We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Medgenics(Regs) | LSE:MEDG | London | Ordinary Share | COM SHS USD0.0001 (REGS) |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 302.50 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMMEDG TIDMMEDU
RNS Number : 1122Y
Medgenics Inc
16 December 2010
Medgenics, Inc.
('Medgenics' or the 'Company')
Financial Results for the Nine Months Ended September 30, 2010
Misgav, Israel and London, UK- 16 December 2010 - Medgenics (AIM: MEDG and MEDU) announces its unaudited results for the nine months ended 30 September 2010. Although the Company has not in the past announced its quarterly results, the Company is making this announcement because the Company is filing an amendment to its S-1 registration statement previously filed with the U.S. Securities and Exchange Commission (the "SEC") which amendment includes these quarterly results in response to comments received from the SEC.
Financial Summary (unaudited)
-- The Company raised $4.0 million of gross proceeds from the sale of convertible debentures and warrants to investors in a private placement transaction.
-- The net loss after tax for the nine month period was $4.16 million ($3.77 million for the nine month period ended 30 September 2009), primarily as a result of the ongoing Phase I/II clinical trial of EPODURE.
-- R&D costs net of participation for the nine month period were $1.13 million ($1.33 million for the nine month period ended 30 September 2009). Gross R&D costs amounted to a total of $2.38 million in the nine month period ($1.70 million for the nine month period ended 30 September 2009). General and administrative costs were $3.73 million ($1.73 million for the nine month period ended 30 September 2009).
-- Cash, cash equivalents and short-term investments at 30 September 2010 were $4.78 million ($0.01 million at 30 September 2009).
-- The loss per share of common stock for the nine month period was $0.03 (2009: $0.03).
-- Medgenics continues to seek further funding to complete its EPODURE Phase I/II trial, prepare for and launch an INFRADURE Phase I/II trial for the treatment of hepatitis-C, continue its development of Biopump technology for the treatment of haemophilia through its existing collaboration with international healthcare company, Baxter Healthcare, and continue activities towards additional development deals.
The Company's registration statement has not yet become effective. The shares of common stock to be sold in the proposed offering may not be sold, nor may any offers to buy be accepted, prior to the time the registration statement becomes effective. This release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction. Sales of common stock under the registration statement cannot occur until it is declared effective by the SEC. There can be no assurance as to if and when the SEC will declare the Company's registration statement effective.
For further information, contact:
Medgenics, Inc. Phone: +972 4 902 8900 Dr. Andrew L. Pearlman ------------------------------------------ ------------------------ Religare Capital Markets (Nominated Phone: +44 207 444 0800 Adviser) James Pinner Derek Crowhurst ------------------------------------------ ------------------------ SVS Securities plc (Joint Broker) Phone: +44 207 638 5600 Ian Callaway ------------------------------------------ ------------------------ Nomura Code Securities PLC (Joint Broker) Phone: +44 207 776 1219 ------------------------------------------ ------------------------ CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands September December 31, 30, 2010 ---------------- Note 2008 2009 (Unaudited) ----- ------- ------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents 3 $1,043 $470 $ 4,778 Accounts receivable and prepaid expenses 4 122 11 468 ------- ------- ------------ Total current assets 1,165 481 5,246 ------- ------- ------------ LONG-TERM ASSETS: Restricted lease deposit and prepaid expenses 8(e) 45 39 40 Severance pay fund 171 261 276 ------- ------- ------------ 216 300 316 ------- ------- ------------ PROPERTY AND EQUIPMENT, NET 5 400 303 237 ------- ------- ------------ DEFERRED ISSUANCE EXPENSES - - 405 ------- ------- ------------ Total assets $1,781 $1,084 $6,204 ------- ------- ------------ September December 31, 30, 2010 -------------------- Note 2008 2009 (Unaudited) ----- --------- --------- ------------ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Short-term bank credit $53 $- $- Trade payables 6 889 947 780 Advance payment 1(c) - 783 330 Other accounts payable and accrued Expenses 7 1,068 1,690 1,474 Convertible debentures 10 - - 5,251 Total current liabilities 2,010 3,420 7,835 LONG-TERM LIABILITIES: Accrued severance pay 819 991 1,043 - 1,013 - Convertible debentures 10 - - 1,137 Liability in respect of warrants 10 Total long-term liabilities 819 2,004 2,180 Total liabilities 2,829 5,424 10,015 COMMITMENTS AND CONTINGENCIES 8 STOCKHOLDERS' DEFICIT: 9 Common shares - $0.0001 par value; 500,000,000 shares authorized; 106,728,195 shares, 122,174,027 shares and 180,155,206 (unaudited) shares issued and outstanding at December 31, 2008 and 2009 and September 30, 2010, respectively 10 11 17 Additional paid-in capital 29,109 30,384 35,087 Receipts on account of shares 150 25 - Deficit accumulated during the development stage (30,317) (34,760) (38,915) Total stockholders' deficit (1,048) (4,340) (3,811) Total liabilities and stockholders' deficit $1,781 $1,084 $6,204 CONSOLIDATED STATEMENTS OF OPERATIONS U.S. dollars in thousands (except share and per share data) Period from January 27, 2000 Year ended December Nine months ended (inception) 31 September 30, through ------------------------ ------------------------ September Note 2008 2009 2009 2010 30, 2010 ---- ----------- ----------- ----------- (Unaudited) (Unaudited) ----------- Research and development expenses $3,518 $2,267 $1,702 $2,377 $23,455 Less - Participation by the Office of the Chief Scientist 2(l) (1,336) (488) (376) (429) (4,157) Participation by third party 1(c) - (90) - (817) (907) ----------- ----------- ----------- ----------- ----------- Research and development expenses, net 2,182 1,689 1,326 1,131 18,391 General and administrative expenses 2,819 2,534 1,726 3,727 20,796 Other income: Excess amount of participation in research and development from third party 1(c) - (327) - (2,026) (2,353) ----------- ----------- ----------- ----------- ----------- Operating loss (5,001) (3,896) (3,052) (2,832) (36,834) Financial expenses 12 153 553 730 1,382 3,014 Financial income 12 (166) (10) (14) (59) (573) ----------- ----------- ----------- ----------- ----------- Loss before taxes on income (4,988) (4,439) (3,768) (4,155) (39,275) Taxes on income 11 4 1 - - 71 ----------- ----------- ----------- ----------- ----------- Loss $ (4,992) $(4,440) $ (3,768) $(4,155) $(39,346) =========== =========== =========== =========== =========== Dividend in respect of reduction in exercise price of certain Warrants 7 3 3 - ----------- ----------- ----------- ----------- Loss attributable to Common stockholders $ (4,999) $(4,443) $ (3,771) $(4,155) =========== =========== =========== =========== Basic and diluted loss per Common share $(0.05) $ (0.04) $(0.03) $ (0.03) =========== =========== =========== =========== Weighted average number of Common shares Used in computing basic and diluted loss per share 106,447,604 117,845,867 116,444,048 143,744,908 ----------- ----------- ----------- -----------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY/(DEFICIT)
U.S. dollars in thousands (except share data)
Receipts Deficit on accumulated Total Additional account during the stockholders' paid-in of development equity Common stock capital shares stage (deficit) Shares Amount ------------ ------- Balance as of December 31, 2008 106,728,195 10 29,109 150 (30,317) (1,048) Exercise of warrants in January and February 2009 11,025,832 1 388 (150) - 239 Stock based compensation related to options granted to consultants and employees - - 520 - - 520 Issuance of Common stock in October 2009, net at $0.10 per Share 4,420,000 (*) 364 - - 364 Receipts on account of shares related to exercise of warrants in January 2010 - - - 25 - 25 Dividend in respect of reduction in exercise price of certain Warrants - - 3 - (3) - Loss - - - - (4,440) (4,440) ------------ ------- ----------- --------- ------------ -------------- Balance as of December 31, 2009 122,174,027 $11 $ 30,384 $25 $ (34,760) $ (4,340) ------------ ------- ----------- --------- ------------ --------------
(*) Represents an amount lower than $1
Receipts Deficit on accumulated Additional account during the Total paid-in of development stockholders' Common stock capital shares stage deficit --------------------- ----------- --------- ------------ -------------- Shares Amount ------------ ------- Balance as of December 31, 2009 122,174,027 $11 $ 30,384 $ 25 $ (34,760) $ (4,340) Exercise of warrants in January and May 2010 235,238 (*) 25 (25) - - Stock based compensation related to options and warrants granted to consultants and employees - - 1,732 - - 1,732 Issuance of Common stock in February 2010 at $0.125 per share to consultants 1,125,000 (*) 141 - - 141 Issuance of Common stock in March 2010, net at $0.075 (GBP 0.05) per share 14,273,000 1 942 - - 943 Issuance of Common stock in May 2010, net at $0.072 (GBP 0.05) per share 16,727,698 2 1,113 - - 1,115 Issuance of Common stock in May 2010 at $0.098 (GBP 0.065) per share 192,591 (*) 19 - - 19 Exercise of options and warrants in September 2010 24,059,852 2 532 - - 534 Issuance of Common stock in August and September 2010 to consultants 1,367,800 1 163 - - 164 Issuance of warrants in September 2010 to a consultant - - 36 - - 36 Net loss - - - - (4,155) (4,155) ------------ ------- ----------- --------- ------------ -------------- Balance as of September 30, 2010 (unaudited) 180,155,206 $17 $35,087 $- $ (38,915) $ (3,811) ------------ ------- ----------- --------- ------------ --------------
