effects than our CTLA-4 antibody, which could affect its
market acceptance.
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Manufacturing products resulting from our CTLA-4 antibody may cause delays, increased costs, or loss of revenues.
Our CTLA-4 antibody will require substantial development and investment in manufacturing scale-up and for compliance with good manufacturing practice (GMP) and regulatory guidelines regarding
antibody production. In addition, since the manufacturing process is complex and includes several distinct milestones over the course of about two years, there are risks that the schedule and cost through completion of GMP manufacturing will be
subject to delays and additional expenses.
If we fail to comply with our obligations under our intellectual property licenses with third parties, we could lose license rights that are important to our business.
We are currently party to an intellectual property license agreement with Yeda and other licenses which relate to the development of our CTLA-4 antibody. Such engagements impose various diligence,
milestone payment, royalty, insurance and other obligations. If we fail to comply with our obligations under such licenses, the licensors may have the right to terminate their respective license agreements. An assignment or sub-license of rights to
a third party is subject to certain limitations and notice. Any such third party will also be subject to the terms of the license agreements. Termination of a license agreement or reduction or elimination of our licensed rights may result in our
having to negotiate a new or reinstated license with less favorable terms, which could harm our business.
Healthcare legislative changes may harm our business and future prospects.
Healthcare costs have risen significantly over the past decade. Globally, governments are becoming increasingly aggressive in imposing health care cost-containment measures. Certain proposals, if
passed, would impose limitations on prices of pharmaceutical agents. Such limitations will affect prices and the amounts of reimbursement available for these products from governmental agencies or third-party payors. These limitations could in turn
reduce the attractiveness to invest in the development and commercialization of our CTLA-4 antibody and harm our ability to assign or sub-license our rights therein.
Financial and other risks
The COVID-19 pandemic and other conditions and changes in global economic and political environments may adversely affect our company.
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The COVID-19 pandemic is affecting global economies and may affect our operations. It is causing
disruptions for significantly all of our business partners, suppliers, contractors and advisors. Additionally, while the potential economic impact caused by, and the duration of, the COVID-19 pandemic are difficult to assess or predict, the
impact of the COVID-19 pandemic on the global financial markets may change the demand and business priorities in major industries, and it may reduce our ability to access capital, which could negatively impact our long-term liquidity. The
ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential impacts on our operations, financing and reporting. However, these effects could have a material impact on our
liquidity and capital resources, as well as on our ability to report timely.
Even before the COVID-19 pandemic, global financial conditions were characterized by increased volatility. Oil and other commodity prices, in particular, have been subject to wide fluctuations,
further affecting global stability. Rapid climate changes have had adverse supply effects over crops and other food commodities and impact significant populations and territories. In addition, there are concerns regarding the separation of the
United Kingdom from the European Union and regarding several economically weak European Union member countries, which may further lead to weaker global consumer demand. These factors may have a negative impact on our ability to identify and
consummate strategic transactions and on our ability to obtain financing and other sources of funding in the future on terms favorable to us, if at all.
We may be deemed an “investment company” under the Investment Company Act of 1940.
We may be deemed an “investment company” under the Investment Company Act of 1940, unless we qualify for an exemption. If we are deemed an investment company, we could be found to be in violation
of the Investment Company Act of 1940. A violation of that law could make it more difficult for us to register securities and raise funding and subject us to other material adverse consequences.
We might lose money from the investment of our cash.
We invest the majority of our cash on hand in bank deposits and financial instruments. If the obligor of any of the instruments we hold defaults or undergoes a reorganization in bankruptcy, we
may lose all or a portion of our investment. This would harm our financial condition. For information on the types of our investments as of December 31, 2019, see Item 11 “Quantitative and Qualitative Disclosures about Market Risk - Interest Rate
Risk Management”.
We are subject to costs and risks associated with complying with extensive corporate governance and disclosure requirements.
As a foreign private issuer in Israel subject to U.S. federal securities laws, we are required to comply with laws, regulations and standards relating to corporate governance and public disclosure,
including the Sarbanes-Oxley Act of 2002, various SEC regulations and the Israeli Companies Law. Section 404 of the Sarbanes-Oxley Act requires management’s annual review and evaluation of our internal control over financial reporting and
attestation of the effectiveness of these controls by our management. There is no guarantee that these efforts will result in management assurance that our internal control over financial reporting is adequate in future periods. The management
attention and costs relating to compliance with the Sarbanes-Oxley Act and other corporate governance requirements could adversely affect our financial results.
Risks relating to our presence in Israel
Our incorporation in Israel may limit our ability to attract investors, industry research coverage and business partners and to engage with industry-leading health care providers
and suppliers outside Israel.
We are incorporated and headquartered in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors, Hamas (an
Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon). Recent political events and continuous unrest in various countries in the Middle East and Northern Africa, including Syria,
have shaken and continue to impact the stability of those countries, enabling the development of extremist groups. In addition, Iran has threatened to attack Israel and is believed to be developing nuclear weapons. Iran is also believed to have a
strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. This situation may potentially escalate in the future to violent events which may affect Israel and us. We cannot predict the effect on us of the
increase in the degree of terror attacks against Israel, political instability in the region or military action elsewhere in the Middle East. Furthermore, several countries restrict doing business with Israel and Israeli companies, and additional
companies may restrict doing business with Israel and Israeli companies as a result of an actual or feared increase in hostilities or due to disagreement with Israel’s policies. This may also seriously harm our operating results, financial
condition and the ability to expand our business.
It may be difficult to enforce a U.S. judgment against us, our officers and directors or to assert U.S. securities law claims in Israel.
Service of process upon our directors and officers named herein may be difficult to effect within the United States because some of these people reside outside the United States. Any judgment
obtained in the United States against us or these individuals or entities may not be enforceable within the United States.
In addition, it may be difficult to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities
laws because Israel is not the most appropriate forum to bring such a claim. In addition, even if any Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be
applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing
these matters.
Subject to specified time limitations and legal procedures, under the rules of private international law currently prevailing in Israel, Israeli courts may enforce a U.S. judgment in a civil
matter, including judgments based upon the civil liability provisions of the U.S. securities laws and including a monetary or compensatory judgment in a non-civil matter, provided that the following key conditions are met:
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subject to limited exceptions, the judgment is final and non-appealable;
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the judgment was given by a court competent under the laws of the state of the court and is otherwise enforceable in such state;
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the judgment was rendered by a court competent under the rules of private international law applicable in Israel;
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the laws of the state in which the judgment was given provide for the enforcement of judgments of Israeli courts;
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adequate service of process has been effected and the defendant has had a reasonable opportunity to present his arguments and evidence;
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the judgment and its enforcement are not contrary to the law, public policy, security or sovereignty of the State of Israel;
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the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties; and
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an action between the same parties in the same matter was not pending in any Israeli court at the time the lawsuit was instituted in the U.S. court.
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Provisions of Israeli law may delay, prevent or make more difficult a merger or other business combination, which may depress our share price.
Provisions of Israeli corporate law may have the effect of delaying, preventing or making more difficult a merger with, or acquisition of, us. The Israeli Companies Law generally provides that a
merger be approved by the board of directors and a majority of the shares present and voting on the proposed merger. For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the
shares not held by the other party to the merger (or by any person who holds 25% or more of the shares or the right to appoint 25% or more of the directors of the other party or its general manager) have voted against the merger. Upon the request
of any creditor of a party to the proposed merger, a court may delay or prevent the merger if it concludes that there is a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the
surviving company. Finally, a merger may not be completed unless at least (i) 50 days have passed since the filing of a merger proposal signed by both parties with the Israeli Registrar of Companies and (ii) 30 days have passed since the merger
was approved by the shareholders of each merging company.
The Companies Law also provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 25% or
greater shareholder of the company, unless there is already another 25% or greater shareholder of the company. Similarly, an acquisition of shares must be made by means of a tender offer if as a result of the acquisition the purchaser would become
a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. In any event, if as a result of an acquisition of shares the acquirer will hold more than 90% of a company’s shares, the acquisition
must be made by means of a tender offer for all of the shares.
Finally, Israel tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably than U.S. tax laws. For example, Israeli tax law
may, under certain circumstances, subject a shareholder who exchanges his ordinary shares for shares in another corporation, to taxation prior to the sale of the shares received in such stock-for-stock swap.
The described restrictions could prevent or make more difficult an acquisition of Tikcro, which could depress our share price.
Risks relating to the market for our ordinary shares
Holders of our ordinary shares who are U.S. residents face certain potentially adverse U.S federal income tax consequences.
As a consequence of our ownership of relatively substantial cash and investment assets and the absence of operating revenue other than interest on our cash balances, it is likely that we would be
classified for U.S. federal income tax purposes as having been a passive foreign investment company, or PFIC, for each year since 2003 and we may continue to be a PFIC in future years, although the determination of PFIC status is made separately
for each year and our PFIC status could change. Classification as a PFIC could result in a reduction in the after-tax return to U.S. holders of our ordinary shares, which could, in turn, cause a reduction in the value of our ordinary shares.
Classification as a PFIC also triggers the application of certain burdensome U.S. income tax reporting requirements. If we are a PFIC for any year during which a U.S. Holder (as defined in Item 10.E below) holds the our ordinary shares, we
generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds the ordinary shares.
U.S. residents should carefully read Item 10.E “Taxation – United States Federal Income Tax Consequences” for a more complete discussion of the U.S. federal income tax risks related to owning and
disposing of our ordinary shares and the consequences of PFIC status.
The trading market for our ordinary shares has extremely low liquidity, which could make it difficult for our shareholders to effect transactions in our shares at desired prices
and amounts.
Our ordinary shares are traded on the OTCQB. The market for shares quoted on the OTCQB is significantly less liquid than that for shares listed on national stock exchanges, such as the Nasdaq Stock
Market, where we do not meet the listing criteria. There has been extremely low trading volume in our ordinary shares in recent years. This makes it more difficult for our shareholders to effect transactions with their shares at desired prices and
amounts and is likely to have the quoted share price be subject to a wide range between the sell and actual buy prices, resulting with high costs to our shareholders. In addition, major retail U.S. banks have implemented internal policies not to
allow holdings of OTC shares, due to their low liquidity and low confidence in their market price indications. Holders of our shares are therefore restricted to holding and transferring our shares via lower-tier and virtual electronic banks. This
policy may expand to other banks, which would result in even more stringent limitations on holding and trading of our shares.
The market price of our ordinary shares is subject to fluctuations.
The market value of our ordinary shares has fluctuated over time, not necessarily in connection with the performance of our business. The following factors, among others, may significantly impact
the market price of our ordinary shares:
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our company's releases regarding developments in our business and key financial results;
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industry developments, including business developments of competitors and FDA policy and drug evaluation announcements;
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extremely low trading volume of our ordinary shares;
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political, economic or other developments affecting Israel;
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global economic and other external factors; and
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quarter-to-quarter fluctuations in our financial results.
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Our major shareholders may be able to control us.
Aviv Boim, our CEO, beneficially owns approximately 30.1% of our outstanding ordinary shares (comprised of 11.3% in the form of ordinary shares and 18.8% in the form of options to purchase
ordinary shares at an exercise price of $1.01 per share), Steven N. Bronson beneficially owns approximately 15.2% of our outstanding ordinary shares, Eric Paneth, one of our directors, beneficially owns approximately 11.7% of our outstanding
ordinary shares, and Izhak Tamir, our Chairman of the Board, beneficially owns approximately 10.7% of our outstanding ordinary shares. The options held by Mr. Boim are fully vested. Currently, none of these holders is a party to a shareholders
agreement. However, if these shareholders (or a combination thereof) act together, they effectively may have the power to control the outcome of all matters submitted for the vote of our shareholders, including the election of directors and the
approval of significant change in control transactions. The combined equity interest of these holders may have the effect of making certain transactions more difficult and may result in delaying, deferring or preventing a change in control of
Tikcro unless approved by one or more of them.
Our shareholder bonus rights plan may delay, prevent or make more difficult a hostile acquisition of Tikcro, which could depress our share price.