(*) Represents an amount lower than $1
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Period from January 27, 2000 (inception) through Year ended December Nine months ended September 31 September 30, 30, --------------------- ------------------- 2008 2009 2009 2010 2010 ---------- --------- --------- -------- ------------- (Unaudited) (Unaudited) ------------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Loss $ (4,992) $ (4,440) $(3,768) $(4,155) $(39,346) Adjustments to reconcile loss to net cash used in operating activities: Depreciation 97 119 92 90 955 Loss from disposal of property and equipment - 3 3 1 17 Issuance of shares as consideration for providing security for letter of credit - - - - 4,933 Stock based compensation related to options and warrants granted to employees and consultants 436 520 429 1,732 2,491 Interest and amortization of beneficial conversion feature of Convertible note - - - - 443 Change in fair value of convertible debentures and warrants - 443 642 1,263 1,993 Accrued severance pay, net 77 83 52 38 36 Exchange differences on a restricted lease deposit - (2) (3) 2 5 Exchange differences on a long term loan - - - - 328 Increase (decrease) in trade payables 439 66 442 (167) 780 Decrease (increase) in accounts receivable, prepaid expenses and deferred issuance expenses 261 111 111 (790) (801) Increase (decrease) in other accounts payable, accrued expenses and advance payment 564 1,405 234 (290) 2,280 Net cash used in operating activities (3,118) (1,692) (1,766) (2,276) (25,886) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposal of property and equipment - - - - 173 Decrease (increase) in restricted lease deposit and prepaid lease payments (34) 8 8 (4) (41) Purchase of property and equipment (372) (34) (32) (24) (1,693) ---------- --------- --------- -------- ------------- Net cash used in investing activities (406) (26) (24) (28) (1,561) ---------- --------- --------- -------- ------------- Period from January 27, Nine 2000 months (inception) Year ended ended through December September September 31 30, 30, ---------- ---------- 2008 2009 2009 2010 2010 --------- ----- ---------- ------ ----------- (unaudited) (unaudited) ------------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of shares, net (310) 364 - 2,077 24,112 Proceeds from exercise of warrants, net 150 264 239 534 948 Repayment of a long-term loan - - - - (73) Proceeds from long term loan - - - - 70 Issuance of a convertible debenture and warrants - 570 570 4,001 4,001 Increase (Decrease) in short-term bank credit 43 (53) (53) - 3,167 --------- ----- ---------- ------ ----------- Net cash provided by (used in) financing activities (117) 1,145 756 6,612 32,225 --------- ----- ---------- ------ ----------- Increase (Decrease) in cash and cash equivalents (3,641) (573) (1,034) 4,308 4,778 Balance of cash and cash equivalents at the beginning of the period 4,684 1,043 1,043 470 - --------- ----- ---------- ------ ----------- Balance of cash and cash equivalents at the end of the period $1,043 $470 $9 $4,778 $ 4,778 ========= ===== ========== ====== =========== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 1 $ 36 $ 9 $ 94 $ 170 ========= ===== ========== ====== =========== Taxes $ 12 $ 13 $7 $ 15 $98 ========= ===== ========== ====== =========== Supplemental disclosure of non-cash flow information: Issuance expenses paid with shares - - - - $ 310 ========= ===== ========== ====== =========== Issuance of Common stock upon conversion of a convertible Note - - - - $ 2,845 ========= ===== ========== ====== =========== Issuance of Common stock and warrants to consultants - - - $ 341 $ 438 ========= ===== ========== ====== =========== Purchase of property and equipment in credit $8 - - - - ========= ===== ========== ====== =========== Issuance of Common shares upon conversion of warrants - - $ 150 - - ========= ===== ========== ====== =========== NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands
NOTE 1:- GENERAL
a. Medgenics, Inc. ("the Company") was incorporated in January 2000 in Delaware. The Company has a wholly-owned subsidiary, Medgenics Medical Israel Ltd. (formerly Biogenics Ltd.) ("the Subsidiary"), which was incorporated in Israel in March 2000. The Company and its subsidiary are engaged in the research and development of products in the field of biotechnology and associated medical equipment and are thus considered development stage companies as defined in Accounting Standards Codification ("ASC") topic number 915, "Development Stage Entities" ("ASC 915")(originally issued as "FAS 7").
On December 4, 2007 the Company's Common shares were admitted for trading on the AIM market of the London Stock Exchange (see note 9d (21)).
On November 8, 2010, the Company filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission ("SEC") for the proposed initial public offering of its Common stock in the U.S. The number of shares of Common stock to be offered and the price range for the offering have not yet been determined. This registration statement has not yet become effective.
b. The Company and its subsidiary are in the development stage. As reflected in the accompanying financial statements, the Company incurred a loss during the year ended December 31, 2009 and for the nine month period ended September 30, 2010 of $4,440 and $4,155, respectively and had a shareholders' deficit of $ 4,340 and $3,811 as of December 31, 2009 and September 30, 2010, respectively. The Company and its subsidiary have not yet generated revenues from product sale. The Company has begun generating income from partnering on development programs and expects to continue to expand its partnering activity. Management's plans also include seeking additional investments and commercial agreements to continue the operations of the Company and its subsidiary. However, there is no assurance that the Company will be successful in its efforts to raise the necessary capital and/or reach such commercial agreements to continue its planned research and development activities. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments with respect to the carrying amounts of assets and liabilities and their classification that might result from the outcome of this uncertainty.
c. On October 22, 2009 ("Effective Date") the Company signed a preclinical development and option agreement which was amended in December 2009 ("the Agreement"), with a major international healthcare company ("the Healthcare company") that is a market leader in the field of hemophilia. The Agreement includes funding for preclinical development of the Company's Biopump protein technology to produce and deliver the clotting protein Factor VIII ("FVIII") for the sustained treatment of hemophilia.
Under the terms of the Agreement, the Company is entitled to receive up to $4,100 to work exclusively with the Healthcare company for one year ended October 22, 2010 ("Standstill period") to develop a Biopump to test the feasibility of continuous production and delivery of this clotting protein.
The Company recognizes income in its Statements of Operations based on hours incurred assigned to the project. The excess of the recognized amount received from the Healthcare company over the amount of research and development expenses incurred during the period for that agreement, is recognized as other income within operating income.
Funding for the Company's operations related to the development is based on an agreed amount for each Full Time Equivalent ("FTE"). FTE was agreed to be measured, by the parties, as 162 development hours. The amount to be paid for each FTE is not subject to actual costs incurred by the Company.
An additional payment of $2,500 is payable upon the Healthcare company's exercise of an option to extend the exclusivity through an additional period to negotiate terms to commercialize the Biopump technology for FVIII.
If the two parties choose not to proceed to a full commercial agreement, the Company will receive all rights to the jointly developed intellectual property and will pay royalties to the Healthcare company at the rates between 5% and 10% of any future income arising from such intellectual property up to a maximum of ten times the total funds paid by the Healthcare company to the Company.
The Company estimated the value of the option to negotiate a future definitive agreement for the continuation of the development or for a sale, license or other transfer of the FVIII Biopump technology, at the transaction date as immaterial.
Through September 30, 2010, payments totaling $3,590 (unaudited) were received from the Healthcare company.
Subsequent to the balance sheet date, on October 22, 2010, the Agreement expired. The Company and the Healthcare company subsequently agreed on a 6-month extension of the Agreement. During the extension period, the Company will assume the funding responsibilities and the Healthcare company will have the exclusive option to negotiate a definitive agreement regarding a transaction related to the Factor VIII Biopump technology taking into account the relative contributions of the parties. Such option is exercisable, at the sole discretion of the Healthcare company, any time prior to the end of such 6-month period upon payment to the Company of a $2,500 option fee.
d. During 2009 the Subsidiary received approval for an additional Research and Development program from the Office of the Chief Scientist in Israel ("OCS") for the period April 2009 through December 2010.
The approval allows for a grant of up to approximately $1,300 based on research and development expenses, not funded by others, of up to $2 100.
e. In November 2010, the Company was notified that it will receive a cash grant of $244 under the U.S. government's Qualifying Therapeutic Discovery Project (QTDP) to fund its Biopump research and development programs. The QTDP program was created by Congress as part of the Patient Protection and Affordable Care Act. The funds are not conditional and immediately available. As such the Company will record the full award in the fourth quarter of 2010.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP").
a. Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. The Company's management believes that the estimates and assumptions used are reasonable based upon information available at the time they are made. These estimates and assumptions can affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
b. Financial statements in U.S. dollars
The majority of the Company and its subsidiary's operations are currently conducted in Israel; however, it is anticipated that the majority of the company's revenues will be generated outside Israel and will be denominated in U.S. dollars ("dollars"), and financing activities including loans, equity transactions and cash investments, are made mainly in dollars. The Company's management believes that the dollar is the primary currency of the economic environment in which the Company and its subsidiary operate. Thus, the functional and reporting currency of the Company and its subsidiary is the dollar.
Accordingly, transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been re-measured to dollars, in accordance with ASC 830, "Foreign Currency Matters" of the Financial Accounting Standards Board ("FASB") (originally issued as FAS 52). All exchange gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of operations as financial income or expenses, as appropriate.
c. Unaudited Interim financial information:
The consolidated balance sheet as of September 30, 2010 and the related consolidated statements of operations and the statements of cash flows for the nine months periods ended September 30, 2009 and 2010, and changes in stockholders' equity (deficit) for the nine months ended September 30, 2010 are unaudited. This unaudited information has been prepared by the Company on the same basis as the audited annual consolidated financial statements and, in management's opinion, reflects all adjustments necessary for a fair presentation of the financial information, in accordance with generally accepted accounting principles for interim financial reporting for the period presented and accordingly they do not include all of the information and footnotes required by generally accepted accounting principles for audited financial statements. Results for interim periods are not necessarily indicative of the results to be expected for the entire year.
d. Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Intercompany transactions and balances have been eliminated upon consolidation.
e. Cash equivalents
The Company and its subsidiary consider all highly liquid investments originally purchased with maturities of three months or less to be cash equivalents.
f. Property and equipment
Property and equipment are stated at cost net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
The annual rates of depreciation are as follows:
% --------------------------- Furniture and office equipment 6 - 15 (mainly 15) Computers and peripheral equipment 33 Laboratory equipment 15 - (mainly 15) 33 Leasehold improvements The shorter of term of the lease or the useful life of the asset
g. Impairment of long-lived assets
Long-lived assets are reviewed for impairment in accordance with ASC 360, "Property, Plant, and Equipment" ("ASC 360") (originally issued as FAS 144), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of the asset to the future undiscounted cash flows expected to be generated by the asset. If such an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. During the years ended December 31, 2008 and 2009, no impairment losses have been identified.
h. Severance pay
The Subsidiary's liability for severance pay is calculated pursuant to the Israeli severance pay law based on the most recent salary for the employees multiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month salary for each year of employment or a portion thereof. In addition, several employees are entitled to additional severance compensation as per their employment agreement. The Subsidiary's liability for all of its employees is fully provided by an accrual and is mainly funded by monthly deposits with insurance policies. The value of these policies is recorded as an asset in the Company's balance sheet.
The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli severance pay law or labor agreements. The value of the deposited funds is based on the cash surrender value of these policies and includes profits or losses as appropriate.
As part of employment agreements, the Company and certain of its employees agreed to the terms set forth in Section 14 of the Israeli Severance Pay Law, according to which amounts deposited in severance pay funds by the Company's subsidiary shall be the only severance payments released to the employee upon termination of employment, voluntarily or involuntarily. Accordingly, no additional severance pay accrual is provided in the Company's financial statements in connection with the severance liability of these employees.
Severance expenses for the years ended December 31, 2008 and 2009 and for the period from March 27, 2000 (inception) through September 30, 2010 (unaudited), amounted to $155, $172 and $439, respectively.
i. Income taxes
The Company accounts for income taxes in accordance with ASC 740, "Income Taxes" ("ASC 740") (originally issued as FAS 109). ASC 740 prescribes the use of the liability method whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. As of December 31, 2009 a full valuation allowance was provided by the Company.
The Company also accounts for income taxes in accordance with ASC 740-10 "Accounting for Uncertainty in Income Taxes" ("ASC 740-10") (originally issued as FIN 48). ASC 740-10 contains a two-step approach for recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. 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. No liability has been recorded as a result of the adoption of ASC 740-10 in 2007.
j. Accounting for stock based compensation
On January 1, 2006, the Company adopted ASC 718, "Compensation-Stock Compensation" ("ASC 718") (originally issued as FAS 123(R)) which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees and directors.
ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statement of operations. Prior to the adoption of ASC 718, the Company accounted for equity-based awards to employees and directors using the intrinsic value method in accordance with APB 25.
The Company adopted ASC 718 using the modified prospective transition method, which requires the application of the accounting standard starting from January 1, 2006, the first day of the Company's fiscal year 2006. Under that transition method, compensation cost recognized in the years ended December 31, 2008 and 2009 includes compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of ASC 718. Results for prior periods have not been restated.
The Company recognized compensation expenses for awards granted subsequent to January 1, 2006 based on the straight line method over the requisite service period of each of the grants, net of estimated forfeitures. The Company estimated the fair value of stock options granted to employees and directors using the Binomial option pricing model.
During 2009, no options were granted to employees or directors of the Company. In 2008 and 2010, the Company estimated the fair value of stock options granted to employees and directors using the Binominal options pricing model with the following assumptions:
2008 2010 -------- ------ Dividend yield 0% 0% Expected volatility 78% 66% Risk-free interest rate 3.5% 2.9% Suboptimal exercise factor 2.2-2.4 1.5-2 Contractual life (years) 5 10
The Company uses historical data of traded companies to estimate pre and post vesting exit rate within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes.
The suboptimal exercise factor represents the value of the underlying stock as a multiple of the exercise price of the option which, if achieved, results in exercise of the option.
The risk-free interest rate assumption is based on observed interest rates appropriate for the term of the Company's employee stock options.
The Company has historically not paid dividends and has no foreseeable plans to pay dividends.
The Company applies ASC 718 and ASC 505-50, "Equity-Based Payments to Non-Employees" ("ASC 505-50") (originally issued as EITF 96-18), with respect to options issued to non-employees. ASC 718 requires the use of option valuation models to measure the fair value of the options. The fair value of these options was estimated at grant date and at the end of each reporting period, using the Binomial option pricing model with the following assumptions:
Nine months ended September 2008 2009 30, 2010 -------- -------- ----------------- Dividend yield 0% 0% 0% Expected volatility 73% 98% 85% Risk-free interest rate 1.7% 1.5% 1.2% Contractual 2.3-4.8 1.3-4.9 2.1-10.0 life (years)
k. Loss per share
Basic loss per share is computed based on the weighted average number of Common shares outstanding during each year. Diluted loss per share is computed based on the weighted average number of Common shares outstanding during each year, plus the dilutive effect of options considered to be outstanding during each year, in accordance with ASC 260, "Earnings Per Share" ("ASC 260") (originally issued as FAS 128).
In 2008 and 2009, all outstanding stock options and warrants have been excluded from the calculation of the diluted loss per Common share because all such securities were anti-dilutive for the periods presented.
l. Research and development expenses
All research and development expenses, net of grants from the OCS, are charged to the Statements of Operations as incurred.
m. Grants and participation
Royalty-bearing grants from the OCS for funding approved research and development projects are recognized at the time the Subsidiary is entitled to such grants, on the basis of the costs incurred and are presented as a deduction from research and development expenses.