In September 2005, we adopted a shareholder bonus rights plan pursuant to which share purchase bonus rights were distributed to our shareholders. The term of the plan, as amended, expires on
December 31, 2025. These rights generally will be exercisable and transferable apart from our ordinary shares ten business days after a person or group acquires beneficial ownership of 15% or more of our ordinary shares or commences a tender or
exchange offer upon consummation of which that person or group would hold such a beneficial interest. Once these rights become exercisable and transferable, the holders of rights, other than the person or group triggering their transferability,
will be generally entitled to purchase our ordinary shares at a discount from the market price. In addition, the Board may exchange the rights (other than rights owned by the person or group triggering their transferability), in whole or in part,
at an exchange ratio of one ordinary share per right (subject to adjustment). While these rights remain outstanding, they may make an acquisition of us more difficult and result in delaying or preventing a change in control of Tikcro. On November
20, 2012, Mr. Steven N. Bronson filed a Statement on Schedule 13D reflecting beneficial ownership of 1,500,094 of our ordinary shares, or 16.9% of our outstanding ordinary shares as of that date, thereby crossing the 15% ownership threshold.
Currently, Mr. Bronson's shares represent 15.2% of our outstanding ordinary shares. We have deferred the "Distribution Date" under the bonus rights plan to the close of business on the 30th business day following the termination of a standstill and
confidentiality agreement that we entered into with Mr. Bronson, which shall remain in effect until terminated by either party.
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ITEM 4.
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Information on the Company
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A. History and Development of the Company
We were incorporated on December 14, 1999 under the laws of the State of Israel. We are governed by the Israeli Companies Law, 5759-1999. In September 2003, we changed our name from “Tioga
Technologies Ltd.” to “Tikcro Technologies Ltd.” Our principal executive offices are located at 7 Sapir Street, 5th floor, Ness Ziona 7403630, Israel and our telephone number is (+972) 8-996-9800.
Principal Capital Expenditures
In 2017, 2018 and 2019, we had capital expenditures of $53,000, $10,000 and $2,000, respectively. Our capital expenditures were mainly to purchase laboratory equipment for our business. We closed
our facilities in the fourth quarter of 2019 and sold laboratory equipment for consideration of approximately $61,000.
B. Business Overview
General
We have developed a new CTLA-4 antibody for cancer treatment. Pre-clinical results show that it has enhanced properties over ipilimumab, the only clinically available CTLA-4 antibody. Our antibody
is a product of a collaboration which was initiated in 2014 with Yeda, the technology transfer arm of the Weizmann Institute in Israel. It was jointly developed originating from specified research at the Weizmann Institute addressing targets of the
immune system for cancer treatment. A novel immunization approach was used to generate antibodies with high selectivity and blocking qualities towards certain cancer immune modulators.
In the fourth quarter of 2019, we closed our laboratory facilities and ceased pre-clinical development efforts, prior to promoting a commercial production process, due to the significant expected
costs associated with production and clinical trials, as well as the evolution of the immune therapy antibody market and other drug candidates. We continue to explore strategic opportunities for this antibody program and to explore the business
course of action for Tikcro, including to attempt to merge or effect a business combination with an operating entity in another area of operations or to distribute our net cash to our shareholders.
Our CTLA-4 Antibody for Cancer Immune Treatment
General Market Description, Drivers and Growth
Since the FDA approval of a CTLA-4 antibody for treatment of melanoma in 2011 and more so with the approval of PD-1 antibodies in 2014 for cancer treatment, followed by the approvals of PD-L1
antibodies for cancer treatment as well, the field of monoclonal antibody immune modulation for cancer treatment has expanded significantly. It had total revenues exceeding $22.0 billion in 2019 for the top four pharmaceutical companies in the
field, up from $1.3 million in revenues in 2014. The market for the only approved CTLA-4 antibody comprised $1.5 billion. Further growth is expected with the approval of additional clinical indications for immune modulation therapy. These
antibodies, known as blocking antibodies, or neutralizing antibodies, have a therapeutic application in stimulating the immune system against tumors by blocking interactions of the targeted protein with other binding partners.
Specifically, a handful of new blocking antibodies have been approved for treating cancer through the modulation of immune pathways. The majority of them, excluding ipilimumab, a CTLA-4 antibody,
were approved for PD-1 and PD-L1 immune modulators. PD-1 is a receptor and PD-L1 is one of its ligands of the same immune modulator. These treatments have not only led to increased survival periods for many patients with certain forms of late stage
cancer but are leading to apparent cures in a minority of patients with advanced metastatic cancer of melanoma. However, clinical data suggests that the majority of the patient population in a number of indications has not responded to such
treatments. Also, some of the responders have suffered recurrences. Also, adverse toxicity side effects were observed in a relatively large portion of the patients, which required simultaneous treatment with suppressive therapeutic agents to
counter the effects triggered by the immune system over healthy cells.
These antibodies address a considerable cancer patient population, and there is an ongoing growing need to expand its approvals for additional clinical indications in earlier lines of treatment,
combination treatments and additional anti-cancer indications. The FDA-approved clinical indications include many sub-types of cancer indications including, but not limited to, melanoma, lung, breast, colon, renal, liver, head and neck, lymphoma
and for all cancer types which express multi-satellite-instability high mutation.
Industry-wide revenues from the aggregate sale of blocking PD-1, PD-L1 and CTLA-4 antibodies increased significantly, from $1.3 billion in 2014, to $2.6 billion in 2015, $6.3 billion in 2016, $10.5
billion in 2017, $17.0 billion in 2018 and $22.0 in 2019 for the top four pharmaceutical companies in this field. Substantially all of this revenue growth was derived from PD-1 and PD-L1 antibodies, while revenues from the single CTLA-4 antibody
reached $1.5 billion. Industry analysts estimate a further significant increase of revenues from immune modulator antibodies in the coming years, as well as from other therapeutic approaches targeting immune system modulators for the treatment of
cancer. While it is likely that revenues from PD-1 and PD-L1 antibodies will further increase, there are several combination treatments with such antibodies which might substitute the use of a CTLA-4 antibody, mainly in order to lower
immune-related adverse effects. Since certain treatment approvals by the FDA were recent, a long-term efficacy and side effects analysis for these treatments is still lacking to have a complete comparison.
In an effort to improve the therapeutic benefit of such immune modulation agents, it is likely that more specifically designed antibodies with improved functional qualities will allow for a lower
therapeutic dose and for an increasing therapeutic effect while addressing also the level of adverse side effects.
The Therapeutic Need
Immune pathways are processes that regulate immune responses within the body. The modulation of such pathways contributes to rapid activation of the immune system, on the one hand, and, on the
other hand, trim down the immune response when threats are eliminated and limit the immune response to minimize damage to unimpaired tissues.
There are numerous immune pathways, with their receptors and ligands expressed on various cell types involved in immune responses. As scientific tools and industry resource allocation into this
scientific area have increased, more data on each pathway, its receptors and ligands, effects on various cells of the immune system, as well as data on new cancer pathways, are being discovered. While in healthy conditions these pathways work well
to control our immune responses, in certain indications, these pathways are manipulated through their respective receptors or ligands and intensify cancer and auto-immune diseases. While cancer should be recognized by the immune system as
“non-self” and trigger potential immune control and destruction, in numerous indications it “hijacks” certain immune pathways to protect itself from detection and destruction by the body's immune system, resulting with continuous proliferation of
the infected cells. The opposite phenomenon occurs with auto-immune diseases, with infected cells that “hijack” certain immune pathways to recognize healthy cells by the immune system as "non-self" and subject them to attack by the immune system.
Through the fourth quarter of 2019, the aim of our antibody development effort, was to identify lead candidates of antibodies for the treatment of patients with cancer through the modulation of the
immune system. In comparison to antibodies that were recently FDA approved for the treatment of cancer through immune modulation, the goal was to have antibodies which result in better therapeutic outcomes, used alone or in combination, leveraging
the qualities of high specificity and functional parameters. The therapeutic aim was to partially disable the mechanisms that cancer cells employ to evade detection and destruction by the immune system. We identified a lead CTLA-4 full human
antibody candidate which targets the immune system. In comparison with the only available CTLA-4 antibody, ipilimumab, our antibody shows high binding affinity to its receptor, blocking qualities to its ligands and favorable tumor inhibition in
animal trials of human CTLA-4 knock-in mice. For further development, it will have to go through manufacturing scale-up and to be positioned for first human clinical trials in order to apply for FDA and other regulatory approvals.
Our Strategy
Until we ceased our development efforts in the fourth quarter of 2019, we focused our efforts primarily on the identification, isolation through in-vivo immunization and pre-clinical verification
of antibody drug candidates addressing immune pathways and further characterized these antibody candidates in in-vitro functional testing and through in-vivo small-animal trials. We focused our efforts on a new antibody for CTLA-4. We are seeking
to license to, or enter into strategic alliances with, larger companies in the biopharmaceutical field, which have the resources, expertise and industry presence to further develop our CTLA-4 antibody and manufacture, support clinical development,
market and sell the resulting products, if any, utilizing their distribution networks.
Our pre-clinical results shows that this new CTLA-4 antibody is positioned to offer a best-in-class antibody agent that better targets an immune modulation and functional activation of the immune
system with no material increase of toxicity.
Resulting from a research and license agreement with Yeda, the technology transfer arm of the Weizmann Institute, we jointly developed and have equal ownership rights with Yeda in our CTLA-4
antibody. We, alone or through sub-licensees, have the right to obtain this CTLA-4 antibody and to pursue development through commercialization. The license consideration due from us to Yeda includes royalties from net sales, sub-license fees and
fixed fees linked to clinical and commercial sales milestones.
Our lead product candidate for a CTLA-4 antibody showed promising in-vitro and small-animal trial results for tumor inhibition. It will require manufacturing scale-up, clinical trials and approvals
from the FDA and other regulatory agencies, as well as acceptance in the marketplace, all of which are lengthy multi-year processes.
Intellectual Property Rights
We seek to protect our technologies through a combination of patents, trade secrets and know-how. We have filed a U.S. patent application, jointly with Yeda, for the protection of CTLA-4 antibody.
We can provide no assurance that our patent application will have commercial value or will result in the issuance of a valid and enforceable patent.
The patent landscape in the field of therapeutic antibody development, optimization, manufacture and commercialization is crowded. We are aware of third-party patents directed at antibodies to
numerous targets, including CTLA-4. For example, some patents claim antibodies based on a target epitope of a receptor or ligand, competitive binding and blocking capabilities to certain receptors and ligands or an immune reaction, some claim
antibodies based on specifying sequence or other structural information, and some claim various methods of discovery, optimization, production or use of such antibodies. Pursuant to common patent protection and filing strategies, additional claims
addressing the same invention are likely to be filed and be published over many years following the original patent filing date. This practice increases the uncertainty for future third party rights and limitations on our rights, with limitations
appearing with retroactive effect on our inventions and antibody products. These or other third-party patents could impact the value of our patent application.
Competition
Competition in the pharmaceutical and biotechnology industries is intense. Many pharmaceutical or biotechnology companies have products on the market and are actively engaged in the research and
development of products for the treatment of cancer through the modulation of cancer immune pathways or through other approaches, including but not limited to T-cell related agents, vaccination, inhibitors and combinations thereof and the
combination with existing chemotherapy agents.
Many competitors have substantially greater financial, manufacturing, marketing, sales, distribution and technical resources, and more experience in research and development, clinical trials and
regulatory matters than we do. Competing companies developing or acquiring rights to more efficacious therapeutic products for the diseases we targeted, or which offer significantly lower costs of treatment, could render our CTLA-4 antibody
noncompetitive or obsolete. See Item 3D. “Risk Factors- Risks relating to our efforts to monetize the rights in our CTLA-4 antibody”.
Academic institutions, governmental agencies and other public and private research institutions conduct significant amounts of research in biotechnology, medicinal chemistry and pharmacology. These
entities are increasingly active in seeking patent protection and licensing revenues for their research results in areas which address our antibody.
We are aware of a handful biotechnology companies that have antibody-based products on the market, in late clinical trials or in clinical and pre-clinical development that are directed to the same
biological targets as we pursued, either as monoclonal or bispecific antibodies.
The majority of the revenues derived in this field in 2019 were generated by Merck’s pembrolizumab and Bristol-Myers Squibb’s nivolumab. These two antibodies target the PD-1 receptor. Bristol-Myers
Squibb has a CTLA-4 antibody, ipilimumab, which was first FDA approved in 2011 for the treatment of melanoma and was approved in 2018 for sub-types of renal cancer and of colon cancer and in 2020 for HCC. The approvals of ipilimumab are in
treatment combination with nivolumab. Merck has an ongoing clinical trial of a treatment combination with a newly developed CTLA-4 antibody in combination with its pembrolizumab antibody.