Participation from third parties in the Company's research and development operations relating to the FVIII Biopump is recognized at the time the Company is entitled to such participation from the third parties, and is presented as a deduction from the Company's research and development expenses.
The Company recognizes income in its statements of operation as follows:
-- Standstill Payment and Development - in accordance with ASC 605-35 based on hours incurred assigned to the project. The excess of the recognized amount received from the Healthcare company over the amount of research and development expenses incurred during the period is recognized as other income within operating income.
-- Milestones - upon the achievement of the specific milestone.
-- Grants from the U.S. government's QTDP for funding approved research and development projects are recognized at the time the Company is entitled to such grants, on the basis of the costs incurred and are presented as a deduction from research and development expenses.
n. Concentrations of credit risks
Financial instruments that potentially subject the Company and its subsidiary to concentrations of credit risk consist principally of cash and cash equivalents.
Cash and cash equivalents are invested in major banks in Israel, the United Kingdom and the United States. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company's and its subsidiary's investments are institution with high credit standing and accordingly, minimal credit risk exists with respect to these investments.
The Company has no off-balance-sheet concentrations of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
o. Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts receivable, short term bank credit, accounts payable and accrued liabilities are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. The convertible debentures are presented at fair value.
Effective January 1, 2008, the Company adopted ASC 820, "Fair Value Measurements and disclosures" ("ASC 820") (originally issued as FAS 157) and effective October 10, 2008, adopted FSP 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active". ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1 Inputs - Quoted prices for identical instruments in active markets. Level 2 Inputs - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable. Level 3 Inputs - Valuation derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The financial instruments carried at fair value on the Company's balance sheet as of December 31, 2009 and September 30, 2010 are convertible debentures, warrants and cash equivalents. Currently, the convertible debentures are valued using level 3 inputs. The fair value of these convertible debentures was estimated at the measurement date at December 31, 2009 and September 30, 2010 using the Binomial pricing model with the following assumptions:
December 31, September 30, 2009 2010 ------------- -------------- Dividend yield 0% 0% Expected volatility 115% 55%-77% Risk-free interest rate 0.78% 0.22%-1.6% Contractual life (in years) 1.46 0.71-5
p. Impact of recently issued Accounting Standards
1. In October 2009, the FASB issued ASU 2009-13, "Revenue Recognition (ASC Topic 605)-Multiple-Deliverable Revenue Arrangements" ("ASU 2009-13"). ASU 2009-13 amends the criteria in ASC Subtopic 605-25, "Revenue Recognition-Multiple-Element Arrangements", for separating consideration in multiple-deliverable arrangements. This update addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. ASU 2009-13 modifies the requirements for determining whether a deliverable can be treated as a separate unit of accounting by removing the criteria that verifiable and objective evidence of fair value exists for the undelivered elements. This guidance eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: a) vendor-specific objective evidence; b) third-party evidence; or c) estimates. In addition, this guidance significantly expands required disclosures related to a vendor's multiple-deliverable revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company has chosen not to early adopt ASU 2009-13.
2. In May 2009, the FASB issued ASC 855 "Subsequent Events" ("ASC 855") (originally issued as FAS 165).
ASC 855 establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this statement sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 is effective for the interim or annual financial periods ending after June 15, 2009.
The adoption of this standard did not have any impact on the consolidated results of operations or financial position of the Company.
1. In June 2009, FASB issued ASC Topic No. 105, "Generally Accepted Accounting Principles" ("the Codification"). The Codification was effective for interim and annual periods ended after September 15, 2009 and became the single official source of authoritative, nongovernmental U.S. GAAP, other than guidance issued by the Securities and Exchange Commission. All other literature is non-authoritative. The adoption of the Codification did not have a material impact on the Company's consolidated financial statements and notes thereto. The Company has appropriately updated its disclosures with the appropriate Codification references for the year ended December 31, 2009. As such, all the notes to the consolidated financial statements have been updated with the appropriate Codification references.
2. In March 2010, the FASB issued an update to ASC 605 (ASU No. 2010-17, "Revenue Recognition - Milestone Method", originally issued as EITF 08-9). The update provides that the milestone method is a valid application of the proportional performance model for revenue recognition for research and development transactions if the milestones are substantive and there is substantive uncertainty about whether the milestones will be achieved. Determining whether a milestone is substantive requires judgment that should be made at the inception of the arrangement. To meet the definition of a substantive milestone, the consideration earned by achieving the milestone (1) would have to be commensurate with either the level of effort required to achieve the milestone or the enhancement in the value of the item delivered, (2) would have to relate solely to past performance, and (3) should be reasonable relative to all deliverables and payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there can be more than one milestone in an arrangement. The new guidance is effective prospectively for interim and annual periods beginning on or after June 15, 2010. Early adoption is permitted. While the Company is still analyzing the potential impact of this guidance, the Company believes that its current practices are consistent with the guidance and accordingly, does not expect the adoption of this guidance will have a material impact on the financial statements.
NOTE 3:- CASH AND CASH EQUIVALENTS
December 31, September --------------- 2008 2009 30, 2010 -------- ----- ------------ (unaudited) ------------ In Dollars $ 259 $452 $ 4,775 In NIS 784 18 3 $ 1,043 $470 $ 4,778
NOTE 4:- ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
December 31, September --------------- 2008 2009 30, 2010 ------- ------ ------------ (unaudited) ------------ Grant receivable $ 75 $ - $230 Government authorities 31 5 24 Prepaid expenses and other 16 6 214 ------- ------ ------------ $122 $ 11 $468 ------- ------ ------------
NOTE 5:- PROPERTY AND EQUIPMENT, NET
Composition of property and equipment is as follows:
December 31, September --------------- ------------ 2008 2009 30, 2010 -------- ------------ (unaudited) ------------ Cost: Furniture and office equipment $ 95 $ 97 $98 Computers and peripheral equipment 42 34 39 Laboratory equipment 214 242 256 Leasehold improvements 170 170 171 -------- ----- ------------ Total cost 521 543 564 -------- ----- ------------ Total accumulated depreciation 121 240 327 -------- ----- ------------ Depreciated cost $ 400 $303 $ 237 -------- ----- ------------
Depreciation expense for the years ended December 31, 2008 and 2009 and for the period from January 27, 2000 (inception) through September 30, 2010 (unaudited) amounted to $97, $119 and $327, respectively.
NOTE 6:- TRADE PAYABLES
December 31, September --------------- 2008 2009 30, 2010 ------ ------- ------------ (unaudited) ------------ Open accounts $830 $ 947 $ 780 Notes payable 59 - - ------ ------- ------------ $889 $ 947 $ 780 ------ ------- ------------
NOTE 7:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31, September ------------------ 2008 2009 30, 2010 -------- -------- ------------ (unaudited) ------------ Employees and payroll accruals $642 $ 783 $624 Governmental authorities - 97 - Interest payable on debentures - 33 18 Accrued expenses and others 426 777 832 -------- -------- ------------ $ 1,068 $ 1,690 $1,474 -------- -------- ------------
NOTE 8:- COMMITMENTS AND CONTINGENCIES
a. License agreements
1. On November 23, 2005 the Company signed a new agreement with Yissum Research and Development Company of the Hebrew University of Jerusalem ("Yissum"). According to the agreement, Yissum granted the Company a license of certain patents for commercial development, production, sub-license and marketing of products to be based on its know-how and research results. In consideration, the Company agreed to pay Yissum the following amounts:
(a) Three fixed installments measured by reference to investment made in the Company, as follows:
I. 1st installment - $50 shall be paid when the cumulative investments in the Company by any third party or parties, from May 23, 2005, amount to at least $3,000.
II. 2nd installment - Additional $150 shall be paid when the cumulative investments in the Company by any third party or parties, from May 23, 2005, amount to at least $12,000.
III. 3rd installment - Additional $200 shall be paid when the cumulative investments in the Company by any third party or parties, from May 23, 2005, amount to at least $18,000.
The 1st installment of $50 to Yissum was paid on June 5, 2007. As of December 31, 2009 the Company has a full accrual for the 2nd installment of $150 which was paid in the second quarter of 2010. Payments to Yissum are recorded as research and development expenses.
(b) Royalties at a rate of 5% of net sales of the product.
(c) Sub-license fees at a rate of 9% of sublicense considerations.
The total aggregate payment of royalties and Sub-license fees by the Company to Yissum shall not exceed $10,000.
2. Pursuant to an agreement dated January 25, 2007 between Baylor College of Medicine ("BCM") and the Company, BCM granted the Company a non-exclusive worldwide license of a certain technology ("the Subject Technology").
The license gives the Company a non-exclusive right to use, market, sell, lease and import the Subject Technology by way of any product process or service that incorporates, utilizes or is made with the use of the Subject Technology.
In consideration the Company agreed to pay the following amounts:
i a one time, non-refundable license fee of $25 which was paid in 2007;
ii an annual non-refundable maintenance fee of $20;
iii a one-time milestone payment of $75 upon FDA clearance or equivalent of clearance for therapeutic use. As of the balance sheet date, the Company did not achieve FDA clearance; and
iv an installment of $25 upon executing any sub-licenses that the Company executes in respect of the Subject Technology.
All payments to BCM are recorded as research and development expenses. The license agreement shall expire (unless terminated earlier for default or by the Company at its discretion) on the first day following the tenth anniversary of the first commercial sale of licensed products by the Company, following which the Company shall have a perpetual, royalty free license to the Subject Technology.
b. Letter of credit
Under the terms of an irrevocable Letter of Credit issued on November 26 2007 an amount of up to $500 was available (subject to certain conditions) for drawdown at any time during an 18- month period which expired on May 28, 2009. The Letter of Credit facility was provided by the Canadian Imperial Bank of Commerce and was procured by CIBC Trust Company (Bahamas) Limited (the "Trust"), one of the Company's shareholders, for the benefit of the Company. One of the beneficiaries of the Trust is a director of the Company.
In consideration of the Trust arranging the issue of the Letter of Credit, the Company paid as follows: (i) $12.5 in cash in 2007 and (ii) issuance of 76,389 Common shares with a market value of $16. At the 12 month anniversary of the date of issue, the Company should have paid to the Trust an additional fee of $6. This amount was paid in July 2010.
c. Chief Scientist
Under agreements with the Office of the Chief Scientist in Israel regarding research and development projects, the Subsidiary is committed to pay royalties to the Office of the Chief Scientist at rates between 3.5% and 5% of the income resulting from this research and development, at an amount not to exceed the amount of the grants received by the Subsidiary as participation in the research and development program, plus interest at LIBOR. The obligation to pay these royalties is contingent on actual income and in the absence of such income no payment is required. As of December 31, 2009, the aggregate contingent liability amounted to approximately $3.7 million.
d. Clinical trials
On July 30, 2008 approval was received from the Israel Ministry of Health to conduct a Phase I/II safety and efficacy trial of the EPODURE Biopump for providing sustained treatment of anemia in patients with chronic kidney disease. The Subsidiary had agreements with physicians, consultants and Hadasit Medical Research and Development Ltd. ("Hadasit") to operate the trial. The major agreements were entered into in April 2008, with Hadasit to conduct the clinical trial at Hadassah Medical Center ("Hadassah"). The Subsidiary paid Hadasit approximately $8.4 per month through September 2009 to conduct the trial in addition to an estimated cost of $9 per patient in the trial. The Subsidiary also used the lab facilities at a cost of approximately $33 per month through March 2009.
On April 15, 2010, approval was received from the Israel Ministry of Health to continue the clinical trial at Tel Aviv Medical Center. The Subsidiary resumed the use of the lab facilities at Hadassah on May 1, 2010 at the same cost.
e. Lease Agreement
1. The facilities of the Subsidiary are rented under operating lease agreement for a three year period ending December 2010 with an option to renew the lease for an additional 12 month period. Future minimum lease commitment under the existing non-cancelable operating lease agreement for 2010 is approximately $54.
As of December 31, 2009 the Subsidiary pledged a bank deposit which is used as a bank guarantee at an amount of $24 to secure its payments under the lease agreement.
2. The Subsidiary leases vehicles under standard commercial operating leases. Future minimum lease commitments under various non-cancelable operating lease agreements in respect of motor vehicles are as follows:
Year 2010 $44 2011 25 2012 4 ---- $73 ----
The Subsidiary paid the last three months lease installments in advance which amounted to $11.
NOTE 9:- STOCKHOLDERS' EQUITY
a. Composition:
December 31, December 31, -------------------------- -------------------------- 2008 2009 2008 2009 ------------ ------------ Authorized Issued and Outstanding Number of shares ------------------------------------------------------ Shares of $0.0001 par value: Common stock 500,000,000 500,000,000 106,728,195 122,174,027 ------------ ------------ ------------ ------------
b. Common stock
The Common stock confers upon the holders the right to receive notice to participate and vote in general and special meetings of the stockholders of the Company and the right to receive dividends, if declared.
c. Recapitalization of equity capital
According to a recapitalization agreement signed on March 30, 2006 with the requisite number of the Company's stockholders and Note providers, the convertible note and the outstanding Old Common shares, Series A Preferred shares and Series B Preferred shares were converted into Common shares. The conversion rates were as follows:
1. A total of 11,982,914 Common shares were issued to the holders of the convertible Note upon conversion of the Note.
2. One Common stock was issued for 10,578.95 Old Common shares.
3. One Common stock was issued for 404.51 Series A Preferred shares.
4. One Common stock was issued for 345.69 Series B Preferred shares.
As a result of the recapitalization of the equity, the Company issued a total of 9,885,842 Common shares.
Pursuant to ASC 260-10 "Earnings Per Share" (originally issued as EITF D-42), the Company added the excess of the fair value of the Common stock that would have been issued pursuant to the original conversion terms of the Preferred stock over the fair value of the Common stock issued to the holders of the Preferred stock in the recapitalization in the amount of $437,197 to deficit accumulated during the development stage with a corresponding reduction in share capital and additional paid in capital.
d. Issuance of shares and warrants to investors
1. Pursuant to the warrant repricing program mentioned above, during January and February 2009, 11,025,832 warrants were exercised into 11 025,832 Common shares in consideration of a reduced price of $ 406 and the issuance of 1,218,144 new warrants as a bonus. The issuance costs were $17. The bonus warrants were exercisable immediately for a period of three years from the issuance date at an exercise price of $0.25 per share. The consideration was paid partly in the year ended December 31, 2008 ($150) and the balance was paid in 2009. According to ASC 815 the benefit provided to the warrant holders from the reduction of the exercise price and the bonus warrants in the amount of $7 and $3 as of December 31, 2008 and December 31, 2009, respectively, was recorded as a dividend to the warrant holders.
2. On October 6, 2009, the Company issued a total of 4,420,000 Common shares in consideration of GBP 265,200 ($423). The issuance costs were $59.
e. Stock options and warrants to employees and directors
1. No options or warrants were granted to employees or directors during the year ended December 31, 2009.
2. A summary of the Company's activity for options and warrants granted to employees and directors is as follows:
Weighted Number Weighted average of average remaining Aggregate options exercise contractual intrinsic and warrants price terms (years) value price -------------- ---------- --------------- ------------- Exercisable at December 31, 2008 63,951,473 0.06 2.36 $779 ============== ========== =============== ============= Forfeited (2,595,501) 0.109 -------------- ---------- Outstanding at December 31,2009 83,257,908 $ 0.081 1.56 $4,343 ============== ========== =============== ============= Vested and expected to vest at December 31, 2009 82,456,683 $0.080 1.55 $4,333 ============== ========== =============== ============= Exercisable at December 31, 2009 74,023,902 $0.071 1.45 $4,224 ============== ========== =============== ============= Outstanding at September 30, 2010 (unaudited) 70,504,591 $ 0.114 4.59 $3,212 ============== ========== =============== ============= Vested and expected to vest at September 30, 2010 (unaudited) 69,807,741 $0.113 4.58 $3,211 ============== ========== =============== ============= Exercisable at September 30, 2010 (unaudited) 56,567,597 $0.087 4.14 $3,198 -------------- ---------- --------------- -------------
As of December 31, 2009, there was $435 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted to employees. That cost is expected to be recognized over a weighted-average period of 0.8 years.
The aggregate intrinsic value represents the total intrinsic value (the difference between the Company's Common stock fair value as of December 31, 2009 and September 30, 2010 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2009 and September 30, 2010.