Additional antibodies that target cancer immune modulator CTLA-4 which are in clinical development include, without limitation, AstraZeneca Medimmune's CTLA-4 antibody as well as a bi-specific
CTLA-4 and PD-1 antibody, Regeneron's CTLA-4 antibody and Agenus' CTLA-4 antibody.
In addition, there are numerous pre-clinical and early clinical programs by companies and academic centers for the development of antibodies that target the same cancer immune pathways as our
program, as well as pre-clinical programs for the development of antibodies that address different cancer immune pathways. Specifically, for CTLA-4, examples include bi-specific antibodies which target both CTLA-4 and a complementary or possibly
synergistic immune receptor. In addition, new generations of CTLA-4 antibodies are being promoted in the clinic to either increase their potency by altering the crystallisable fragments (Fc) or, alternatively, to mask the antibody's variable domain
and allow for a selective un-masking and activating in the cancer tumor environment.
There are numerous earlier-stage clinical trials ongoing for cancer treatment using new antibodies that target the modulation of additional immune targets. The clinical success of modulating PD-1,
PD-L1 and, to a lesser extent, CTLA-4 with monoclonal antibodies drive the number of such clinical trials. In addition, there are approved agents and advanced clinical trials for agents, such as cancer vaccines and T-cell modulators, that trigger
an immune response against cancer cells. In certain cancer indications, these agents resulted with superior clinical efficacy.
We anticipate increased competition as new companies enter this market and scientific developments surrounding immunotherapy and other traditional cancer therapies continue to accelerate. There is
no assurance that products that may be developed in the future by a third party based on our CTLA-4 antibody will be able to compete with the above antibodies, specifically with anti-PD-1, PD-L1 and CTLA-4 antibodies, which already have an
established market presence and clinical track record for a considerable period of time. Furthermore, other emerging immune modulators directly modifying T-cells may prove to be more efficient in treating cancer.
Government Regulation
Government authorities in the United States (including federal, state and local authorities) and in other countries, extensively regulate, among other things, the manufacturing, clinical
development, marketing, labeling and packaging, storage, distribution, post-approval monitoring and reporting, advertising and promotion, pricing and export and import of pharmaceutical products, such as those we are developing. The process of
obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.
C. Organizational Structure
We do not have any significant subsidiaries.
D. Property, Plants and Equipment
In the fourth quarter of 2019, the lease for our offices and lab at the Kiryat Weizmann Science Park in Ness Ziona, Israel expired. We currently do not lease any property.
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Unresolved Staff Comments
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Not applicable.
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ITEM 5.
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Operating and Financial Review and Prospects
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A. Operating Results
Our operating and financial review and prospects should be read in conjunction with our audited financial statements, accompanying notes thereto and other financial information appearing elsewhere
in this Annual Report.
Overview
In the fourth quarter of 2019, we closed our laboratory facilities and ceased pre-clinical development efforts, prior to promoting a production process for commercial purpose, due to the expected
significant costs associated with production and clinical trials, as well as the evolution of the immune therapy antibody market and other drug candidates. Until then, our business plan focused on the development of new antibodies by using a new
approach of the Israeli Weizmann Institute of Science for animal immunization to target immune modulators. This approach allows for precise targeting of discontinued epitopes in their three-dimensional structure. We were successful in generating a
full human CTLA-4 antibody which shows favorable pre-clinical characteristics over its references. We continue to explore strategic opportunities for this antibody program and to explore the best course of action for Tikcro, including to attempt
to merge or effect a business combination with an operating entity in another area of operations. to close the company and distribute the net cash to our shareholders.
In 2018 and 2019, we recorded aggregate research and development expenses of $692,000 and $442,000, respectively. In December 2014, we entered into a research and license agreement with Yeda for
the development of new antibodies for the treatment of cancer through the modulation of immune cancer pathways. This agreement was amended in 2015 to extend the term for several years. From late 2015 through 2016, we recruited research and
development staff, opened an office and laboratory site and established a working-condition biotechnology development facility, in order to advance this antibody project to a higher scale selection and validation stage. In 2018 and 2019, our
research and development expenses were mainly the cost of our research and development staff, as well as lab materials and fees under sub-contracted research and licenses. In 2019, research and development expenses decreased in comparison to 2018
due to a decrease in staff costs and laboratory materials purchased. Having ceased our development activity in the fourth quarter of 2019, we do not expect to have any material research and development expenses in 2020.
In 2018, we had financial income, net of $53,000, mainly from our investment in short-term deposits. In 2019, we had financial income, net of $94,000, mainly from our investments in short-term
deposits.
In 2018 and 2019, we had an operating loss of $1,458,000 and $1,023,000, respectively, mainly from research and expenses and general and administrative expenses.
Application of Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with United States generally accepted
accounting principles.
For additional information regarding our significant accounting policies please refer to Note 2 of our financial statements as of December 31, 2019 included in this Annual Report. While all the
accounting policies impact the financial statements, certain policies may be viewed to be critical. These policies are most important for the fair portrayal of our financial condition and results of operations and are those that require our
management to make difficult, subjective and complex judgments, estimates and assumptions, based upon information available at the time that they are made, historical experience and various other factors that are believed to be reasonable under the
circumstances.
In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles and does not require management’s judgment in its
application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.
We are also subject to risks and uncertainties that may cause actual results to differ from estimates and assumptions. Certain of these risks, uncertainties and assumptions are discussed in Item
3.D “Risk Factors.” To facilitate the understanding of our business activities, described below are certain accounting policies that are relatively more important to the portrayal of our financial condition and results of operations and that
require management’s subjective judgments. We base our judgments on past experience and various other assumptions that are believed to be reasonable under the circumstances.
On an on-going basis, to fully understand and evaluate our reported financial results, we believe it is important to understand the significant estimates and judgments applied as they relate to our
policies for income taxes, which is measured at fair value at each reporting date, with gains and losses being recorded in our audited financial statements, which are included elsewhere in this Annual Report.
Income Taxes
Based on the guidance in ASC 740 “Income Taxes”, we use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to
be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related
appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We accrue interest and penalties related to unrecognized tax benefits in the
provision for income tax.
Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these
reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will
impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related
interest.
Results of Operations
Set forth below is a discussion of our results of operations for 2018 and 2019. For a comparison of 2018 to 2017, please refer to Item 5 in our annual report on Form 20-F for 2018, filed with the
SEC on April 30, 2019.
The table below sets forth, for the periods indicated, financial data (in thousands of dollars) which we believe to be significant in analyzing our results of operations.
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2018
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2019
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(Dollars in thousands)
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Statement of Operations Data:
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Research and development
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$
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692
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$
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442
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General and administrative expenses, net
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766
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581
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Operating loss
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(1,458
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)
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(1,023
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)
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Financial income, net
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Loss before taxes
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(1,405
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)
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(929
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Net loss
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Research and development expenses. In 2018 and 2019, we had expenses of $692,000 and $442,000, respectively, mainly for research and development in our
antibody project, which included mainly salaries, laboratory materials, depreciation of laboratory equipment and amounts paid for sub-contracted research and licenses.
General and administrative expenses. General and administrative expenses decreased from $766,000 in 2018 to $581,000 in 2019, mainly due to a decrease in
stock-based compensation costs and in legal costs, offset in part by an increase in director and salary costs.
Financial income, net. Financial income, net consists mainly from income from our investment in short-term deposits. In 2018 and 2019, our financial income
of $53,000 and 94,000, respectively, consisted primarily from the income from our investment in short-term deposits.
Tax. We did not have tax expenses in 2018 or 2019.
Net loss. In 2018, we had a net loss of $1,405,000, mainly as a result of our operating loss of $1,458,000, offset by financial income of $53,000. In 2019,
we had a net loss of $929,000, mainly as a result of our operating loss of $1,023,000, offset by financial income of $94,000.
Impact of Inflation, Devaluation and Fluctuation of Currencies on Results of Operations Liabilities and Assets
A devaluation of the new Israeli shekel in relation to the U.S. dollar would have the effect of decreasing the dollar value of our assets in new Israeli shekels to the extent the underlying value
is new Israeli shekel-based. Such a devaluation also would have the effect of reducing the U.S. dollar amount of any of our liabilities which are payable in new Israeli shekels (unless such payables are linked to the U.S. dollar).
We may have from time to time expenses denominated in new Israeli shekels. Such expenses would decrease as a result of a devaluation of the new Israeli shekel in relation to the U.S. dollar. In
2018, the value of the U.S dollar increased against the NIS. In 2019, the value of the U.S dollar decreased against the NIS. We do not presently engage in any hedging or other transactions intended to manage risks relating to foreign currency
exchange rate fluctuations.
The following table presents information about the rate of inflation in Israel, the rate of devaluation of the new Israeli shekel against the U.S. dollar, and the rate of inflation of Israel
adjusted for the devaluation:
|
|
|
|
|
|
|
|
|
|
Israel Inflation
Adjusted for Devaluation
|
|
|
2015
|
|
|
|
(0.8
|
)
|
|
|
0.3
|
|
|
|
(1.1
|
)
|
|
2016
|
|
|
|
(0.4
|
)
|
|
|
(1.5
|
)
|
|
|
1.1
|
|
|
2017
|
|
|
|
0.4
|
|
|
|
(9.8
|
)
|
|
|
10.2
|
|
|
2018
|
|
|
|
0.8
|
|
|
|
8.1
|
|
|
|
(7.3
|
)
|
|
2019
|
|
|
|
0.6
|
|
|
|
(7.8
|
)
|
|
|
8.4
|
|
B. Liquidity and Capital Resources
We had working capital of $5.0 million as of December 31, 2018 and $4.2 million as of December 31, 2019. We believe that we have sufficient working capital for at least the next 12 months.
In 2018, we had a net loss of $1.4 million, and we used $1.3 million of cash for operations. In 2019, we had a net
loss of $929,000 and we used $998,000 of cash for operations. We used a net amount of $4.9 million of cash for investments in 2018 and generated a net amount of $5.0 million of cash from investment activities in in 2019. In 2018 and 2019, most of
the cash activity was the purchase and sale of short-term deposits.
In 2018 and 2019, we did not have any cash flow from financing activities.
C. Research and Development, Patents and Licenses
Please see Item 4.B above.
D. Trend Information
None.
E. Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
F. Tabular Disclosure of Contractual Obligations
We had no contractual commitments as of December 31, 2019, other than for immaterial employment-related payments to terminated personnel.
|
ITEM 6.
|
Directors, Senior Management and Employees
|
A. Directors and Senior Management and Employees
The following table lists our current directors and senior managers as of April 15, 2020:
|
Name
|
Age
|
Position
|
|
Izhak Tamir
|
67
|
Chairman of the Board
|
|
Eric Paneth
|
69
|
Director
|
|
Dr. Dror Melamed
|
59
|
Director
|
|
Dr. Shlomzion Shen
|
50
|
External Director
|
|
Dr. Rami Skaliter
|
62
|
External Director
|
|
Aviv Boim
|
52
|
Chief Executive Officer
|
The business experience of each of our directors and executive officers is as follows:
Izhak Tamir has served as Chairman of our Board of Directors since January 2000 and served as our Chief Executive Officer from August 2003 to December 2007.
He co-founded Orckit Communications Ltd. ("Orckit") in 1990 and served as President and a Director until 2014 and as Chief Executive Officer from 2012 until 2014. Mr. Tamir served as Chairman of the Board of Orckit-Corrigent Ltd., a subsidiary of
Orckit, from 2001 to 2014, and as Chief Executive Officer of Orckit-Corrigent Ltd. from 2007 to 2014 and as a Director of Gilat Satellite Networks Ltd. from 2005 to 2012. From 1987 until 1989, Mr. Tamir was employed by Comstream Inc., in San Diego,
California. From 1985 until 1987, he was vice president of A.T. Communication Channels Ltd., a subsidiary of Bezeq. From 1978 to 1985, he was a senior engineer in the Israeli Government. Mr. Tamir holds an engineering degree from the Technion,
and an M.B.A. from Tel Aviv University.