Calculation of aggregate intrinsic value is based on the share price of the Company's Common shares as of December 31, 2009 ($0.1234 / 0.075 GBP per share) and September 30, 2010 ($0.1365 /0.086 GBP, per share - Unaudited).
f. Warrants and options to-non-employees
1. On December 7, 2009, the Company granted to a consultant 677,397 options exercisable at a price of $0.12 per share and has contractual life of 5 years. The options vest in three equal annual tranches of 225 799. The options were granted under the stock option plan terms. The fair value of these options at the grant date was $0.08768 per warrant. The fair value was estimated using Binomial model with the following weighted-average
assumptions: expected stock price volatility range of 74.9%, risk-free interest rate of 2.4%, expected dividend yield of 0% and a contractual life of the options of five years.
2. A summary of the Company's stock option activity for warrants and options granted to consultants under the stock option plan is as follows:
Weighted average Number Weighted remaining Aggregate of average contractual intrinsic Warrants exercise terms value and options price ( years) price ------------- ---------- ------------- ----------- Outstanding at December 31, 2008 19,795,892 $ 0.115 3.11 $ 65 ============= ========== ============= =========== Exercisable at December 31, 2008 16,555,869 $ 0.138 3.72 $ 65 ============= ========== ============= =========== Outstanding at January 1, 2009 19,795,892 $ 0.115 Granted 677,397 0.12 ------------- ---------- Outstanding at December 31, 2009 20,473,288 $ 0.116 2.21 $607 ============= ========== ============= =========== Exercisable at December 31, 2009 18,389,794 $ 0.114 2.09 $580 ============= ========== ============= =========== Outstanding at September 30, 2010 (unaudited) 19,540,233 $ 0.145 2.61 $558 ============= ========== ============= =========== Exercisable at September 30, 2010 (unaudited) 16,496,468 $ 0.132 1.97 $546 ------------- ---------- ------------- -----------
The weighted-average grant-date fair value of warrants and options granted to consultants during the year ended December 31, 2008 and 2009 was $0.01 and $0.09, respectively. As of December 31, 2009, there was $65 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted to consultants under the Company's stock option plan. That cost is expected to be recognized over a weighted-average period of 1.2 years.
Calculation of aggregate intrinsic value is based on the share price of the Company's Common shares as of December 31, 2009 ($0.1234 / 0.075 GBP per share) and September 30, 2010 ($0.1365 /0.086 GBP, per share - Unaudited).
g. Compensation expenses
Compensation expense related to warrants and options granted to employees, directors and consultants was recorded in the statement of operations in the following line items:
Year ended December Nine months ended 31, September 30, ---------------------- ------------------ ------- 2008 2009 2009 2010 ---------- ---------- (Unaudited) --------------------------- Research and development expenses (income) $68 $192 $182 $154 General and administrative expenses (income) 368 328 247 1,579 ---------- ---------- ------------------ ------- $436 $520 $429 $1,733 ---------- ---------- ------------------ -------
h. Events Subsequent to December 31, 2009 (unaudited)
1. In February 2010, the Company issued 1,125,000 Common shares as settlement of debt for services rendered to the Company by a consultant in 2009. Total compensation, measured as the grant date fair market value of the stock, amounted to $141 and was recorded as an operating expense in the statement of operations in 2009.
2. In a series of closings from March through June 2010, the Company issued a total of 14,465,591 Common shares consisting of 14,273,000 Common shares issued in March 2010 in consideration of GBP 713,650 ($1 078) with issuance costs of $135 and 192,591 Common shares issued to directors of the Company in May 2010 in consideration of GBP 12,518 ($19).
3. In May 2010, the Company issued 16,727,698 Common shares in consideration of $1,202. The issuance costs amounted to $87.
4. In September 2010 the expiry date of certain warrants and options held by the Company's Chief Executive Officer, was extended from March 31, 2011 to March 31, 2016, consisting of (i) warrants to purchase 31 681,652 Common shares at an exercise price of $0.071 per share, (ii) warrants to purchase 1,257,285 Common shares at an exercise price of $0.001 per share, and (iii) options to purchase 6,398,216 Common shares at an exercise price of $0.071 per share. All of the other terms of these warrants and options remain the same.
The Company accounted for the exchange of warrants and options under the provisions of ASC 718 (Formerly SFAS 123(R)) as a modification. A modification to the terms of an award should be treated as an exchange of the original award for a new award with total compensation cost equal to the grant-date fair value of the original award plus the incremental value measured at the same date. Under ASC 718, the calculation of the incremental value is based on the excess of the fair value of the (modified) award based on current circumstances over the fair value of the original option measured immediately before its terms are modified based on current circumstances. That is, the original (pre-modification) award will be valued based on current assumptions, without regard to the assumptions made on the grant date. As a result of the modification, the Company recorded incremental compensation cost of $1,426 on the modification date. The fair value was estimated using Binomial model with the following weighted-average assumptions: expected stock price volatility range of 54%-77%, risk-free interest rate of 0.3%-1.7%, expected dividend yield of 0%, suboptimal exercise factor of 2 and a contractual life of the warrants and the options as defined prior the modification and subsequently.
5. In September 2010, the Company granted options to purchase 1,000,000 Common shares under 2006 Stock Incentive Plan at an exercise price of $0.234 per share to each of four of the Company's non-executive directors. Such options have a 10-year term and vest in equal installments over three years. The Company also granted options to purchase 450,000 Common shares at an exercise price of $0.234 per share to a director who joined the Board in August 2010. Such options have a 10-year term and vest in equal installments over three years.
The fair value of these options at the grant date was $0.058 per option.
6. In September 2010, the Company granted options to purchase 667,397 Common shares under 2006 Stock Incentive Plan at an exercise price of $0.234 per share to two new members of the Company's Strategic Advisory Board. Such options have a 10 year term and vest in equal installments over three years.
The fair value of these options at the grant date was $0.086 per option.
7. In September 2010, the Company granted a warrant to purchase 397,949 Common shares at an exercise price of $0.091 per share to a consultant. Such warrant has a 5-year term and is immediately exercisable.
The fair value of the warrant at the grant date was $0.091 per warrant.
8. In September 2010, a Director of the Company exercised warrants to purchase 1,000,000 Common shares at an exercise price of US $0.071 per share ($71 aggregate exercise price) and used the cashless exercise mechanism to exercise warrants to purchase an additional 2,000,156 shares. Using this cashless exercise method, the Director was issued 1 392,528 shares and, together with the warrants exercised for cash, he was issued a total of 2,392,528 Common shares.
9. In September 2010 a Director of the Company exercised warrants to purchase 1,069,575 Common shares and options to purchase 1,599,549 Common shares, each having an exercise price of US $0.071 per share using the cashless exercise mechanism. The Director was issued 744,649 shares as a result of the warrant exercise and 1,113,622 shares as a result of the option exercise, or 1,858,271 Common shares in total.
10. In September 2010 a Director of the Company exercised options to purchase 1,599,549 Common shares at an exercise price of $0.071 per share, or an aggregate exercise price of $114.
11. In September 2010 several investors exercised warrants to purchase 14,080,734 Common shares at an exercise price of $0.0005 per share, or an aggregate exercise price of $7, exercised warrants to purchase 1,069 575 shares at an exercise price of $0.117 per share, or an aggregate exercise price of $125, exercised warrants to purchase 3 Common shares at an exercise price of $0.25 per share, or an aggregate exercise price less than $1, and exercised warrants to purchase 3,059,192 Common shares at an exercise price of $0.071 per share, or an aggregate exercise price of $218.
12. In August and September 2010, the Company issued 1,367,800 Common shares in settlement of advisers' fees in relation to the Company's ongoing fundraising endeavors and consultancy advice to the Company's Board's Compensation Committee. Total compensation, measured as the grant date fair market value of the stock, amounted to $164.
13. In September 2010, the Company issued warrants to purchase 1,612,500 Common shares in settlement of fees in relation to the Convertible Debentures raised in September 2010 (see note 10(b)).
14. In October 2010, an investor exercised options to purchase 570,440 Common shares at an exercise price of $0.046 per share using the cashless exercise mechanism. Based on the same cashless exercise pricing mechanism described in (8) above, the investor was issued 431,232 shares as a result of the option exercise.
15. In September 2010, the Company granted to the Company's employees 3 205,000 options exercisable at a price of $0.234 per share. The options vest in four equal annual tranches of 801,250 each. The options were granted under the stock option plan terms. The fair value of these options at the grant date was $0.059 per option.
i. Summary of options and warrants:
A summary of all the options and warrants outstanding as of December 31 2009 and September 30, 2010 (unaudited) is presented in the following tables:
As of December 31, 2009 -------------------------------------------------------- Weighted Average Exercise Remaining Price Options Options Contractual per and Warrants and Warrants Terms (in Options / Warrants Share Outstanding Exercisable years) --------- -------------- -------------- ------------- Options: Granted to Employees and Directors 0.042 570,440 570,440 0.92 0.071 17,815,389 15,360,978 1.32 0.117 1,497,404 748,702 2.65 0.162 1,733,748 433,437 3.45 0.210 11,878,332 7,147,750 2.87 -------------- -------------- 33,495,313 24,261,307 -------------- -------------- Granted to Consultants 0.071 3,523,179 2,963,256 1.41 0.120 677,397 - 4.92 0.162 677,397 451,598 3.79 0.210 1,861,125 1,240,750 2.87 -------------- -------------- 6,739,098 4,655,604 -------------- -------------- Total Options 40,234,411 28,916,911 -------------- -------------- Warrants: Granted to Employees and Directors 0.0005 14,480,755 14,480,755 1.25 0.071 35,281,840 35,281,840 1.25 -------------- -------------- 49,762,595 49,762,595 -------------- -------------- Granted to Consultants 0.0005 1,200,063 1,200,063 1.25 0.071 6,011,543 6,011,543 1.25 0.117 1,040,396 1,040,396 1.81 0.162 594,175 594,175 2.93 0.164 1,312,796 1,312,796 2.69 0.194 3,575,217 3,575,217 3.58 -------------- -------------- 13,734,190 13,734,190 -------------- -------------- Granted to Investors 0.000005 1,411,409 1,411,409 0.5 0.071 27,023,265 27,023,265 0.53 0.117 19,999,717 19,999,717 1.06 0.164 5,814,657 5,814,657 1.96 0.194 1,775,267 1,775,267 2.18 0.250 1,218,144 1,218,144 1.34 -------------- -------------- 57,242,459 57,242,459 -------------- -------------- Total Warrants 120,739,245 120,739,245 -------------- -------------- Total Options and Warrants 160,973,656 149,656,156 -------------- -------------- As of September 30, 2010 (Unaudited) -------------------------------------------------------- Weighted Average Exercise Remaining Price Options Options Contractual per and Warrants and Warrants Terms (in Options / Warrants Share Outstanding Exercisable years) -------------------- --------- -------------- -------------- ------------- Options: Granted to Employees and Directors 0.046 570,440 570,440 0.17 0.071 14,616,291 14,616,291 2.77 0.117 1,497,404 748,702 1.90 0.158 1,733,748 866,874 2.70 0.210 11,750,004 7,083,586 2.12 0.234 7,655,000 - 9.95 -------------- -------------- 37,822,887 23,885,893 -------------- -------------- Granted to Consultants 0.071 3,523,179 3,523,179 0.66 0.120 677,397 - 4.17 0.158 677,397 451,598 3.04 0.210 1,861,125 1,055,350 2.12 0.234 1,334,794 - 9.95 -------------- -------------- 8,073,892 5,030,127 -------------- -------------- Total Options 45,896,779 28,916,020 -------------- -------------- Warrants: Granted to Employees and Directors 0.0005 400,021 400,021 0.5 0.071 32,281,683 32,281,683 5.41 -------------- -------------- 32,681,704 32,681,704 -------------- -------------- Granted to Consultants 0.0005 1,200,063 1,200,063 0.5 0.071 1,733,246 1,733,246 0.5 0.091 397,949 397,949 4.95 0.117 1,040,396 1,040,396 1.06 0.158 594,175 594,175 2.18 0.164 1,312,795 1,312,795 1.31 0.194 3,575,217 3,575,217 2.83 0.253 1,612,500 1,612,500 4.98 11,466,341 11,466,341 -------------- -------------- Granted to Investors 0.000005 1,389,846 1,389,846 5.02 0.071 22,894,499 22,894,499 0.52 0.117 18,716,470 18,716,470 1.06 0.164 5,814,657 5,814,657 1.96 0.194 1,775,267 1,775,267 2.18 0.250 1,218,141 1,218,141 1.34 0.253 15,000,000 15,000,000 4.98 -------------- -------------- 66,808,880 66,808,880 -------------- -------------- Total Warrants 110,956,925 110,956,925 -------------- -------------- Total Options and Warrants 156,853,704 139,872,945 -------------- --------------
NOTE 10:- CONVERTIBLE DEBENTURES
a. Convertible Debentures Offered in 2009
In May 2009, the Company offered to accredited investors only, through a private placement, convertible debentures (the "2009 Debentures"), together with warrants (the "Warrants") to purchase a number of Common shares, par value $0.0001 per share, of the Company (the "Common Share") equal to 35% of the number of Common shares issued upon conversion of the 2009 Debentures. Warrants shall not be issued unless and until the conversion of the 2009 Debentures. The 2009 Debentures will mature two years after the date of issuance and will bear interest at an annual rate of 10%, paid on a quarterly basis. The 2009 Debentures will automatically be converted into Common shares upon the closing of a Qualified Transaction, as defined henceforth.
Qualified Transaction shall mean any of: (i) an underwritten public offering of the Company's Common stock on U.S. Stock Market resulting in gross proceeds to the Company of not less than $5,000,000, (ii) a merger or reverse merger between the Company and a public company which is traded on a U.S. Stock Market or on the OTC Bulletin Board, the survivor of which is a public company having available cash of not less than $5 000 after giving effect to such merger and any capital-raising transaction completed prior to or at the time of such merger, or (iii) the acquisition of all of the issued and outstanding Common stock of the Company by a public company the Common stock of which is traded on a U.S. Stock Market or on the OTC Bulletin Board in a transaction where the holders of the Common stock of the Company receive, in exchange for such Common stock, Common stock of such public company and, after giving effect to such transaction and any capital-raising transaction completed prior to or at the time of such transaction, such public company has available cash of not less than $5,000.
In a series of closings from June 16 through September 15, 2009, the Company raised $570 in gross proceeds through the issuance of the 2009 Debentures.
In the event of default, the interest rate shall increase 2% per month for every month the 2009 Debentures are in default to a maximum of 18% per annum paid on a quarterly basis. The Company shall repay the principal and any accrued interest at the two-year anniversary of the date the Debentures were issued.
The Debentures are unsecured and the Company has no right to redeem the 2009 Debentures. If the Company is liquidated, the holders of the 2009 Debentures will participate pari passu with all general creditors of the Company with no seniority or preference.
Until such time the 2009 Debentures are repaid, the 2009 Debentures (including any accrued interest) shall automatically convert into Common shares at the closing of a Qualified Transaction at the following valuation:
-- In the event that the per share price paid in the Qualified Transaction (or per share value of merger consideration in a Merger Transaction (as defined in the 2009 Debenture)) (the "Qualified Transaction Price") is $0.12 per share or greater, the conversion price shall be the lesser of $0.12 per share or a 40% discount from the Qualified Transaction Price.
-- In the event that the Qualified Transaction Price is at least $0.07 but less than $0.12 per share, the conversion price shall be $0.07 per share.
-- In the event that the Qualified Transaction Price is less than $0.07 per share, the conversion price shall be the Qualified Transaction Price; provided, however, that the holder of the 2009 Debenture shall receive 100% more Warrants than such holder would have otherwise been entitled to receive upon conversion.
The share prices referenced above shall be adjusted to reflect any stock splits, stock combinations, stock dividends, reorganizations and the like.
The Warrants are exercisable for a number of Common shares equal to 35% of the number of Common shares issued upon the conversion of the 2009 Debentures. The Warrants shall be immediately exercisable upon issuance and shall expire five years from the date of issuance. The exercise price shall be 110% of the Qualified Transaction Price.
The Company irrevocably elected to initially and subsequently measure the 2009 Debentures entirely at fair value (with changes in fair value recognized in earnings) in accordance with ASC 825-10 thus the Company will not separate the embedded derivative instrument from the host contract and account for it as a derivative instrument pursuant to ASC 825.
This election was made only in respect to the 2009 Debentures, as permitted by ASC 825-10, which states that this election may be made on an instrument-by-instrument basis.
As of the December 31, 2009, the fair value of the 2009 Debentures amounted to $1,013. In 2009, the Company recorded financial expenses in the amount of $443 as a result of the change in fair value of the 2009 Debentures.