Eric Paneth has served as one of our Directors since January 2000 and served as our Chief Executive Officer from November 2008 to October 2010. He
co-founded Orckit in 1990 and served as Chief Executive Officer and a Director until 2014. From 1975 until 1983, Mr. Paneth was a senior engineer in the Israeli Government, and from 1985 to 1990, he was a technical department head in the Israeli
Government. From 1983 until 1985, he was employed by Linkabit Inc. in San Diego, California. Mr. Paneth holds an advanced engineering degree from the Technion.
In June 2014, a liquidator was appointed in respect of Orckit at the request of a creditor, and Orckit subsequently underwent a court-approved debt restructuring. In March 2017, the liquidator
filed a petition in the District Court of Tel Aviv against former directors and officers of Orckit, including Messrs. Tamir and Paneth, and Orckit's professional liability insurer, seeking civil monetary damages. Pursuant to a mediation process,
the mediator has presented his recommendations for a settlement. Any settlement will require the approval of all parties and the court.
Dr. Dror Melamed. Dr. Dror Melamed has served as one of our Directors since January 2019. He has more than 20 years of experience in senior executive
management positions in the biopharmaceutical industry. He currently serves as Chief Executive Officer of Tarom Innovative Technologies, a private company investing in and developing various life science-related products and technologies. Since
January 2019, he also serves as the Chief Technology Officer of KinBio, a biopharmaceutical company. From 1995 to 2018, he served in senior executive roles at InSight Biopharmaceuticals, which focuses on the development, manufacturing and
commercialization of innovative biopharmaceuticals, biosimilars and sophisticated generics. Dr. Melamed holds a Ph.D. in molecular and cellular biology from the Faculty of Virology at the Weizmann Institute of Science and an M.B.A. from Bar-Ilan
University.
Dr. Shlomzion Shen has served as one of our external directors since
January 2019. Since 2014, she has served as co-founder and Chief Executive Officer of Seevix Material Sciences, which develops high-strength fibers. From 2013 to 2014, she served as the Chief Executive Officer of Medaware, a healthcare IT company.
From 2012 to 2013, she worked as an independent consultant in the life science industry. From 2010 to 2012, she served as Chief Executive Officer of Fluonic, a medical device company that develops infusion systems. From 2007 to 2009, she served as
the Director of Business Development of Protalix Biotherapeutics (AMEX). Dr. Shen holds a Ph.D. in Biotechnology from Bar Ilan University, where she lectured from 1994 to 2001, and an M.B.A. in Business from Tel Aviv University.
Dr. Rami Skaliter has served as one of our external directors since January 2016. He has served in various executive roles at Quark Pharmaceuticals since
1995, including Vice President and Executive Vice President of Research & Development, and currently serves as the Chief Operating Officer. Under his leadership, Quark’s research and development unit generated most of its current product
pipeline. Dr. Skaliter holds a B.Sc. in biology from the Ben-Gurion University and an M.Sc. and Ph.D. in biochemistry at the Weizmann Institute in Israel. He specialized in the biochemistry of replication and mutagenesis mechanisms. From 1993 to
1995, Dr. Skaliter completed a post -doctoral fellowship at Stanford University.
Aviv Boim has served as our Chief Executive Officer since October 2010. He joined Tikcro in January 2008. From 2008 to 2012, he served as a member of the
board of directors and the executive committee of BioCancell. From 1998 to 2007, he served as the Chief Financial Officer of Orckit. From August 1996 to February 1998, Mr. Boim was a banker with BT Alex. Brown Incorporated, an investment banking
firm. From August 1993 until August 1996, Mr. Boim was a vice president of Giza Ltd., Tel Aviv, an investment banking firm. Mr. Boim holds a B.A. and an M.A. in economics and management from Tel Aviv University and an L.L.B. from Tel Aviv
University Law School.
There are no family relationships between any director or senior manager. There are no arrangements or understandings between any director or senior manager and any other person pursuant to which
the director or senior manager was selected.
B. Compensation
The aggregate direct remuneration, including fringe benefits commonly provided by companies in Israel, paid or accrued by us to all persons as a group (six persons) who served in the capacity of
director or executive officer in the year ended December 31, 2019, was approximately $301,000. The foregoing amounts consist of the fees paid to our directors and our chief executive officer. In 2019, our two statutory external directors and Dr.
Dror Melamed were each paid cash compensation of NIS 60,000 (approximately $17,400) per year and NIS 2,031 (approximately $588) per meeting in accordance with applicable regulations. Mr. Paneth, as a member of board and our compensation committee,
was paid the fixed amounts under applicable regulations, which is NIS 27,376 (approximately $8,000) per year and NIS 1,741 (approximately $504) per meeting. Mr. Tamir, as our Chairman of the Board, was paid NIS 37,000 (approximately $10,706) per
year and 2,400 (approximately $694) per meeting.
The table below reflects the compensation of our five most highly compensated office holders during or with respect to the year ended December 31, 2019. This group consists of our Chief Executive
Officer, who is our only officer, and our four directors who served in 2019.
For purposes of the table below, “compensation” includes salary cost, director fees, bonuses, equity-based compensation and social benefits. All amounts reported in the table are in terms of cost
to the Company, as recognized in our financial statements for the year ended December 31, 2019.
The amounts set forth in the table below are given in thousands of U.S. Dollars.
|
Name and Position
|
Salary Cost (1)
|
Director Fees
|
Bonus
|
Equity-Based
Compensation(2)
|
Total
|
|
Aviv Boim, CEO
|
212
|
--
|
--
|
--
|
212
|
|
Izhak Tamir, Chairman
|
--
|
15
|
--
|
--
|
15
|
|
Eric Paneth, Director
|
--
|
11
|
--
|
--
|
11
|
|
Dror Melamed, Director
|
--
|
21
|
--
|
--
|
21
|
|
Shlomzion Shen, External Director
|
--
|
21
|
--
|
--
|
21
|
|
Rami Skaliter, External Director
|
--
|
21
|
--
|
--
|
21
|
____________________
|
(1)
|
Salary cost includes Mr. Boim's gross salary plus customary payment of social benefits made by the Company on his behalf. For the second quarter of 2020, Mr. Boim’s monthly salary payments were voluntarily reduced by 30% in light of
the coronavirus pandemic.
|
|
(2)
|
Represents the equity-based compensation expenses recorded in the Company's financial statements for the year ended December 31, 2019 based on the fair value of the applicable securities on the date of grant thereof, in accordance
with accounting guidance for equity-based compensation. For a discussion of the assumptions used in reaching this valuation, see Note 2(J) to our consolidated financial statements included in our annual report on Form 20-F for the year
ended December 31, 2019.
|
C. Board Practices
Israeli Companies Law
We are subject to the provisions of the Israeli Companies Law, 5759-1999, and the regulations adopted thereunder.
Board of Directors
According to the Companies Law and our articles of association, the oversight of the management of our business is vested in our board of directors. The board of directors may exercise all powers
and may take all actions that are not specifically granted to our shareholders. As part of its powers, our board of directors may cause us to borrow or secure payment of any sum or sums of money for our purposes, at times and upon terms and
conditions as it thinks fit, including the grant of security interests in all or any part of our property. Our board of directors may consist of not less than three and no more than 15 directors and as of the date hereof, consists of four directors, including our external directors.
Under the Companies Law, our board of directors must determine the minimum number of directors having financial and accounting expertise, as defined in the regulations, that our board of directors
should have. In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors
has determined that we require one director with the requisite financial and accounting expertise and that Izhak Tamir has such expertise.
According to the Companies Law, a company’s chairman of the board may not serve as its chief executive officer, unless otherwise approved by the shareholders for periods of up to three years. Our
directors are elected at annual meetings of our shareholders by a vote of the holders of a majority of the ordinary shares voting thereon. Generally, our directors hold office until the next annual meeting of shareholders following the annual
meeting at which they were elected. Directors may be removed earlier from office by resolution passed at a general meeting of our shareholders. Pursuant to the Israeli Companies Law, external directors are
elected by shareholders for a three-year term and may be re-elected by shareholders for up to two additional three-year terms.
Unless otherwise unanimously decided by our directors, a quorum at a meeting of the board of directors is constituted by the presence of a majority of the directors then in office who are lawfully
entitled to participate in the meeting, but not less than two directors. A resolution proposed at a meeting of the board of directors is deemed adopted if approved by a majority of the directors present and voting on the matter.
There are no arrangements or understandings between us and any of our directors for benefits upon termination of service.
External Directors
Qualifications of External Directors
Under the Companies Law, companies incorporated under the laws of Israel whose shares are listed for trading on a stock exchange or have been offered to the public in or outside of Israel are
required to appoint at least two external directors. External directors are required to possess professional qualifications as set out in regulations promulgated under the Companies Law. The Companies Law provides that a person may not be appointed
as an external director if (i) the person or the person’s relative or affiliate has, as of the date of the person’s appointment to serve as an external director, or had, during the two years preceding that date any affiliation with the company, any
controlling shareholder thereof, or any affiliate thereof, or (ii) in a company that does not have a 25% shareholder, if such person has an affiliation with any person who, at the time of appointment, is the chairman, the chief executive officer,
the chief financial officer or a 5% shareholder of the company.
The Companies Law defines the term “office holder” of a company to include a director, the chief executive officer, the chief business manager, a vice president and any officer that reports
directly to the chief executive officer.
No person can serve as an external director if the person’s position or other business creates, or may create, conflicts of interests with the person’s responsibilities as an external director or
may otherwise interfere with the person’s ability to serve as an external director. Until the lapse of two years from termination of office, a company or its controlling shareholder may not give any direct or indirect benefit to the former external
director.
Election of External Directors
External directors are to be elected by a majority vote at a shareholders’ meeting, provided that either:
|
•
|
at least a majority of the shares of non-controlling shareholders voted at the meeting vote in favor of the election; or
|
|
•
|
the total number of shares voted against the election of the external director does not exceed two percent of the aggregate voting rights in the company.
|
The initial term of an external director is three years and may be extended for up to two additional three-year terms. Thereafter, he or she may be reelected by our shareholders for additional
periods of up to three years each only if the audit committee and the board of directors confirm that, in light of the external director’s expertise and special contribution to the work of the board of directors and its committees, the reelection
for such additional periods is beneficial to the company. Reelection of an external director may be effected through one of the following mechanisms: (1) the board of directors proposed the reelection of the nominee and the election was approved
by the shareholders by the majority required to appoint external directors for their initial term; or (2) a shareholder holding 1% or more of the voting rights or the nominee himself proposed the reelection of the nominee, and the reelection is
approved by a majority of the votes cast by the shareholders of the company, excluding the votes of controlling shareholders and those who have a personal interest in the matter as a result of their relations with the controlling shareholders,
provided that the aggregate votes cast in favor of the reelection by such non-excluded shareholders constitute more than 2% of the voting rights in the company. External directors may be removed from office only by the same percentage of
shareholders as is required for their election, or by a court, and then only if the external directors cease to meet the statutory qualifications for their appointment or if they violate their duty of loyalty to the company. Each committee of a
company’s board of directors is required to include at least one external director, except for the audit committee which is required to include all the external directors. On January 20, 2019, Dr. Rami Skaliter commenced his second term as an
external director and Dr. Shlomzion Shen commenced her first term.
Audit Committee
Under the Companies Law, our board of directors is required to appoint an audit committee, comprised of at least three directors including all of the external directors. The members of the audit
committee must satisfy certain independence standards under the Companies Law, and the chairman of the audit committee is required to be an external director. Our audit committee consists of Dr. Skaliter (Chairman), Dr. Melamed and Dr. Shen.
The role of the audit committee is to examine deficiencies in the management of the company’s business, in consultation with the internal auditor and the company’s independent accountants, suggest
remedial action, approve specified related party transactions and assess the company's internal audit system and the performance of its internal auditor. Our audit committee currently consists of our two external directors.
Our audit committee also has the authority and responsibility to oversee our independent auditors, to recommend for shareholder approval the appointment and, where appropriate, replacement of our
independent auditors and to pre-approve audit engagement fees and all permitted non-audit services and fees. Our audit committee also serves as our qualified legal compliance committee, responsible for investigating reports, made by attorneys
appearing and practicing before the SEC in representing us, of perceived material violations of U.S. federal or state securities laws, breaches of fiduciary duty or similar violations by us or any of our agents.
Compensation Committee
Under the Israeli Companies Law, the board of directors of a public company is required to establish a compensation committee. The compensation committee needs to have at least three directors who
satisfy certain independence qualifications, and the chairman of the compensation committee is required to be an outside director. Under the Israeli Companies Law, the role of the compensation committee is to recommend to the board of directors, a
policy governing the compensation of office holders based on specified criteria, to review modifications to the compensation policy from time to time, to review its implementation and to approve the actual compensation terms of office holders prior
to the approval thereof by the board of directors. Our audit committee serves also as our compensation committee and consists of Dr. Skaliter (Chairman), Dr. Melamed and Dr. Shen.
Internal Auditor
Our board of directors has appointed an internal auditor. Under the Companies Law, the role of the internal auditor is to examine, among other things, whether the company’s actions comply with the
law and orderly business procedure. Under the Companies Law, the internal auditor may not be an interested party, an office holder or a relative of any of the foregoing, nor may the internal auditor be the company’s independent accountant or its
representative. The Companies Law defines the term “interested party” to include a person who holds 5% or more of the company’s outstanding share capital or voting rights, a person who has the right to appoint one or more directors or the general
manager, or any person who serves as a director or as the general manager.
Fiduciary Duties of Office Holders
The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company. The duty of care requires an office holder to act with the level of care with which a reasonable
office holder in the same position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means to obtain:
|
•
|
information on the advisability of a given action brought for his approval or performed by him by virtue of his position; and
|
|
•
|
all other important information pertaining to these actions.
|
The duty of loyalty of an office holder includes a duty to:
|
•
|
refrain from any conflict of interest between the performance of his duties in the company and the performance of his other duties or his personal affairs;
|
|
•
|
refrain from any activity that is competitive with the company;
|
|
•
|
refrain from exploiting any business opportunity of the company to receive a personal gain for himself or others; and
|
|
•
|
disclose to the company any information or documents relating to a company’s affairs which the office holder has received due to his position as an office holder.
|
Approval of Specified Related Party Transactions Under Israeli Law
Transactions with an Office Holder
The Companies Law requires that an office holder of a company disclose to the company any personal interest that he may have and all related material information known to him, in connection with
any existing or proposed transaction by the company. The disclosure is required to be made promptly and in any event no later than the board of directors meeting in which the transaction is first discussed.
Under the Companies Law, an extraordinary transaction is a transaction:
|
•
|
other than in the ordinary course of business;
|
|
•
|
otherwise than on market terms; or
|
|
•
|
that is likely to have a material impact of the company’s profitability, assets or liabilities.
|
Once an office holder complies with the above disclosure requirement, the board of directors may approve a transaction between the company and an office holder, or a third party in which an office
holder has a personal interest. To be approved, a transaction must be for the benefit of the company.
If the transaction is an extraordinary transaction, approval of both the audit committee and the board of directors is required. Under specific circumstances, shareholder approval may also be
required. A person who has a personal interest in a transaction that is considered at a meeting of the board of directors or the audit committee generally may not be present at this meeting or vote on this matter, unless a majority of the members
of the board of directors or the audit committee, as the case may be, has a personal interest in the matter. If a majority of members of the board of directors have a personal interest therein, shareholder approval is also required.
Office Holder Compensation
Under the Israeli Companies Law, we are required to adopt a compensation policy, recommended by the compensation committee, and approved by the board of directors and the shareholders, in that
order. The shareholder approval requires a majority of the votes cast by shareholders, excluding any controlling shareholder and those who have a personal interest in the matter (similar to the threshold described in the following paragraph).
Nevertheless, even if the shareholders reject a proposed compensation policy, the compensation committee and the board of directors may approve the compensation policy if they have determined that the compensation policy is for the benefit of the
company despite the opposition of the shareholders. In general, all office holders’ terms of compensation are required to comply with the company's compensation policy. In addition, the compensation terms of
directors, the chief executive officer, and any employee or service provider who is considered a controlling shareholder generally need to be approved separately by the compensation committee, the board of directors and the shareholders of the
company (by the same threshold noted above), in that order. The compensation terms of other officers require the approval of the compensation committee and the board of directors.
Transactions with a Controlling Shareholder
Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. A controlling shareholder is a shareholder who has
the ability to direct the activities of a company, including, for this purpose, a shareholder that owns 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights, but excluding a shareholder whose power
derives solely from his or her position on the board of directors or any other position with the company. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest require the approval
of the audit committee, the board of directors and the shareholders of the company in that order. The shareholder approval must be by a majority of the shares voted on the matter, provided that either:
|
•
|
at least a majority of the shares of shareholders who have no personal interest in the transaction and who vote on the matter vote in favor thereof; or
|
|
•
|
the shareholders who have no personal interest in the transaction who vote against the transaction do not represent more than two percent of the voting rights in the company.
|
In addition, any such transaction whose term is longer than three years requires further shareholder approval every three years, unless (with respect to transactions not involving management fees
or employment terms) the audit committee approves that a longer term is reasonable under the circumstances.
Shareholders generally have the right to examine any document in the company’s possession pertaining to any matter that requires shareholder approval.
D. Employees
We had one employee as of December 31, 2019, four employees as of December 31, 2018 and four employees as of December 31, 2017.
E. Share Ownership
As of March 31, 2020, Mr. Aviv Boim beneficially owned 3,665,954 ordinary shares, or approximately 30.1% of our outstanding ordinary shares, Mr. Eric Paneth beneficially owned 1,156,602 ordinary
shares, or approximately 11.7% of our outstanding ordinary shares, and Mr. Izhak Tamir beneficially owned 1,061,701 ordinary shares, or approximately 10.7% of our outstanding ordinary shares. Mr. Boim's beneficial ownership includes 2,290,667
shares issuable upon the exercise of vested options. The options have an exercise price equal to $1.01 per share and expire on March 25, 2025. On January 20, 2019, we granted to each of our directors (other than Mr. Tamir, our Chairman) options to
purchase 20,000 ordinary shares at an exercise price of $0.20 per share. The options have a term of seven years and vest over a period of three years, one-third on the first anniversary of the date of grant and the balance in eight equal
three-month installments thereafter.
Share Incentive Plans
We have a share incentive plan that was initially adopted in 2003 pursuant to which options, shares, restricted shares or restricted share units may be granted to our directors, officers,
employees, consultants and contractors. Restricted shares are grants of our ordinary shares that are subject to certain re-sale restrictions for a specified period of time, and RSUs are rights to receive our ordinary shares under certain
conditions, for no consideration. The share incentive plan is administered by our board of directors, which determines the grantees, dates of grant and the terms of the awards. Unless otherwise decided by our board of directors, awards granted
under the share incentive plan are non-assignable except by the laws of descent. Under the share incentive plan, the grantee is responsible for all personal tax consequences of the award. The plan allows us to grant awards to qualified persons
pursuant to the “capital gains route” under Section 102 of the Israeli Income Tax Ordinance. The term of the plan expires on December 31, 2023.
As of March 31, 2020, there were outstanding options to purchase a total of 2,390,667 ordinary shares.
|
ITEM 7.
|
Major Shareholders and Related Party Transactions
|
A. Major Shareholders
The following table sets forth certain information regarding the beneficial ownership of our ordinary shares as of March 31, 2019 (unless otherwise specified), by each person who is known to own
beneficially more than 5% of the outstanding ordinary shares. The voting rights of all major shareholders are the same as for all other shareholders.
|
Identity of Person or Group
|
|
Amount Owned
|
|
|
Percent of Class(1)
|
|
|
Aviv Boim(2)
|
|
|
3,665,954
|
|
|
|
30.1
|
%
|
|
Steven N. Bronson(3)
|
|
|
1,500,094
|
|
|
|
15.2
|
%
|
|
Eric Paneth
|
|
|
1,156,602
|
|
|
|
11.7
|
%
|
|
Izhak Tamir
|
|
|
1,061,701
|
|
|
|
10.7
|
%
|
_______________
|
(1)
|
Based on 9,878,861 ordinary shares outstanding on March 31, 2020.
|
|
(2)
|
Includes 2,290,667 shares issuable upon the exercise of vested options, at a price of $1.01 per share.
|
|
(3)
|
Includes (i) 1,400,422 ordinary shares held jointly by Mr. Bronson and his spouse, (ii) 58,806 ordinary shares held in Mr. Bronson's IRA and (iii) 40,866 ordinary shares held in Mr. Bronson's spouse's IRA (with respect to which Mr.
Bronson has voting and dispositive power). Based on a Schedule 13D/A filed February 5, 2013. Mr. Bronson has undertaken to us not to vote in excess of 1,334,829 ordinary shares, or 14.9% of our outstanding shares, until the 30th
day following the termination of a confidentiality and standstill agreement between us, dated February 1, 2013, which may be terminated by either party upon ten business days' notice.
|
As of March 31, 2017, Mr. Aviv Boim beneficially owned 2,751,287 ordinary shares, constituting 24.4% of our outstanding shares. The change reflected above takes into account the vesting of options
granted in March 2015, which are described elsewhere in this Annual Report.
As of May 17, 2020, there were 32 holders of record of our ordinary shares in the United States who collectively held approximately 60% of our outstanding ordinary shares. The number of record
holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since most these ordinary shares were held of record by brokers or other nominees.
B. Related Party Transactions
We entered into an agreement with Mr. Steven Bronson, one of our major shareholders, as of February 1, 2013, pursuant to which Mr. Bronson undertook to maintain the confidentiality of non-public
information that we may provide to him about our business. Mr. Bronson also undertook not to be the beneficial owner of more than 1,500,094 of our ordinary shares and not to vote more than 1,334,829 of our ordinary shares, or 14.99% of our
outstanding ordinary shares. We undertook to postpone the "Distribution Date" under our shareholder bonus rights plan for 30 business days following the termination of the agreement. This agreement will be in effect until either of the parties
elects to terminate it.
In a private placement that was closed on December 31, 2015, Mr. Aviv Boim, our Chief Executive Officer, purchased 490,000 ordinary shares for an aggregate purchase price of
approximately $300,000. Another investor in the private placement invested on the same terms. Pursuant to the share purchase agreement, upon request and subject to certain conditions, we undertook to register the investors' shares with the
Securities and Exchange Commission in connection with a registration initiated by us or by a third party.
C. Interests of Experts and Counsel
Not applicable.
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ITEM 8.
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Financial Information
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A.
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Consolidated Statements and other Financial Information
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See financial statements under Item 18.
Legal Proceedings
We are currently not a party to any legal proceedings.
B. Significant Changes
No significant change has occurred since December 31, 2019, except as otherwise disclosed in this Annual Report.
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ITEM 9.
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The Offer and Listing
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A.
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Offer and Listing Details
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Our ordinary shares are currently quoted on the OTCQB, a marketplace of the OTC Markets Group, under the symbol TIKRF. The OTCQB typically has a
significantly lower liquidity than the Nasdaq Stock Market.
B. Plan of Distribution
Not applicable.
C. Markets
Our ordinary shares are quoted on the OTCQB, a marketplace of the OTC Markets Group, under the symbol TIKRF.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
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ITEM 10.
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Additional Information
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A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Objects and Purposes
We were organized under Israeli law on December 14, 1999 as a private company, and on June 30, 2000 became a public company. Our registration number with the Israeli registrar of companies is
51-286883-7. Our object is to engage, directly or indirectly, in any lawful undertaking or business whatsoever, including, without limitation, as stipulated in section 2 of our memorandum of association, which was filed with the Israeli registrar
of companies.
Transfer of Shares and Notices
Fully paid ordinary shares may be freely transferred pursuant to our articles of association unless the transfer is restricted or prohibited by another instrument. Unless otherwise prescribed by
law, shareholders of record are entitled to at least 21 calendar days’ prior notice of any general shareholders meeting.
The ownership or voting of our ordinary shares by non-residents of Israel, except with respect to citizens of countries which are in a state of war with Israel, is not restricted in any way by our
memorandum of association or articles of association or by the laws of the State of Israel.
Dividend and Liquidation Rights
Our board of directors is authorized to declare dividends, subject to applicable law. Dividends may be paid only out of profits and other surplus, as defined in the Companies Law, as of the end of
the most recent financial statements or as accrued over a period of two years, whichever is higher. Alternatively, if we do not have sufficient profits or other surplus, then permission to effect a distribution can be granted by order of an Israeli
court. In any event, a distribution is permitted only if there is no reasonable concern that the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to their respective holdings.
Dividend and liquidation right may be affected by the grant of preferential dividends or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Voting, Shareholders’ Meetings and Resolutions
Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. These voting rights may be affected by the grant of any special voting
rights to the holders of a class of shares with preferential rights that may be authorized in the future. No cumulative voting is permitted.
We have two types of general shareholders meetings: the annual general meetings and extraordinary general meetings. These meetings may be held either in Israel or in any other place the board of
directors determines. An annual general meeting must be held in each calendar year, but not more than 15 months after the last annual general meeting. Our board of directors may convene an extraordinary meeting, from time to time, at its
discretion and is required to do so upon the request of any two directors, at least 25% of the directors, or shareholders holding at least 5% of our ordinary shares. The quorum required for an ordinary meeting of shareholders consists of at least
two shareholders present in person or by proxy who hold or represent between them at least 25% of the outstanding voting shares unless otherwise required by applicable rules. A meeting adjourned for lack of a quorum generally is adjourned to the
same day in the following week at the same time and place or any time and place as the chairman may designate with the consent of the holders of a majority of the voting power represented at the meeting and voting on the matter adjourned. At such
reconvened meeting the required quorum consists of any two members present in person or by proxy.
Under the Companies Law and our articles of association, all resolutions of the shareholders require a simple majority of the shares present, in person or by proxy, and voting on the matter.
These voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Duties of Shareholders
Under the Companies Law, each and every shareholder has a duty to act in good faith in exercising his rights and fulfilling his obligations towards us and other shareholders and to refrain from
abusing his power in Tikcro, such as in voting in the general meeting of shareholders on the following matters:
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any amendment to the articles of association;
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an increase of our authorized share capital;
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approval of certain actions and transactions which require shareholder approval.
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In addition, each and every shareholder has the general duty to refrain from depriving other shareholders of their rights.
Furthermore, any controlling shareholder, any shareholder who knows that it possesses the power to determine the outcome of a shareholder vote and any shareholder that, pursuant to the provisions
of the articles of association, has the power to appoint or to prevent the appointment of an office holder in Tikcro or any other power toward Tikcro is under a duty to act in fairness towards us. The Companies Law does not describe the substance
of this duty of fairness.
Mergers and Acquisitions under Israeli Law; Anti-takeover Provisions
The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to a merger have the transaction approved by its board of directors and a vote
of the majority of its shares. For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares held by parties other than the other party to the merger, or by any person who
holds 25% or more of the shares or the right to appoint 25% or more of the directors of the other party, vote against the merger. Upon the request of a creditor of either party of the proposed merger, the court may delay or prevent the merger if
it concludes that there exists a reasonable concern that as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, a merger may not be completed unless at least (i)
50 days have passed from the time that a proposal of the merger has been filed with the Israeli Registrar of Companies by each merging company and (ii) 30 days have passed since the merger was approved by the shareholders of each merging company.
The Companies Law also provides that an acquisition of shares of a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 25% or
greater shareholder of the company and there is no existing 25% or greater shareholder in the company. An acquisition of shares of a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would
become a 45% or greater shareholder of the company and there is no existing 45% or greater shareholder in the company. This requirement does not apply if the acquisition (i) occurs in the context of a private placement by the company that received
shareholder approval, (ii) was from a 25% shareholder of the company and resulted in the acquirer becoming a 25% shareholder of the company or (iii) was from a 45% shareholder of the company and resulted in the acquirer becoming a 45% shareholder
of the company. The tender offer must be extended to all shareholders, but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. The tender offer may
be consummated only if (i) at least 5% of the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.
If as a result of an acquisition of shares the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of a tender offer for all of the outstanding
shares. If as a result of a full the tender offer the acquirer would own more than 95% of the outstanding shares, then all the shares that the acquirer offered to purchase will be transferred to it. The law provides for appraisal rights if any
shareholder files a request in court within six months following the consummation of a full tender offer, but the acquirer will be entitled to stipulate that tendering shareholders forfeit their appraisal rights. If as a result of a full tender
offer the acquirer would own 95% or less of the outstanding shares, then the acquirer may not acquire shares that will cause his shareholding to exceed 90% of the outstanding shares.
Finally, Israeli tax law treats stock-for-stock acquisitions between an Israeli company and a foreign company less favorably than does U.S. tax law. For example, Israeli tax law may, under certain
circumstances, subject a shareholder who exchanges his ordinary shares for shares in another corporation to taxation prior to the sale of the shares received in such stock-for-stock swap.
Our articles of association provide that our board of directors may, at any time in its sole discretion, adopt protective measures to prevent or delay a coercive takeover of Tikcro, including,
without limitation, the adoption of a shareholder rights plan. On April 30, 2015, our board of directors amended and restated our shareholder bonus rights plan.
The rights plan is intended to help ensure that all of our shareholders are able to realize the long-term value of their investment in Tikcro in the event of a potential takeover which does not
reflect the full value of Tikcro and is otherwise not in the best interests of Tikcro and its shareholders. The rights plan is also intended to deter unfair or coercive takeover tactics.
Each right initially will entitle shareholders to buy one-half of one of our ordinary shares for $7.50. The rights generally will only be exercisable and transferable apart from our ordinary shares
ten business days after a person or group becomes an “acquiring person” by acquiring beneficial ownership of 15% or more of our ordinary shares, subject to certain exceptions set forth in the rights plan, or commencing a tender or exchange offer
upon consummation of which such person or group would become an “acquiring person,” or on such later date as may be determined by our audit committee and board of directors. Subject to certain conditions described in the rights plan, once the
rights become exercisable, the holders of rights, other than the acquiring person, will be entitled to purchase ordinary shares at a discount from the market price. In addition, at any time after a person becomes an acquiring person and prior to
the acquisition by such person or group of 50% or more of the outstanding ordinary shares, we may exchange the rights (other than rights owned by the acquiring person), in whole or in part, at an exchange ratio of one ordinary share per right
(subject to adjustment).
The rights expire on December 31, 2025 and are generally redeemable by our board of directors, at a nominal amount per right, at any time until the tenth business day following public disclosure
that a person or group has become an “acquiring person”.
On November 20, 2012, Mr. Steven N. Bronson filed a Statement on Schedule 13D reflecting beneficial ownership of 1,500,094 of our ordinary shares, or 16.9% of our outstanding ordinary shares,
thereby crossing the 15% ownership threshold. We have deferred the "Distribution Date" under the bonus rights plan to the close of business on the 30th business day following the termination of a standstill and confidentiality agreement that we
entered into with Mr. Bronson, which shall remain in effect until terminated by either party.
On December 31, 2015, Mr. Aviv Boim's holdings crossed the 15% beneficial ownership threshold due to Mr. Boim’s participation as an investor in a private placement of our shares. Our board of
directors waived the implementation of the bonus rights in connection with this transaction.
Modification of Class Rights
Our articles of association provide that the rights attached to any class (unless otherwise provided by the terms of that class), such as voting, rights to dividends and the like, may be varied by
a shareholders resolution, subject to the sanction of a resolution passed by the holders of a majority of the shares of that class at a separate class meeting.
Indemnification, Exculpation and Insurance of Office Holders
Exculpation of Office Holders
Under the Companies Law, an Israeli company may not exempt an office holder from liability for breach of his duty of loyalty, but may exempt in advance an office holder from liability to the
company, in whole or in part, for a breach of his duty of care (except in connection with distributions), provided the articles of association of the company allow it to do so. Our articles of association allow
us to exempt our office holders to the fullest extent permitted by law.
Insurance of Office Holders
Our articles of association provide that, subject to the provisions of the Companies Law, we may enter into an insurance contract which would provide
coverage for any monetary liability incurred by any of our office holders, with respect to an act performed in the capacity of an office holder for:
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a breach of his duty of care to us or to another person;
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a breach of his duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice our interests; or
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a financial liability imposed upon him in favor of another person.
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Indemnification of Office Holders
The Companies Law and our articles of association provide that a company may indemnify an office holder against the following obligations and expenses imposed on the office holder with respect to
an act performed in the capacity of an office holder:
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a financial obligation imposed on him in favor of another person by a court judgment, including a compromise judgment or an arbitrator’s award approved by the court; such indemnification may be approved (i) after the liability has
been incurred or (ii) in advance, provided that our undertaking to indemnify is limited to events that our board of directors believes are foreseeable in light of our actual operations at the time of providing the undertaking and to a
sum or criterion that our board of directors determines to be reasonable under the circumstances.
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reasonable litigation expenses, including attorneys’ fees, expended by the office holder as a result of an investigation or proceeding instituted against him by a competent authority, provided that such investigation or proceeding
concluded without the filing of an indictment against him and either (A) concluded without the imposition of any financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial liability in lieu
of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent; and
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reasonable litigation expenses, including attorneys’ fees, expended by the office holder or charged to him by a court in connection with:
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proceedings we institute against him or that are instituted on our behalf or by another person;
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a criminal charge from which he is acquitted; or
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a criminal proceeding in which he is convicted of an offense that does not require proof of criminal intent.
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Limitations on Exculpation, Insurance and Indemnification
The Companies Law provides that a company may not exculpate or indemnify an office holder, or enter into an insurance contract which would provide coverage for any monetary liability incurred as a
result of any of the following:
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a breach by the office holder of his duty of loyalty unless, with respect to insurance coverage or indemnification, the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the
company;
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a breach by the office holder of his duty of care if the breach was done intentionally or recklessly;
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any act or omission done with the intent to derive an illegal personal benefit; or
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any fine levied against the office holder.
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In addition, under the Companies Law, exculpation of, indemnification of, and procurement of insurance coverage for, our office holders must be approved by our audit committee and our board of
directors and, if the beneficiary is a director, by our shareholders.
Our articles of associations also provide that, subject to the provisions of applicable law, we may procure insurance for or indemnify any person who is not an office holder, including without
limitation, any of our employees, agents, consultants or contractors.
In accordance with the foregoing provisions, we have obtained liability insurance in favor of our directors and officers and have granted them letters of indemnification and exculpation.
C. Material Contracts
On April 30, 2015, we entered into an amended and restated bonus rights agreement, with a trustee on behalf of our shareholders, which is summarized above under Item 10.B “—Mergers and Acquisitions
under Israeli Law; Anti-Takeover Provisions” and is incorporated by reference as an exhibit to this Annual Report.
On February 1, 2013, we entered into an agreement with Mr. Steven Bronson which is summarized above under Item 7.B “Major Shareholders and Related Party Transactions— Related Party Transactions”.
D. Exchange Controls
There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of the shares, except
for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
E. Taxation
The following is a general summary only and should not be considered as income tax advice or relied upon for tax planning purposes. Holders of our ordinary shares should consult
their own tax advisors as to the United States, Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any foreign, state or local taxes.
United States Federal Income Tax Consequences
The following summary describes the material U.S. federal income tax consequences to “U.S. Holders” (as defined below) arising from the purchase, ownership or disposition of our ordinary shares.
This summary is based on the Internal Revenue Code of 1986, as amended, or the “Code,” the final, temporary and proposed U.S. Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date
hereof and all of which are subject to change (possibly with retroactive effect) or different interpretations. For purposes of this summary, a “U.S. Holder” will be deemed to refer only to any of the following holders of our ordinary shares:
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an individual who is either a U.S. citizen or a resident of the U.S. for U.S. federal income tax purposes;
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a corporation or other entity taxable as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the U.S. or any political subdivision thereof;
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an estate the income of which is subject to U.S. federal income tax regardless of the source of its income; and
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a trust, if (a) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid
election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.
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This summary does not consider all aspects of U.S. federal income taxation that may be relevant to particular U.S. Holders by reason of their particular circumstances, including potential
application of the U.S. federal alternative minimum tax, or any aspect of state, local or non-U.S. federal tax laws or U.S. federal tax laws other than U.S. federal income tax laws. In addition, this summary is directed only to U.S. Holders that
hold our ordinary shares as “capital assets” within the meaning of Section 1221 of the Code and does not address the considerations that may be applicable to particular classes of U.S. Holders, including financial institutions, regulated investment
companies, real estate investment trusts, pension funds, insurance companies, broker-dealers, tax-exempt organizations, grantor trusts, partnerships or other pass-through entities, partners or other equity owners in partnerships or other
pass-through entities, expatriates or former long-term residents of the United States, U.S. Holders whose functional currency is not the U.S. dollar, U.S. Holders who have elected mark-to-market accounting, U.S. Holders who acquired our ordinary
shares through the exercise of options or otherwise as compensation, U.S. Holders who hold our ordinary shares as part of a “straddle,” “hedge” or “conversion transaction,” U.S. Holders selling our ordinary shares short, U.S. Holders deemed to have
sold our ordinary shares in a “constructive sale,” U.S. Holders required to accelerate the recognition of any item of gross income with respect to our ordinary shares as a result of such income being recognized on an applicable financial statement,
and U.S. Holders, directly, indirectly or through attribution, of 10% or more (by vote or value) of our outstanding ordinary shares. If a partnership (including for this purpose any entity, domestic or foreign, treated as a partnership for U.S.
federal income tax purposes) is a beneficial owner of our ordinary shares, the U.S. federal income tax treatment of a partner in such partnership generally will depend upon the status of the partner and the activities of the partnership.
Each U.S. Holder should consult with its own tax advisor as to the particular tax consequences to it of the purchase, ownership and sale of our ordinary shares, including the effects of applicable
tax treaties, state, local, foreign or other tax laws and possible changes in the tax laws.
Sale, Exchange or Other Taxable Disposition of Ordinary Shares
Subject to the discussion below under “Passive Foreign Investment Company Status,” which is significant, a U.S. Holder’s sale, exchange or other taxable disposition of ordinary shares generally
will result in the recognition by such U.S. Holder of capital gain or loss in an amount equal to the difference between the U.S. dollar value of the amount realized and the U.S. Holder’s tax basis in the ordinary shares disposed of (determined in
U.S. dollars). This gain or loss will be long-term capital gain or loss if such ordinary shares have been held or are deemed to have been held for more than one year at the time of the disposition. Individual U.S. Holders are subject to a maximum
tax rate of 20% on long-term gains. A noncorporate U.S. Holder may be subject to an additional tax based on its “net investment income” (generally, gross income from interest, dividends, annuities, royalties and rents and gain from the sale of
property (other than property held in the active conduct of a trade or business that does not regularly trade financial instruments or commodities), less the amount of deductions properly allocable to such income or gain). Such tax is equal to 3.8%
of the lesser of an individual U.S. Holder’s (i) net investment income, or (ii) the excess of such U.S. Holder’s “modified adjusted gross income” (adjusted gross income plus the amount of any foreign earned income excluded from income under Section
911(a)(1) of the Code, net of deductions and exclusions disallowed with respect to such foreign earned income) over a specified threshold amount ($250,000 in the case of a joint return or surviving spouse, $125,000 in the case of a married
individual filing a separate return and $200,000 in any other case). In the case of a U.S. Holder which is an estate or trust, the tax is equal to 3.8% of the lesser of (i) undistributed net investment income, or (ii) the excess of adjusted gross
income (as defined in Section 67(e) of the Code) over the dollar amount at which the highest tax bracket applicable to an estate or trust begins. Short-term capital gains generally are taxed at the same rates applicable to ordinary income. If the
U.S. Holder’s holding period on the date of the taxable disposition is one year or less, such gain or loss is treated as a short-term capital gain or loss. See “Israeli Tax Considerations — Capital Gains Tax” for a discussion of taxation by Israel
of capital gains realized on sales of our ordinary shares. Any capital loss realized upon the taxable disposition of ordinary shares generally is deductible only against capital gains and not against ordinary income, except that non-corporate U.S.
Holders generally may deduct annually from ordinary income up to $3,000 of capital losses in excess of capital gains. In general, any capital gain or loss recognized by a U.S. Holder upon the taxable disposition of ordinary shares will be treated
as U.S.-source income or loss for U.S. foreign tax credit purposes, although the tax treaty between the United States and Israel may permit gain derived from the taxable disposition of ordinary shares by a U.S. Holder to be treated as
foreign-source income for U.S. foreign tax credit purposes under certain circumstances.
A U.S. Holder’s tax basis in his, her or its ordinary shares generally will be equal to the U.S. dollar purchase price paid by such U.S. Holder to acquire such ordinary shares. The U.S. dollar
cost of an ordinary share purchased with foreign currency generally will be equal to the U.S. dollar value of the purchase price on the date of purchase or, in the case of ordinary shares that are purchased by a cash basis U.S. Holder (or an
accrual basis U.S. Holder that so elects), on the settlement date for the purchase. Such an election by an accrual basis U.S. Holder must be applied consistently from year to year and cannot be revoked without the consent of the U.S. Internal
Revenue Service. The holding period of each ordinary share owned by a U.S. Holder will commence on the day following the date of the U.S. Holder’s purchase of such ordinary share and will include the day on which the ordinary share is sold by such
U.S. Holder.
In the case of a U.S. Holder who uses the cash basis method of accounting and who receives NIS in connection with a taxable disposition of ordinary shares, the amount realized will be based on the
“spot rate” of exchange on the settlement date of such taxable disposition. If such U.S. Holder subsequently converts NIS into U.S. dollars at a conversion rate other than the spot rate in effect on the settlement date, he, she or it may have a
foreign currency exchange gain or loss treated as ordinary income or loss for U.S. federal income tax purposes. A U.S. Holder who uses the accrual method of accounting may elect the same treatment required of cash method taxpayers with respect to
a taxable disposition of ordinary shares, provided that the election is applied consistently from year to year. Such election may not be changed without the consent of the U.S. Internal Revenue Service. If an accrual method U.S. Holder does not
elect to be treated as a cash method taxpayer (pursuant to U.S. Treasury Regulations applicable to foreign currency transactions), such U.S. Holder may be deemed to have realized an immediate foreign currency gain or loss for U.S. federal income
tax purposes in the event of any difference between the U.S. dollar value of the NIS on the date of taxable disposition and the settlement date. Any such currency gain or loss generally would be treated as U.S.-source ordinary income or loss and
would be subject to tax in addition to any gain or loss recognized by such U.S. Holder on the taxable disposition of ordinary shares.
Treatment of Distributions
Subject to the discussion below under “Passive Foreign Investment Company Status,” which is significant, for U.S. federal income tax purposes, the amount of any distribution with respect to our
ordinary shares will equal the amount of cash distributed, the fair market value of any property distributed and the amount of any Israeli taxes withheld on such distribution as described below under “Israeli Tax Considerations -- Tax on
Dividends.” Other than distributions in liquidation or in redemption of our ordinary shares that are treated as exchanges, a distribution with respect to our ordinary shares to a U.S. Holder generally will be treated as a dividend to the extent the
distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of any distribution that exceeds these earnings and profits will be treated first as a non-taxable return
of capital, reducing the U.S. Holder’s tax basis in his, her or its ordinary shares (but not below zero), and then generally as capital gain from a deemed sale or exchange of such ordinary shares. Because we do not intend to determine our earnings
and profits on the basis of U.S. federal income tax principles, any distribution paid will generally be reported as a “dividend” for U.S. federal income tax purposes. Corporate U.S. Holders generally will not be allowed a deduction under Section
243 of the Code for dividends received on our ordinary shares and thus will be subject to tax at the rate applicable to their taxable income. A noncorporate U.S. Holder’s “qualified dividend income” generally is subject to tax at a rate of 20% and
also may be subject to the additional tax on “net investment income” described above in “Sale, Exchange or Other Taxable Disposition of Ordinary Shares.” For this purpose, “qualified dividend income” generally includes dividends paid by a foreign
corporation if, among other things, the noncorporate U.S. Holder meets certain minimum holding period requirements, there is no obligation to make related payments with respect to positions in substantially similar or related property, and either
(a) the stock of such corporation is readily tradable on an established securities market in the U.S., or (b) such corporation is eligible for the benefits of a comprehensive income tax treaty with the U.S. which includes an information exchange
program and is determined to be satisfactory by the U.S. Secretary of the Treasury. The U.S. Secretary of the Treasury has indicated that the income tax treaty between the U.S. and Israel is satisfactory for this purpose. Dividends paid by us will
not qualify for the 20% U.S. federal income tax rate, however, if we are treated, for the tax year in which the dividends are paid or the preceding tax year, as a “passive foreign investment company” for U.S. federal income tax purposes. See the
discussion below under the heading “Passive Foreign Investment Company Status.”
A dividend paid by us in NIS will be included in the income of U.S. Holders at the U.S. dollar amount of the dividend, based on the “spot rate” of exchange in effect on the date of receipt or
deemed receipt of the distribution, regardless of whether the payment is in fact converted into U.S. dollars. U.S. Holders will have a tax basis in the NIS for U.S. federal income tax purposes equal to that U.S. dollar value. Any gain or loss upon
the subsequent conversion of the NIS into U.S. dollars or other disposition of the NIS will constitute foreign currency gain or loss taxable as ordinary income or loss and will be treated as U.S.-source income or loss for U.S. foreign tax credit
purposes.
Dividends received with respect to our ordinary shares will constitute “portfolio income” for purposes of the limitation on the deductibility of passive activity losses and, therefore, generally
may not be offset by passive activity losses. Dividends received with respect to our ordinary shares also generally will be treated as “investment income” for purposes of the investment interest deduction limitation contained in Section 163(d) of
the Code, and generally as foreign-source passive income for U.S. foreign tax credit purposes. Subject to certain limitations, U.S. Holders may elect to claim as a foreign tax credit against their U.S. federal income tax liability any Israeli
income tax withheld from distributions on our ordinary shares which constitute dividends under U.S. income tax law. U.S. Holders that do not elect to claim a foreign tax credit may instead claim a deduction for Israeli income tax withheld, but only
if the U.S. Holder elects to do so with respect to all foreign income taxes in such year. In addition, special rules may apply to the computation of foreign tax credits relating to “qualified dividend income,” as defined above. The calculation of
foreign tax credits and, in the case of a U.S. Holder that elects to deduct foreign income taxes, the availability of deductions involves the application of complex rules that depend on a U.S. Holder’s particular circumstances.
U.S. Holders are urged to consult their own tax advisors regarding the U.S. federal income tax consequences of their receipt of any distributions with respect to our ordinary
shares.
Passive Foreign Investment Company Status
Generally, a foreign corporation is treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for any tax year if, in such tax year, either (i) 75% or more of
its gross income (including its pro rata share of the gross income of any company in which it owns 25% or more of the shares by value) is passive in nature (the “Income Test”), or (ii) the average percentage of its assets during such tax year
(including its pro rata share of the assets of any company in which it owns 25% or more of the shares by value) which produce, or are held for the production of, passive income (determined by averaging the percentage of the fair market value of
its total assets which are passive assets as of the end of each quarter of such year) is 50% or more (the “Asset Test”). Passive income for this purpose generally includes dividends, interest, rents, royalties and gains from securities and
commodities transactions.
There is no definitive method prescribed in the Code, U.S. Treasury Regulations or administrative or judicial interpretations thereof for determining the value of a publicly-traded foreign
corporation’s assets for purposes of the Asset Test. The legislative history of the U.S. Taxpayer Relief Act of 1997 (the “1997 Act”) indicates that for purposes of the Asset Test, “the total value of a publicly-traded foreign corporation’s assets
generally will be treated as equal to the sum of the aggregate value of its outstanding stock plus its liabilities.” It is unclear, whether other valuation methods could be employed to determine the value of our assets for purposes of the Asset
Test.
Based on the composition of our gross income, the composition and value of our gross assets and the market price of our ordinary shares during each year since 2003, we believe that we are likely to
be treated as having been a PFIC in each such year, including 2019. There also can be no assurance that we will not be deemed a PFIC in 2020 or any other future tax year.
If we are treated as a PFIC for U.S. federal income tax purposes for any year during a U.S. Holder’s holding period of ordinary shares and the U.S. Holder does not make a QEF Election or a
“mark-to-market” election (both as described below), the U.S. Holder will generally be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, for subsequent taxable years, on (i) any excess distribution
that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S.
Holder’s holding period for ordinary shares), and (ii) any gain realized on the sale or other disposition, including, under certain circumstances, a pledge, of ordinary shares. Under the PFIC rules:
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Any “excess distribution” and/or gain will be allocated ratably over the U.S. Holder’s holding period for the ordinary shares;
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such amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are a PFIC, or pre-PFIC year, will be taxable as ordinary income;
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such amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect applicable to the U.S. holder for that year; and
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an interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior taxable year, other than a pre-PFIC year.
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Although we generally will be treated as a PFIC as to any U.S. Holder if we are a PFIC for any year during the U.S. Holder’s holding period, if we cease to be a PFIC, the U.S. Holder may avoid the
consequences of PFIC classification for subsequent years if such U.S. Holder elects to recognize gain based on the unrealized appreciation in such U.S. Holder’s ordinary shares through the close of the tax year in which we cease to be a PFIC, which
gain would be subject to the excess distribution rules described above.
A U.S. Holder who beneficially owns shares of a PFIC must file U.S. Internal Revenue Service Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund)
with the U.S. Internal Revenue Service annually.
For any tax year in which we are treated as a PFIC, a U.S. Holder may elect to treat his, her or its ordinary shares as an interest in a qualified electing fund (a “QEF Election”), in which case
the U.S. Holder would be required to include in income currently his, her or its proportionate share of our earnings and profits in years in which we are a PFIC regardless of whether distributions of our earnings and profits are actually made to
the U.S. Holder. Any gain subsequently recognized by the U.S. Holder upon the sale of his, her or its ordinary shares, however, generally would be taxed as capital gain and the denial of the basis step-up at death described above would not apply.
A U.S. Holder may make a QEF Election with respect to a PFIC for any tax year of the U.S. Holder. The election is effective for the tax year for which it is made and all subsequent tax years of
the U.S. Holder. Procedures exist for both retroactive elections and the filing of protective statements. A QEF Election is made by completing U.S. Internal Revenue Service Form 8621 and attaching it to a timely-filed (including extensions) U.S.
federal income tax return for the first tax year to which the election will apply. A U.S. Holder must satisfy certain additional filing requirements each year the election remains in effect. Upon the request of a U.S. Holder who wishes to make a
QEF Election, we will provide to such U.S. Holder the information required to make the QEF Election and to make subsequent annual filings.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment described above.
“Marketable stock” is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market, as defined in applicable Treasury regulations. U.S.
Holders should consult their own tax advisers regarding the availability of the mark-to-market- election for our ordinary shares.
If a mark-to-market election is available and made, the U.S. Holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market
value of the ordinary shares held at the end of the taxable year over the adjusted tax basis of such ordinary shares and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ordinary shares over the fair market value
of such ordinary shares held at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ordinary shares would be
adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes an effective mark-to-market election, in each year that we are a PFIC any gain recognized upon the sale or other disposition of the ordinary
shares will be treated as ordinary income and loss will be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If a U.S. holder makes a mark-to-market election
it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ordinary shares are no longer treated as marketable stock or the U.S. Internal Revenue Service consents to the revocation of the
election.
Due to the complexity of the PFIC rules, U.S. Holders should consult their own tax advisors regarding our status as a PFIC and, if we are treated as a PFIC, compliance with the
applicable reporting requirements and the eligibility, manner and advisability of making a QEF Election or a mark-to-market election.
Information Reporting and Backup Withholding
Payments in respect of our ordinary shares that are made in the U.S. or by certain U.S.-related financial intermediaries may be subject to information reporting and backup withholding tax at a rate
which currently is 24%. Information reporting will not apply, however, with respect to payments to certain U.S. Holders, including corporations and tax-exempt organizations. In addition, backup withholding will not apply to a U.S. Holder that (i)
is a corporation or comes within certain exempt categories, and demonstrates that fact when so required, or (ii) furnishes a correct taxpayer identification number and other required certifications. U.S. Holders required to establish their
exemption from backup withholding generally must provide a certification on U.S. Internal Revenue Service Form W-9 (or substitute form). The backup withholding tax is not an additional tax. Amounts withheld under the backup withholding rules may be
credited against a U.S. Holder’s U.S. federal income tax liability, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the U.S. Internal
Revenue Service. U.S. Holders should consult their own tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption, if applicable.
In addition, U.S. Holders should be aware of annual reporting requirements on U.S. Internal Revenue Service Form 8938 (Statement of Specified Foreign Financial Assets) with respect to the holding
of certain foreign financial assets, including our ordinary shares that are not held in an account maintained by certain types of financial institutions, if the aggregate value of all of such assets exceeds $50,000 (or $100,000 for married couples
filing a joint return).
The foregoing discussion of certain U.S. federal income tax considerations is a general summary only and should not be considered as income tax advice or relied upon for tax
planning purposes. Each U.S. Holder should consult with his, her or its own tax advisor regarding U.S. federal, state, local and non-U.S. income and other tax consequences of the acquisition, ownership and disposition of our ordinary shares.
Israeli Tax Considerations
The following is a summary of the principal tax laws applicable to companies in Israel, with special reference to their effect on us. This section also contains a discussion of certain Israeli tax
consequences to persons holding ordinary shares. This summary does not discuss all the provisions of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to certain types of
investors subject to special treatment under Israeli law, such as traders in securities or persons that own, directly or indirectly, 10% or more of our outstanding voting share capital. To the extent that the discussion is based on new tax
legislation which has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in this discussion will be accepted by the tax authorities or the courts. The discussion should not be construed
as legal or professional tax advice and is not exhaustive of all possible tax considerations.
Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular,
the effect of any foreign, state or local taxes.
General Corporate Tax Structure
Generally, Israeli companies are subject to Corporate Tax. Starting in 2018, the corporate tax rate is 23%. Israeli companies are generally subject to capital gains tax at the corporate tax rate.
Capital Gains Tax on Sales of Our Ordinary Shares
Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of any capital assets located in
Israel, including shares in Israeli companies by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The law distinguishes between
real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain that is equivalent to the increase of the relevant asset’s purchase price that is attributable to the increase in the Israeli consumer price index,
or in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
Provisions of Israeli tax law may treat a sale of securities listed on a stock exchange differently than the sale of other securities. In the past, the Israeli Tax Authority, or the ITA, has
indicated that it does not recognize the OTC market as a “stock exchange” for purposes of the Tax Ordinance. However, the current position of the ITA is to view securities quoted on the OTC market as listed on a “stock exchange” where such
securities were previously delisted from a “stock exchange” (such as the Nasdaq Global Market or the Tel Aviv Stock Exchange), such as our ordinary shares.
The tax rate generally applicable to capital gains derived from the sale of shares, whether listed on a stock market or not, is 25% for Israeli individuals, unless such shareholder claims a
deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of 30%. Additionally, if such shareholder is considered a “significant shareholder” at any time during the 12-month period
preceding such sale (i.e., such shareholder holds directly or indirectly, including jointly with others, at least 10% of any means of control in the company) the tax rate will be 30%. However, the above tax rates may not apply to dealers in
securities and shareholders who acquired their shares prior to an initial public offering. Israeli companies are subject to the corporate tax rate on capital gains derived from the sale of listed shares.
The tax basis of listed shares acquired prior to January 1, 2003 will be determined in accordance with the average closing share price in the three trading days preceding January 1, 2003. However,
a request may be made to the tax authorities to consider the actual adjusted cost of the shares as the tax basis if it is higher than such average price.
Shareholders that are individuals who have taxable income that exceeds NIS 640,000 in a tax year (linked to the CPI, which amounts to NIS 649,560 for 2019) will be subject to an additional tax,
referred to as High Income Tax, at the rate of 3% on their taxable income for such tax year which is in excess of such threshold. For this purpose, taxable income will include taxable capital gains from the sale of our shares and taxable income
from dividend distributions.
Generally, non-Israeli residents are exempt from Israeli capital gains tax on any gains derived from the sale of shares of Israeli companies publicly traded on a recognized stock exchange outside
of Israel, provided that such capital gains are not derived from a permanent establishment in Israel and that such shareholders did not acquire their shares prior to the issuer’s initial public offering. However, non-Israeli corporations will not
be entitled to such exemption if Israeli residents (i) have a controlling interest of more than 25% in such non-Israeli corporation, or (ii) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli
corporation, whether directly or indirectly.
In some instances where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at the
source.
Pursuant to the Convention between the Government of the United States of America and the Government of Israel with Respect to Taxes on income, as amended, known as the U.S.-Israel Tax Treaty, the
sale, exchange or disposition of ordinary shares by a person who holds the ordinary shares as a capital asset and who qualifies as a resident of the United States within the meaning of the treaty and who is entitled to claim the benefits afforded
to a resident by the treaty generally will not be subject to Israeli capital gains tax. This exemption does not apply if: (i) the treaty U.S. resident holds, directly or indirectly, shares representing 10% or more of our issued voting power during
any part of the twelve-month period preceding the applicable sale, exchange or disposition, subject to specific conditions, (ii) the capital gains from such sale, exchange or disposition can be allocated to a permanent establishment in Israel or
(iii) the U.S. resident, being an individual, is present in Israel for a period or periods aggregating 183 days or more during the relevant taxable year. In these cases, the sale, exchange or disposition would be subject to Israel tax, to the
extent applicable, as mentioned above. However, under the U.S.-Israel Tax Treaty, the treaty U.S. resident would generally be permitted to claim a credit for the capital gains tax paid in Israel against the U.S. federal income tax imposed with
respect to the applicable sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to U.S. state or local taxes.
Tax on Dividends to Non-Israeli Resident Shareholders
Non-residents of Israel are generally subject to income tax on income accrued or derived from sources in Israel. These sources of income include passive income such as dividends. On distributions
of dividends other than bonus shares, or stock dividends, income tax is generally applicable at the rate of 25%, or 30% for a shareholder that is considered a significant shareholder at any time during the 12-month period preceding such
distribution. A different rate may be provided in a treaty between Israel and the shareholder’s country of residence. Under the U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a holder of ordinary shares who is a U.S. resident (as
defined in the treaty) is 25%, and in certain circumstances if such shareholder is a U.S. corporation holding at least 10% of our issued voting power during the part of the tax year which precedes the date of payment of the dividend as well as the
previous tax year, and not more than 25% of our gross income consists of interest or dividends, the maximum Israeli tax on dividends paid to such corporation is 12.5%.
A non-resident of Israel who receives interest or dividend income derived from or accrued in Israel, from which tax was withheld at the source, is generally exempted from the duty to file tax
returns in Israel with respect to such income, provided such income was not derived from a business conducted in Israel by the taxpayer and the taxpayer has no other taxable sources of income in Israel.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents On Display
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, applicable to foreign private issuers and fulfill the obligations with respect to such
requirements by filing reports with the Securities and Exchange Commission. You may read and copy any document we file with the Securities and Exchange Commission without charge at the Securities and Exchange Commission’s public reference room at
100 F Street, N.E., Washington, D.C. 20549. Copies of such material may be obtained by mail from the Public Reference Branch of the Securities and Exchange Commission at such address, at prescribed rates. The SEC also maintains a web site that
contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of this web site is http://www.sec.gov. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference room.
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders
are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the Securities
and Exchange Commission as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.
I. Subsidiary Information
Not applicable.
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ITEM 11.
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Quantitative and Qualitative Disclosures about Market Risk
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General
We are exposed to market risk, including movements in interest rates and foreign currency exchange rates. Our financial results may be negatively impacted by foreign currency fluctuations because
we generate most of our financial income in U.S. dollars but incur some of our expenses in new Israeli shekels. Because our financial results are reported in U.S. dollars, our results of operations may be impacted by fluctuations in the rates of
exchange between the U.S. dollar and new Israeli shekels as our financial results are converted into U.S. dollars.
We do not presently engage in any hedging or other transactions intended to manage risks relating to foreign currency exchange rate or interest rate fluctuations. At December 31, 2019, we did not
own any market risk sensitive instruments. However, we may in the future undertake hedging or other similar transactions or invest in market risk sensitive instruments if our management determines that it is necessary to offset these risks.
Interest Rate Risk Management
As of December 31, 2019, we had $4.27 million of cash and short-term investments, the substantial majority of which was linked to the U.S. dollar.
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ITEM 12.
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Description of Securities other than Equity Securities
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None.
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