As of September 30, 2010, the fair value of the 2009 Debentures amounted to $1,094. In the first nine months of 2010, the Company recorded financial income in the amount of $81 as a result of the change in fair value of the 2009 Debentures (unaudited).
The interest payable on the 2009 Debentures at September 30, 2010 in the amount of $14 has been paid in full subsequent to the balance sheet date (unaudited).
b. Convertible Debentures Offered in 2010 - Event Subsequent to December 31, 2009 (unaudited)
In September, 2010 the Company offered, in a private placement, $4 million of convertible debentures (the "2010 Debentures"). The 2010 Debentures are unsecured obligations of the Company, accrue interest at 4% per annum and mature and become repayable 12 months from the date of issuance. Holders of such debentures may convert them anytime into Common shares, at an initial conversion price of GBP 0.13 ($0.20)per Common share. The 2010 Debentures will be automatically converted upon an underwritten public offering of Common shares raising of at least $6 million and resulting in the Common shares being listed on a U.S. national securities exchange or automated quotation system (a "US Listing"), at a conversion price equal to the lesser of GBP 0.13 ($0.20) per Common share and 75% of the public offering price of the Common shares in such underwritten public offering. Purchasers of the 2010 Debentures also received warrants to purchase 15,000,000 Common shares equal to 75% of the number of Common shares into which the debentures could convert on the date of issuance. Such warrants are immediately exercisable, have a 5 year term and have an initial exercise price of GBP 0.16 ($0.24). If a further issuance of securities is made by the Company at a lower price, both the conversion price of the 2010 Debentures and the exercise price of the warrants will be subject to downward adjustment to such lower issue price and, if such issuance takes place prior to a US Listing occurring, the number of warrant shares that may be purchased upon exercise of this warrant will be increased to maintain the aggregate exercise price of the original warrants. Any Common shares issued upon automatic conversion of the 2010 Debentures and exercise of the warrants occurring subsequent to a U.S. Listing will be deemed restricted stock under U.S. securities laws and cannot be sold or transferred unless subsequently registered under such laws or an exemption from the registration requirements is available.
According to ASC 815-40 the Company classified the warrants as a liability at their fair value. The warrants liability will be remeasured at each reporting period until exercised or expired. Changes in the fair value of the warrants are reported in the statements of operations as financial income or expense.
The Company irrevocably elected to initially and subsequently measure the Debentures entirely at fair value with changes in fair value recognized in earnings in accordance with ASC 815-15.
The Company allocated the gross amount received of $4,001 to the liability in respect of the warrants issued ($1,027) and the portion was allocated to the debentures. The fair value of the 2010 Debentures at issuance date was $4,143. As such, the Company recorded financial expenses of $1,171.
In addition, the Company paid $325 in cash and issued 1,612,500 warrants to finders in connection with this private placement, exercisable into 1 612,500 Common shares at a price of GBP 0.16 ($0.24) per Common share. The warrants are immediately exercisable upon issuance and will expire five years from the date of issuance. The fair value of the warrants issued in the amounts of $110 and the cash paid as finder's fee were recorded immediately as issuance costs.
As of September 30, 2010, the fair value of the 2010 Debentures amounted to $4,156 and the fair value of the warrants amounted to $1,027. As such the Company recorded additional financial expenses in the amount of $11 as a result of the change in fair value of the Debentures (unaudited).
Interest on the 2010 Debentures at September 30, 2010 in the amount of $4 has been accrued (unaudited).
NOTE 11:- TAXES ON INCOME
a. Tax laws applicable to the companies:
1. The Company is taxed under U.S. tax laws.
2. The Subsidiary is taxed under the Israeli income Tax Ordinance and the Income Tax (Inflationary Adjustments) Law, 1985: ("the law").
Results of the Subsidiary for tax purposes are measured and reflected in real terms in accordance with the changes in the Israeli Consumer Price Index ("CPI"). The financial statements are presented in U.S. dollars.
The difference between the rate of change in Israeli CPI and the rate of change in the NIS/U.S. dollar exchange rate causes a difference between taxable income or loss and the income or loss before taxes reflected in the financial statements. In accordance with ASC 740-10 (or paragraph 9(f) of FAS 109), the Company has not provided deferred income taxes on this difference between the reporting currency and the tax bases of assets and liabilities.
In February 2008, the "Knesset" (Israeli parliament) passed an amendment to the Income Tax (Inflationary Adjustments) Law, 1985, which limits the scope of the law starting 2008 and thereafter. Starting 2008, the results for tax purposes are measured in nominal values, excluding certain adjustments for changes in the Israeli CPI carried out in the period up to December 31, 2007. The amendment to the law includes, inter alia, the elimination of the inflationary additions and deductions and the additional deduction for depreciation starting 2008.
b. Tax assessments:
The Company files income tax returns in the U.S. federal jurisdiction and state jurisdiction. The U.S. tax authorities have not conducted an examination in respect of the Company's U.S. federal income tax returns since inception. The Israeli subsidiary has not yet received final tax assessments since its inception. The Subsidiary has tax assessments, deemed final under the law, up to and including the year 2004.
c. Tax rates applicable to the Company and the Subsidiary:
1. The Subsidiary:
The rate of the Israeli corporate tax is as follows: 2008 - 27%, 2009 - 26%, 2010 - 25%. In July 2009, the "Knesset" (Israeli Parliament) passed the Law for Economic Efficiency
(Amended Legislation for Implementing the Economic Plan for 2009 and 2010), 2009, which prescribes, among others, an additional gradual reduction in the rates of the Israeli corporate tax and real capital gains tax starting 2011 to the following tax rates: 2011 - 24%, 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and thereafter - 18%. The effect of the abovementioned change on the financial statements is immaterial.
Israeli companies are generally subject to capital gains tax at rate of 25% for capital gains (other than gains deriving from the sale of listed securities) derived after January 1, 2003.
2. The Company:
The tax rates applicable to the Company whose place of incorporation is the U.S. are corporate (progressive) tax at the rate of up to 35%, excluding state tax, which rates depend on the state in which the Company will conduct its business.
According to the tax laws applicable to Israeli residents, dividend received from a foreign resident company is subject to tax in Israel at the rate of 25% in the hands of its recipient. According to the tax laws applicable in the U.S., tax at the rate of 30% is withheld and based on the treaty for the avoidance of double taxation of Israel and the U.S., it may be reduced to either 25% or 12.5% (dependent on the identity of the shareholder). To enjoy the benefits of the tax treaty, certain procedural requirements need to be satisfied.
d. Carryforward losses for tax purposes:
As of December 31, 2009, the Company had U.S. federal net operating loss carryforward for income tax purposes in the amount of approximately $23.1 million. Net operating loss carryforward arising in taxable years beginning after January 2000 (inception date) can be carried forward and offset against taxable income for 20 years and expiring between 2020 and 2029. As of December 31, 2009 the Company had net operating loss carryforward for state franchise tax purposes of approximately $21.6 million which will begin to expire in 2011.
Utilization of U.S. net operating losses may be subject to substantial annual limitations due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.
The Company's subsidiary in Israel has accumulated losses for tax purposes as of December 31, 2009, in the amount of approximately $5 million, which may be carried forward and offset against taxable income and capital gain in the future for an indefinite period.
e. Deferred income taxes:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows:
December 31, ------------------ 2008 2009 -------- -------- Deferred tax assets: Net operating loss carryforward $ 3,477 $ 4,942 Allowances and reserves 262 325 -------- -------- Total deferred tax assets before valuation allowance 3,739 5,267 -------- -------- Valuation allowance (3,739) (5,267) -------- -------- Net deferred tax asset $- $- -------- --------
As of December 31, 2009, the Company and its subsidiary have provided valuation allowances in respect of deferred tax assets resulting from tax loss carryforward and other temporary differences, since they have a history of operating losses and current uncertainty concerning its ability to realize these deferred tax assets in the future. Management currently believes that it is more likely than not that the deferred tax regarding the loss carryforward and other temporary differences will not be realized in the foreseeable future.
In 2008 and 2009, the main reconciling item of the statutory tax rate of the Company and its subsidiary (27% to 35% in 2008 and 26% to 35% in 2009) to the effective tax rate (0%) is tax loss carryforwards and other deferred tax assets for which a full valuation allowance was provided.
<ENDS>
This information is provided by RNS
The company news service from the London Stock Exchange
END
QRTKKADPNBDDOBD
1 Year Medgenics(Regs) Chart |
1 Month Medgenics(Regs) Chart |
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions