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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 : 0326A
Medgenics Inc
14 March 2013
Press Release 14 March 2013
Medgenics Reports 2012 Financial Results
Medgenics, Inc. (NYSE MKT: MDGN and AIM: MEDU, MEDG) (the "Company" or "Medgenics"), the developer of a novel platform technology for the sustained production and delivery of therapeutic proteins in patients using their own tissue, today announced financial results for the fiscal year ended December 31, 2012 and the filing with the U.S. Securities and Exchange Commission ("SEC") of the Company's Annual Report on Form 10-K. The Form 10-K includes audited annual consolidated financial statements containing the information presented below, as well as additional information regarding the Company. The Form 10-K is available at www.sec.gov and at www.medgenics.com. It will be mailed to shareholders on or about April 2, 2013.
2012 and Recent Highlights
-- Welcomed financial industry veteran and former Chairman of UBS Financial Services Inc. Joseph J. Grano, Jr. to the Board of Directors
-- Appointed Sol J. Barer, Ph.D. as Chairman of the Board. Dr. Barer is the former Chairman and CEO of Celgene Corporation
-- Raised gross proceeds of $29.4 million in a public offering of common stock and warrants
-- Commenced a first-in-man Phase I clinical trial in Israel of INFRADUREä, sustained interferon alpha therapy, for the treatment of hepatitis C
-- Fortified the Company's intellectual property portfolio with the addition of key patents in the U.S. and Japan covering EPODUREä, sustained erythropoietin ("EPO") therapy, and INFRADURE, respectively
-- Convened a roundtable of 15 top liver experts and regulatory advisors from the U.S., Europe, Israel and Australia to discuss INFRADURE for the treatment of hepatitis, specifically for its potential applications in the treatment of hepatitis B and hepatitis D
Management Discussion
"During 2012 we achieved a number of milestones under our strategic plan," stated Andrew L. Pearlman, Ph.D., Chief Executive Officer of Medgenics. "We remain focused on advancing our proprietary Biopump technology for the sustained production and delivery of therapeutic proteins from a patient's own tissue in our lead indications of anemia and hepatitis.
"Our objective with EPODURE is to achieve recommended hemoglobin targets in patients for months, while avoiding the risks of supraphysiologic EPO concentrations associated with injections of erythropoietin stimulating agents ("ESA"). U.S. Food and Drug Administration ("FDA") black box warnings and the recent product recall of a commercial ESA drug underscore the need for safer, more effective therapies in anemia management. EPODURE also has the potential to improve the safety, efficacy and the logistics of anemia management in a range of settings, whether in the clinic, home or elsewhere, to the benefit of both patients and payors.
"We believe, and key opinion leaders in hepatitis recently concurred, that the foremost opportunity for INFRADURE is in orphan-designated hepatitis D, where oral drugs are ineffective, and in hepatitis B, where oral drugs do not clear the disease but only contain it. Also, in hepatitis B these oral drugs must be taken on a lifelong basis, with mounting costs and health risks over time. Only sustained interferon therapy of a year or longer has been shown to clear the hepatitis B virus. As such, INFRADURE Biopumps may be able to provide a far more compliant alternative to weekly interferon injections. Our strategy in hepatitis is to develop proof-of-concept and safety data for INFRADURE in hepatitis C, which represents a large and accessible patient population, and then use the results to help develop and calibrate INFRADURE dosing and method of use for these other strains of hepatitis.
"Our goals for the balance of 2013 will be to continue to advance the clinical development of EPODURE and INFRADURE in Israel and the U.S., to expand our leadership with experienced industry executives, to optimize our manufacturing process, to pursue potential partnership and licensing opportunities and to explore potential new indications for our Biopump autologous tissue technology," concluded Dr. Pearlman.
2012 Financial Results
Gross research and development ("R&D") expense for 2012 increased to $7.19 million from $5.99 million in 2011 due to an increase in the use of materials and sub-contractors in connection with the Company's ongoing Phase II EPODURE clinical trial in Israel, the preparations for the INFRADURE trial in Israel and the phase II EPODURE clinical trials in the U.S; ongoing method development, and an increase in R&D personnel.
Net R&D expense for 2012 was $5.43 million compared with $5.05 million in 2011. The increase was due to higher gross R&D expenses as detailed above, which were partially offset by participation by the Israeli Office of the Chief Scientist of $1.76 million in 2012 and $0.86 million in 2011.
General and administrative expense for 2012 increased to $7.20 million from $4.92 million in 2011, primarily due to stock-based compensation expense related to equity granted to the Chairman of the Board upon his appointment and increased legal fees and professional services.
Financial expense for 2012 was $2.43 million, up from $0.21 million in 2011, mainly due to the change in valuation of the warrant liability. Financial income for 2012 was de minimis, compared with $2.10 million for 2011, which was primarily due to the change in valuation of the warrant liability.
The Company reported a net loss for 2012 of $15.07 million or $1.37 per share, compared with a net loss of $8.10 million or $0.96 per share for 2011.
As of December 31, 2012, Medgenics had $6.43 million in cash and cash equivalents, compared with $5.00 million as of December 31, 2011. Net cash used in operating activities during the year was $8.61 million compared with $8.02 million used in 2011. During 2012 the Company received proceeds of $8.41 million from a private placement of common stock and warrants and $1.71 million from the exercise of options and warrants. In February 2013 Medgenics raised gross proceeds of $29.4 million in a public offering of common stock and warrants.
About Medgenics
Medgenics is developing and commercializing Biopump(TM), a proprietary tissue-based platform technology for the sustained production and delivery of therapeutic proteins using the patient's own tissue for the treatment of a range of chronic diseases including anemia, hepatitis and hemophilia, among others. For more information, visit the Company's website at www.medgenics.com.
Forward-looking Statements
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and as that term is defined in the Private Securities Litigation Reform Act of 1995, which include all statements other than statements of historical fact, including (without limitation) those regarding the Company's financial position, its development and business strategy, its product candidates and the plans and objectives of management for future operations. The Company intends that such forward-looking statements be subject to the safe harbors created by such laws. Forward-looking statements are sometimes identified by their use of the terms and phrases such as "estimate," "project," "intend, " "forecast," "anticipate," "plan," "planning, "expect," "believe," "will," "will likely," "should," "could," "would," "may" or the negative of such terms and other comparable terminology. All such forward-looking statements are based on current expectations and are subject to risks and uncertainties. Should any of these risks or uncertainties materialize, or should any of the Company's assumptions prove incorrect, actual results may differ materially from those included within these forward-looking statements. Accordingly, no undue reliance should be placed on these forward-looking statements, which speak only as of the date made. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. As a result of these factors, the events described in the forward-looking statements contained in this release may not occur.
For further information, contact:
Medgenics, Inc. Phone: +972 4 902 8900 Dr. Andrew L. Pearlman Andrew.pearlman@medgenics.com LHA Phone: +1 212-838-3777 Anne Marie Fields afields@lhai.com Abchurch Communications Phone: +44 207 398 7719 Adam Michael Joanne Shears Jamie Hooper Jamie.hooper@abchurch-group.com Nomura Code Securities (NOMAD/Broker) Phone: +44 207 776 1219 Jonathan Senior Giles Balleny SVS Securities plc (Joint Broker) Phone: +44 207 638 5600 Alex Mattey Ian Callaway
-Tables to follow-
CONSOLIDATED BALANCE SHEETS ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) December 31, ---------------- Note 2011 2012 ---- ------- ------- ASSETS CURRENT ASSETS: Cash and cash equivalents 3 $ 4,995 $ 6,431 Accounts receivable and prepaid expenses 4 1,122 539 ------- ------- Total current assets 6,117 6,970 ------- ------- LONG-TERM ASSETS: Restricted lease deposits 7(c) 52 62 Severance pay fund 259 283 ------- ------- Total long-term assets 311 345 ------- ------- PROPERTY AND EQUIPMENT, NET 5 434 352 ------- ------- DEFERRED ISSUANCE EXPENSES 13 - 40 ------- ------- Total assets $ 6,862 $ 7,707 ======= =======
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED BALANCE SHEETS ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) December 31 ------------------ Note 2011 2012 ---- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade payables $ 903 $ 877 Other accounts payable and accrued expenses 6 1,156 1,473 Total current liabilities 2,059 2,350 -------- -------- LONG-TERM LIABILITIES: Accrued severance pay 1,328 1,492 Liability in respect of warrants 12 478 1,931 -------- -------- Total long-term liabilities 1,806 3,423 -------- -------- Total liabilities 3,865 5,773 -------- -------- COMMITMENTS AND CONTINGENCIES 7 STOCKHOLDERS' EQUITY: 8 Common stock - $0.0001 par value; 100,000,000 shares authorized; 9,722,725 shares and 12,307,808 shares issued and outstanding at December 31, 2011 and 2012, respectively 1 1 Additional paid-in capital 52,501 66,509 Deficit accumulated during the development stage (49,505) (64,576) -------- -------- Total stockholders' equity 2,997 1,934 -------- -------- Total liabilities and stockholders' equity $ 6,862 $ 7,707 ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) Period from January 27, 2000 (inception) Year ended through December December 31 31, --------------------- Note 2011 2012 2012 ---- --------- ---------- ----------------- Research and development expenses $ 5,987 $ 7,187 $ 37,629 Less - Participation by the Office of the Chief Scientist 1(c) (860) (1,756) (7,049) U.S. Government Grant - - (244) Participation by third party 1(d) (75) - (1,067) --------- ---------- ----------------- Research and development expenses, net 5,052 5,431 29,269 General and administrative expenses 4,924 7,197 33,595 Other income: Excess amount of participation in research and development from third party 1(d) - - (2,904) --------- ---------- ----------------- Operating loss (9,976) (12,628) (59,960) Financial expenses 10 (214) (2,429) (5,310) Financial income 10 2,097 5 360 --------- ---------- ----------------- Loss before taxes on income (8,093) (15,052) (64,910) Taxes on income 9(e) 3 19 95 --------- ---------- ----------------- Loss $ (8,096) $ (15,071) $ (65,005) ========= ========== ================= Basic and diluted loss per share $ (0.96) $ (1.37) ========= ========== Weighted average number of shares of Common stock used in computing basic and diluted loss per share 8,447,908 11,023,881 ========= ==========
The accompanying notes are an integral part of the consolidated financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) Deficit accumulated Total Additional Deferred during the stockholders' Series A Series B paid-in Stock development equity Old Common stock Preferred stock Preferred stock capital compensation stage (deficit) ----------------- ------------------- ----------------- ------------ -------------- Shares Amount Shares Amount Shares Amount -------- ------- --------- -------- ------ --------- Balance as of January 27, 2000 (inception) - $ - - $ - - $ - $ - $ - $ - $ - Issuance of Old Common stock in January and March 2000 at par value 59,133 (*) - - - - - - - (*) Issuance of Old Common stock in August 2000 at $39.90 per share, net 12,512 - - - - - 500 - - 500 Issuance of Old Common stock in respect of license agreement in August 2000 at par value 26,884 (*) - - - - - - - (*) Loss - - - - - - - - (681) (681) -------- ------- --------- -------- ------ --------- ----------- ------------- ------------ -------------- Balance as of December 31, 2000 98,529 (*) - - - - 500 - (681) (181) Stock split effected as stock dividend - (*) - - - - (*) - - - Issuance of Preferred stock in January 2001 at $49.35 per share, net - - 3,957 (*) - - 195 - - 195 Issuance of Preferred stock in March and June 2001 at $58.45 per share, net - - 116,738 (*) - - 6,806 - - 6,806 Deferred stock compensation - - - - - - 248 (248) - - Amortization of deferred stock compensation - - - - - - - 41 - 41 Stock based compensation expense related to options to consultants - - - - - - 511 - - 511 Loss - - - - - - - - (3,244) (3,244) -------- ------- --------- -------- ------ --------- ----------- ------------- ------------ -------------- Balance as of December 31, 2001 98,529 $ (*) 120,695 $ (*) - $ - $ 8,260 $ (207) $ (3,925) $ 4,128 ======== ======= ========= ======== ====== ========= =========== ============= ============ ==============
(*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statement
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) Deficit accumulated Additional Deferred during the Total Series A Series B paid-in Stock development stockholders' Old Common stock Preferred stock Preferred stock capital compensation stage equity ----------------- ------------------- ------------------ ------------------ -------------- Shares Amount Shares Amount Shares Amount -------- ------- --------- -------- -------- -------- Balance as of December 31, 2001 98,529 $ (*) 120,695 $ (*) - $ - $ 8,260 $ (207) $ (3,925) $ 4,128 Issuance of Preferred stock in October 2002 at $68.95 per share, net - - - - 76,476 (*) 5,264 - - 5,264 Deferred stock compensation - - - - - - 64 (64) - - Amortization of deferred stock compensation - - - - - - - 67 - 67 Stock based compensation expenses related to options to consultants - - - - - - 371 - - 371 Loss - - - - - - - - (5,049) (5,049) -------- ------- --------- -------- -------- -------- ----------- ------------- ------------------ -------------- Balance as of December 31, 2002 98,529 $ (*) 120,695 $ (*) 76,476 $ (*) $ 13,959 $ (204) $ (8,974) $ 4,781 ======== ======= ========= ======== ======== ======== =========== ============= ================== ==============
(*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) Deficit accumulated Additional Deferred during the Total Series A Series B paid-in Stock development stockholders' Old Common stock Preferred stock Preferred stock capital compensation stage equity ----------------- ------------------- ------------------- ------------ -------------- Shares Amount Shares Amount Shares Amount -------- ------- --------- -------- --------- -------- Balance as of December 31, 2002 98,529 $ (*) 120,695 $ (*) 76,476 $ (*) $ 13,959 $ (204) $ (8,974) $ 4,781 Exercise of stock options 555 (*) - - - - (*) - - (*) Issuance of Preferred stock in April and May 2003 at $70.00 per share, net - - - - 30,485 (*) 2,037 - - 2, 037 Deferred stock compensation - - - - - - 441 (441) - - Amortization of deferred stock compensation - - - - - - - 105 - 105 Stock based compensation expenses related to options to consultants - - - - - - 475 - - 475 Loss - - - - - - - - (5,038) (5,038) -------- ------- --------- -------- --------- -------- ----------- ------------- ------------ -------------- Balance as of December 31, 2003 99,084 $ (*) 120,695 $ (*) 106,961 $ (*) $ 16,912 $ (540) $ (14,012) $ 2,360 ======== ======= ========= ======== ========= ======== =========== ============= ============ ==============
(*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) Deficit accumulated Total Additional Deferred during the stockholders' Series A Series B paid-in stock development equity Old Common stock Preferred stock Preferred stock capital compensation stage (deficit) ----------------- ------------------- ------------------- ------------ -------------- Shares Amount Shares Amount Shares Amount -------- ------- --------- -------- --------- -------- Balance as of December 31, 2003 99,084 $ (*) 120,695 $ (*) 106,961 $ (*) $ 16,912 $ (540) $ (14,012) $ 2,360 Exercise of stock options 364 (*) - - - - (*) - - (*) Stock issued to service providers 952 (*) - - - - 10 - - 10 Amortization of deferred stock compensation - - - - - - - 540 - 540 Stock based compensation expenses related to options to consultants - - - - - - 347 - - 347 Loss - - - - - - - - (4,516) (4,516) -------- ------- --------- -------- --------- -------- ----------- ------------- ------------ -------------- Balance as of December 31, 2004 100,400 $ (*) 120,695 $ (*) 106,961 $ (*) $ 17,269 $ - (18,528) $ (1,259) Loss - - - - - - - - (776) (776) -------- ------- --------- -------- --------- -------- ----------- ------------- ------------ -------------- Balance as of December 31, 2005 100,400 $ (*) 120,695 $ (*) 106,961 $ (*) $ 17,269 $ - $ (19,304) $ (2,035) ======== ======= ========= ======== ========= ======== =========== ============= ============ ==============
(*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) Deficit accumulated during Total Additional the stockholders' Series A Series B paid-in development equity Common stock Old Common stock Preferred stock Preferred stock capital stage (deficit) ------------------ ----------------- ------------------ ------------------- ---------- ----------- ------------- Shares Amount Shares Amount Shares Amount Shares Amount --------- ------- -------- ------- -------- -------- --------- -------- Balance as of December 31, 2005 - $ - 100,400 $ (*) 120,695 $ (*) 106,961 $ (*) $ 17,269 $ (19,304) $ (2,035) Conversion of Old Common stock, Series A and Series B Preferred stock into Common stock 282,452 (*) (100,40) (*) (120,69) (*) (106,691) (*) (436) 436 - Conversion of convertible Note into Common stock 342,368 (*) - - - - - - 1,795 - 1,795 Issuance of Common stock as settlement of debt in March 2006 75,235 (*) - - - - - - 96 - 96 Issuance of Common stock and warrants in March, April and June 2006 at $2.49 per share and warrants, Net 463,358 (*) - - - - - - 952 - 952 Issuance of Common stock and warrants in November and December 2006 at $4.10 per share and warrants, net 476,736 (*) - - - - - - 1,615 - 1,615 Stock based compensation expense related to options and warrants granted to consultants and employees - - - - - - - - 1,161 - 1,161 Loss - - - - - - - - - (2,599) (2,599) --------- ------- -------- ------- -------- -------- --------- -------- ---------- ----------- ------------- Balance as of December 31, 2006 1,640,149 $ (*) - $ - - $ - - $ - $ 22,452 $ (21,467) $ 985 ========= ======= ======== ======= ======== ======== ========= ======== ========== =========== =============
(*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) Deficit accumulated Additional during the Total paid-in development stockholders' Common stock capital stage equity ---------------------- ----------- ------------- --------------- Shares Amount ----------- --------- Balance as of December 31, 2006 1,640,149 $ (*) $ 22,452 $ (21,467) $ 985 Issuance of Common stock and warrants in January 2007 at $4.10 per share and warrants, net 12,211 (*) 33 - 33 Issuance of Common stock and warrants in May, July and August 2007 at $5.74 per share and warrants, net 218,498 (*) 835 - 835 Exercise of warrants in July 2007 12,912 (*) - - (*) Issuance of Common stock to consultant in August 2007, net 3,492 (*) (*) - - Beneficial conversion feature embedded in convertible note - - 511 - 511 Issuance of Common stock and warrants in December 2007 at $6.65 - $7.35 per share and warrants, where applicable, net, related to the admission to AIM 1,086,665 1 4,497 - 4,498 Issuance cost due to obligation to issue 4,074 Common stock for consultant, net - - (31) - (31) Stock based compensation expense related to options and warrants granted to consultants and employees - - 347 - 347 Loss - - - (3,851) (3,851) ----------- --------- ----------- ------------- --------------- Balance as of December 31, 2007 2,973,927 $ 1 $ 28,644 $ (25,318) $ 3,327 =========== ========= =========== ============= ===============
(*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) Deficit accumulated Total Additional Receipts during the stockholders' paid-in on account development equity Common stock capital of shares stage (deficit) --------------------- ------------- ------------ ------------- --------------- Shares Amount ---------- --------- Balance as of December 31, 2007 2,973,927 $ 1 $ 28,644 $ - $ (25,318) $ 3,327 Cashless exercise of warrants in January 2008 70,343 (*) (*) - - - Issuance of Common stock to consultant in April 2008 at $7.70 per share 4,074 (*) 31 - - 31 Exercise of warrants in December 2008 860 (*) (*) - - - Stock based compensation related to options and warrants granted to consultants and employees - - 436 - - 436 Receipts on account of stock in respect to exercise of warrants in January 2009 - - - 150 - 150 Dividend in respect of reduction in exercise price of certain warrants - - 7 - (7) - Loss - - - - (4,992) (4,992) ---------- --------- ------------- ------------ ------------- --------------- Balance as of December 31, 2008 3,049,204 $ 1 $ 29,118 $ 150 $ (30,317) $ (1,048) ========== ========= ============= ============ ============= ===============
(*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) Deficit accumulated Additional Receipts during the Total paid-in on account development stockholders' Common stock capital of shares stage equity (deficit) --------------------- ----------- ------------ ------------- ------------------ Shares Amount ---------- --------- Balance as of December 31, 2008 3,049,204 $ 1 $ 29,118 $ 150 $ (30,317) $ (1,048) Exercise of warrants in January and February 2009 315,023 (*) 389 (150) - 239 Stock based compensation related to options granted to consultants and employees - - 520 - - 520 Issuance of Common stock in October 2009, net at $3.50 per share 126,285 (*) 364 - - 364 Receipts on account of shares related to exercise of warrants in January 2011 - - - 25 - 25 Dividend in respect of reduction in exercise price of certain Warrants - - 3 - (3) - Cumulative effect of reclassification of warrants from equity to liability due to application of ASC 815-40 - - (871) - - (871) Loss - - - - (6,942) (6,942) ---------- --------- ----------- ------------ ------------- ------------------ Balance as of December 31, 2009 3,490,512 $ 1 $ 29,523 $ 25 $ (37,262) $ (7,713) ========== ========= =========== ============ ============= ==================
(*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) Deficit accumulated Additional Receipts during the Total paid-in on account development stockholders' Common stock capital of shares stage deficit --------------------- ------------- ------------ ------------- ---------------- Shares Amount ---------- --------- Balance as of December 31, 2009 3,490,512 $ 1 $ 29,523 $ 25 $ (37,262) $ (7,713) Exercise of options and warrants in January, May, September and December 2011 785,419 (*) 559 (25) - 534 Stock based compensation related to options and warrants granted to consultants and employees - - 1,834 - - 1,834 Issuance of Common stock in February 2011 at $4.38 per share to consultants 32,142 (*) 141 - - 141 Issuance of Common stock in March 2011, net at $2.63 (GBP 1.75) per share 407,800 (*) 943 - - 943 Issuance of Common stock in May 2011, net at $2.52 (GBP 1.75) per share 477,934 (*) 1,115 - - 1,115 Issuance of Common stock in May 2011 at $3.43 (GBP 2.28) per share 5,502 (*) 19 - - 19 Issuance of Common stock in August and September 2011 to consultants 39,080 (*) 164 - - 164 Issuance of warrants in September 2011 to a consultant - - 36 - - 36 Issuance of restricted Common stock in December 2011 to a director 57,142 (*) (*) - - - Loss - - - - (4,147) (4,147) ---------- --------- ------------- ------------ ------------- ---------------- Balance as of December 31, 2010 5,295,531 $ 1 $ 34,334 $ - $ (41,409) $ (7,074) ========== ========= ============= ============ ============= ================
(*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) Deficit accumulated Total Additional during the stockholders' paid-in development equity Common stock capital stage (deficit) --------------------- ------------- ------------- ---------------- Shares Amount ---------- --------- Balance as of December 31, 2010 5,295,531 $ 1 $ 34,334 $ (41,409) $ (7,074) Issuance of Common stock at $4.54 per share and warrants at $0.46 per share, net of issuance costs in the amount of $2,826 2,624,100 (*) 10,389 - 10,389 Issuance of Common stock upon conversion of debentures 1,410,432 (*) 5,585 - 5,585 Issuance of Common stock to a consultant at $3.67 per share 12,500 (*) 46 - 46 Issuance of warrants to consultants - - 558 - 558 Exercise of options and warrants 380,162 (*) 1,194 - 1,194 Stock based compensation related to options and warrants granted to consultants and employees - - 395 - 395 Loss - - - (8,096) (8,096) ---------- --------- ------------- ------------- ---------------- Balance as of December 31, 2011 9,722,725 $ 1 $ 52,501 $ (49,505) $ 2,997 ========== ========= ============= ============= ================
(*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) ------------------------------------------------------------ U.S. dollars in thousands (except share and per share data) Deficit accumulated Additional during the Total paid-in development stockholders' Common stock capital stage equity ---------------------- ------------- ------------- ---------------- Shares Amount ----------- --------- Balance as of December 31, 2011 9,722,725 $ 1 $ 52,501 $ (49,505) $ 2,997 Stock based compensation related to issuance of restricted common stock in January 2012 35,000 (*) 55 - 55 Issuance of Common stock to consultants at $4.84 and $8.79 per share in March and June 2012 30,000 (*) 204 - 204 Issuance of Common stock and warrants at $4.90 per unit in June 2012, net of issuance costs in the amount of $1,122 1,944,734 (*) 8,407 - 8,407 Exercise of options and warrants 575,349 (*) 2,594 - 2,594 Stock based compensation related to options and warrants granted to consultants and employees - - 2,748 - 2,748 Loss - - - (15,071) (15,071) ----------- --------- ------------- ------------- ---------------- Balance as of December 31, 2012 12,307,808 $ 1 $ 66,509 $ (64,576) $ 1,934 =========== ========= ============= ============= ================
(*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------- U.S. dollars in thousands Period from January 27, 2000 (inception) Year ended through December December 31 31, --------------------- 2011 2012 2012 --------- ---------- --------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Loss $ (8,096) $ (15,071) $ (65,005) --------- ---------- --------------------- Adjustments to reconcile loss to net cash used in operating activities: Depreciation 98 145 1,226 Loss from disposal of property and equipment - - 330 Issuance of shares as consideration for providing security for letter of credit - - 16 Stock based compensation related to options, warrants, common shares and restricted shares granted to employees, directors and consultants 395 3,007 10,169 Interest and amortization of beneficial conversion feature of convertible note - - 759 Change in fair value of convertible debentures and warrants (1,936) 2,336 3,978 Accrued severance pay, net 300 140 1,209 Exchange differences on a restricted lease deposit 4 (5) (2) Exchange differences on a long-term loan - - 3 Decrease (increase) in accounts receivable and prepaid expenses and deferred issuance expenses 533 543 (579) Increase (decrease) in trade payables 764 (26) 1,481 Increase (decrease) in other accounts payable and accrued expenses (79) 317 2,020 --------- ---------- --------------------- Net cash used in operating activities (8,017) (8,614) (44,395) --------- ---------- --------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (289) (63) (2,082) Proceeds from disposal of property and equipment - - 173 Increase in restricted lease deposits (10) (5) (60) Net cash used in investing activities $ (299) $ (68) $ (1,969) --------- ---------- ---------------------
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ----------------------------------------------- U.S. dollars in thousands Period from January 27, 2000 (inception) Year ended through December 31 December 31 --------------------- 2011 2012 2012 ---------- --------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of shares and warrants, net $ 10,389 $ 8,407 $ 42,908 Proceeds from exercise of options and warrants, net 63 1,711 2,722 Repayment of a long-term loan - - (73) Proceeds from long-term loan - - 70 Issuance of convertible debentures and warrants - - 7,168 Net cash provided by financing activities 10,452 10,118 52,795 ---------- --------- ----------------- Increase in cash and cash equivalents 2,136 1,436 6,431 ---------- --------- ----------------- Balance of cash and cash equivalents at the beginning of the period 2,859 4,995 - ---------- --------- ----------------- Balance of cash and cash equivalents at the end of the period $ 4,995 6,431 6,431 ========== ========= ================= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 49 $ - $ 242 ========== ========= ================= Taxes $ 1 $ 50 $ 148 ========== ========= ================= Supplemental disclosure of non-cash flow information: Issuance expenses paid with shares $ - $ - $ 310 ========== ========= ================= Issuance of Common stock upon conversion of convertible debentures $ 5,585 $ - $ 8,430 ========== ========= ================= Issuance of Common stock and warrants to consultants $ 604 $ - $ 1,151 ========== ========= ================= Classification of liability in respect of warrants into equity due to the exercise of warrants $ 1,131 $ 883 $ 2,014 ========== ========= =================
The accompanying notes are an integral part of the consolidated financial statements.
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 the 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").
On December 4, 2007 the Company's Common stock was admitted for trading on the AIM market of the London Stock Exchange ("AIM"). (see Note 8(d)21).
On April 13, 2011 the Company completed an Initial Public Offering ("IPO") of its Common stock on the NYSE MKT (formerly NYSE Amex), raising $10,389 in net proceeds. (see Note 8(d)38).
b. The Company and the Subsidiary are in the development stage. As reflected in the accompanying financial statements, the Company incurred a loss of $15,071 during the year ended December 31, 2012 and has an accumulated deficit of $64,576 as of December 31, 2012. The Company and the Subsidiary have not yet generated revenues from product sale. In the past, the Company generated income from partnering on development programs and expects to expand its partnering activity. Management's plans also include seeking additional investments and commercial agreements to continue the operations of the Company and the Subsidiary.
The Company believes that the net proceeds of the underwritten public offering in February 2013 (see Note 13 - Subsequent Events), plus our existing cash and cash equivalents, should be sufficient to meet its operating and capital requirements through 2014.
c. In April 2012, the Subsidiary received approval for an additional Research and Development program from the Office of the Chief Scientist in Israel ("OCS") for the period October 2011 through September 2012. The approval allows for a grant of up to approximately $2,200 based on research and development expenses, not funded by others, of up to $4,130. To date, $1,460 has been received and $203 recorded as grants receivables.
d. On October 22, 2009, 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 included funding for preclinical development of the Company's Biopump(TM) 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 was entitled to receive up to $4,100 to work exclusively with the Healthcare company for one year ended October 22, 2010 to develop a Biopump to test the feasibility of continuous production and delivery of this clotting protein.
The Company recognized 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 the Agreement was recognized as other income within operating income.
Upon termination of the Agreement, the Company received all rights to the jointly developed intellectual property and is obligated to 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.
In October 2010 and in July 2011, the Company and the Healthcare company agreed on extensions of the Agreement. During the extension periods, the Company assumed most of the funding responsibilities. Under the second extension, confirmatory studies were conducted implanting HEMODURE(TM) Biopumps producing FVIII in mice. The Healthcare company agreed to bear $75 of the costs of these studies. The Agreement, as extended, expired on September 30, 2011.
Through December 31, 2011, payments totaling $3,971 were received by the Company from the Healthcare company.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP"), applied on a consistent basis, as follows:
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 the 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 the 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"). 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. Principles of consolidation
The consolidated financial statements include the accounts of the Company and the Subsidiary. Intercompany transactions and balances have been eliminated upon consolidation.
d. Cash equivalents
The Company and the Subsidiary consider all highly liquid investments originally purchased with maturities of three months or less to be cash equivalents.
e. 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 - 33 (mainly 15) Leasehold improvements The shorter of term of the lease or the useful life of the asset f. Impairment of long-lived assets
Long-lived assets are reviewed for impairment in accordance with ASC 360, "Property, Plant, and Equipment" ("ASC 360"), 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, 2011 and 2012 and for the period from January 27, 2000 (inception) through December 31, 2012, no impairment losses have been identified.
g. 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 agreements. 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 most 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 Subsidiary shall be the only severance payments released to the employee upon termination of employment, voluntarily or involuntarily. Accordingly, the financial statements do not include the severance pay fund and the severance pay accrual in connection with these employees.
Severance expenses for the years ended December 31, 2011 and 2012 and for the period from January 27, 2000 (inception) through December 31, 2012, amounted to $382, $318 and $2,198, respectively.
h. Income taxes
The Company accounts for income taxes in accordance with ASC 740, "Income Taxes" ("ASC 740"). 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, 2012, 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"). ASC 740-10 contains a two-step approach for recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740-10. 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 ASC 740-10.
i. Accounting for stock based compensation
On January 1, 2006, the Company adopted ASC 718, "Compensation-Stock Compensation" ("ASC 718") 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.
The Company recognized compensation expenses for awards granted 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.
In 2011 and 2012, the Company estimated the fair value of stock options granted to employees and directors using the Binominal options pricing model with the following assumptions:
2011 2012 ------ ----- Dividend yield 0% 0% Expected volatility 75% 77% Risk-free interest rate 2.9% 1.7% Suboptimal exercise factor 1.5-2 1.5 Contractual life (years) 10 5-10
The Company uses historical data 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"), 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:
2011 2012 -------- -------- Dividend yield 0% 0% Expected volatility 68% 80% Risk-free interest rate 1.7% 1.1% Contractual life 1.1-9.7 2.4-9.9 (years) j. Loss per share
Basic loss per share is computed based on the weighted average number of shares of Common stock outstanding during each year. Diluted loss per share is computed based on the weighted average number of shares of Common stock 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").
In 2011 and 2012, 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.
k. Research and development expenses
All research and development expenses are charged to the Statements of Operations as incurred. Grants from the OCS and the U.S. Government and participation from third-parties related to such research and development expenses are offset against the expense at the later of when receipt is assured or the expenses are incurred.
l. 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 HEMODURE Biopump was recognized at the time the Company was 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:
-- Participation from third party - 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 was 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 were recognized at the time the Company was entitled to such grants, on the basis of the costs incurred and are presented as a deduction from research and development expenses.
m. Concentrations of credit risks
Financial instruments that potentially subject the Company and the Subsidiary to concentrations of credit risk consist principally of cash and cash equivalents.
Cash and cash equivalents are invested in major banks and financial institutions 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 the Subsidiary's investments are institutions 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.
n. Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts receivable, 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 liability in respect of warrants is presented at fair value.
Effective January 1, 2008, the Company adopted ASC 820, "Fair Value Measurements and disclosures" ("ASC 820"). 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, 2011 and 2012 are warrants with down-round protection classified as a liability. See Note 12.
o. Reclassifications
Certain financial statement data for prior periods has been reclassified to conform to current year financial statement presentation.
NOTE 3:- CASH AND CASH EQUIVALENTS December 31, ----------------------------------- 2011 2012 ------------------ --------------- In Dollars $ 4,994 $ 6,255 In NIS 1 176 ------------------ --------------- $ 4,995 $ 6,431 ================== =============== NOTE 4:- ACCOUNTS RECEIVABLE AND PREPAID EXPENSES December 31, ---------------- 2011 2012 -------- ------ Grant receivable from the OCS $ 956 $ 203 Government authorities 81 83 Prepaid expenses and other 85 253 -------- ------ $ 1,122 $ 539 ======== ====== NOTE 5:- PROPERTY AND EQUIPMENT, NET
Composition of property and equipment is as follows:
December 31, --------------- 2011 2012 ------- ------ Cost: Furniture and office equipment $ 117 $ 119 Computers and peripheral equipment 59 65 Laboratory equipment 364 413 Leasehold improvements 350 356 ------- ------ Total cost 890 953 ------- ------ Total accumulated depreciation 456 601 ------- ------ Depreciated cost $ 434 $ 352 ======= ======
Depreciation expenses for the years ended December 31, 2011 and 2012 and for the period from January 27, 2000 (inception) through December 31, 2012 amounted to $98, $145 and $1,226, respectively.
NOTE 6:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES December 31, ------------------ 2011 2012 -------- -------- Employees and payroll accruals $ 797 $ 1,063 Accrued expenses and others 359 410 -------- -------- $ 1,156 $ 1,473 ======== ======== NOTE 7:- 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. 1(st) 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 1(st) installment of $50 to Yissum was paid in 2007, the 2nd installment of $150 was paid in 2010 and the 3(rd) and final installment of $200 was paid in April 2011. 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. No payments of royalties or sub-license fees were paid through December 31, 2012.
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 BCM 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. The Company paid to BCM $20 in each of 2011 and 2012.
3. Pursuant to an agreement entered into on February 11, 2011 (effective as of January 31, 2011), the Regents of the University of Michigan ("Michigan") have granted an exclusive worldwide license for patent rights relating to certain uses of variants of clotting Factor VIII. The license agreement covers a portfolio of 2 issued and 3 pending patents. In consideration, the Company agreed to pay Michigan the following amounts:
I. an initial license fee of $25 which was paid in 2011;
II. an annual license fee in arrears of $10 rising to $50 following the grant by the Company of a sub-license or (if sooner) from the 6th anniversary of the effective date of the licence agreement;
III. staged milestone payments of $750 (in aggregate), of which $400 will be recoupable against royalties;
IV. royalties at an initial rate of 5% of net sales, reducing by a percentage point at predetermined thresholds to 2% upon cumulative net sales exceeding $50,000;
V. sub-license fees at an initial rate of 6% of sub-licensing revenues, reducing by a percentage point at predetermined thresholds to 4% upon cumulative sub-licensing revenues exceeding $50,000; and
VI. patent maintenance costs.
The exclusive worldwide license is expected to expire in 2026 upon the expiration of the last to expire of the patent rights licensed. The Company paid to Michigan patent maintenance costs of $123 and $42 in the years 2011 and 2012, respectively.
a. Chief Scientist
Under agreements with the OCS in Israel regarding research and development projects, the Subsidiary is committed to pay royalties to the OCS 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, 2012, the aggregate contingent liability amounted to approximately $7,049.
b. Lease Agreement
1. The facilities of the Subsidiary are rented under an operating lease agreement for a period ending December 2013 and the Subsidiary has the option to renew the lease for an additional period through December 2014. Future minimum lease commitment under the existing non-cancelable operating lease agreement is approximately $66 for 2013.
As of December 31, 2012 the Subsidiary pledged a bank deposit which is used as a bank guarantee at an amount of $23 to secure its payments under the lease agreement.
2. The offices of the Company are rented under an operating lease agreement for a period ending June 30, 2013 and the Company has the option to renew the lease for an additional period through June 30, 2016. The Company paid a deposit of $10. Future minimum lease commitment under the existing non-cancelable operating lease agreement for 2013 is approximately $32.
3. 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 2013 $ 91 2014 61 2015 18 ------ $ 170 ======
As of December 31, 2012, the Subsidiary paid three months lease installments in advance which amounted to $29.
NOTE 8:- STOCKHOLDERS' EQUITY a. 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.
b. 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 stock, Series A Preferred shares and Series B Preferred shares were converted into Common stock. The conversion rates were as follows:
1. A total of 342,368 shares of Common stock were issued to the holders of the convertible Note upon conversion of the Note.
2. One share of Common stock was issued for 302 shares of Old Common stock.
3. One share of Common stock was issued for 11 Series A Preferred shares.
4. One share of Common stock was issued for 9 Series B Preferred shares.
As a result of the recapitalization of the equity, the Company issued a total of 282,452 shares of Common stock.
Pursuant to ASC 260-10 "Earnings Per Share", 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 shares over the fair value of the Common stock issued to the holders of the Preferred shares in the recapitalization in the amount of $436 to deficit accumulated during the development stage with a corresponding reduction in share capital and additional paid in capital.
c. Stock split and reverse split:
1. Based on a resolution approved by shareholders in November 22, 2007, a stock split was effectuated on December 4, 2007 such that 21.39149 shares of Common stock were given in exchange for each existing share of Common stock. In addition all existing warrants and options were automatically adjusted so that each warrant or option to purchase one share of Common stock was converted to a warrant or option to purchase 21.39149 shares of Common stock. Data regarding share and per share amounts in these financial statements has been retroactively adjusted to reflect this stock split.
2. In February 2011, the Company's Board of Directors approved a one (1) for thirty five (35) reverse split of the Company's Common stock and the number of authorized shares of the Company's Common stock was reduced from 500,000,000 to 100,000,000, effective February 14, 2011. Upon the effectiveness of the reverse stock split, thirty-five shares of Common stock of $0.0001 par value were converted and reclassified as one share of Common stock of $0.0001 par value. Accordingly, all references to number of shares, Common stock and per share data in the accompanying financial statements have been adjusted to reflect the stock split on a retroactive basis. Fractional shares created as a result of the stock split were paid in cash based on the then current market price. As a result of the rounding down effect, 166 shares of Common stock were eliminated.
d. Issuance of shares, stock options and warrants to investors
1. In January and March 2000, the Company issued a total of 59,133 shares of Old Common stock at par value.
2. In August 2000, the Company issued 12,512 shares of Old Common stock in consideration of $500.
3. In August 2000, in respect of the earlier license agreement with Yissum, the Company issued 26,884 shares of Old Common stock at par value.
4. In January 2001, the Company issued 3,957 Series A Preferred shares in consideration of $200. The issuance costs amounted to $5.
5. On March 19, 2001, the Board of Directors authorized a 10 to 1 stock split and 1,000 to 1 stock split effected as stock dividend. In addition, the par value of each share was reduced from $0.001 to $0.0001.
6. In March and June 2001, the Company issued a total of 116,738 Series A Preferred shares in consideration of $6,998. The issuance costs amounted to $192.
7. In October 2002, the Company issued a total of 76,476 Series B Preferred shares in consideration for $5,353. The issuance costs amounted to $89.
8. In February, September and November 2003, the Company issued a total of 555 shares of Old Common stock in consideration of $0.195, upon exercise of stock options.
9. In April and May 2003, the Company issued a total of 30,485 Series B Preferred shares
in consideration of $2,134. The issuance costs amounted to $97.
10. In January and February 2004, the Company issued a total of 1,316 Old shares of Common stock in consideration of $0.1 in cash upon exercise of stock options and $10 in consideration of services.
11. In March 2006, the Company issued 75,235 shares of Common stock as settlement of a debt.
12. In March 2006, as part of the recapitalization, warrants to purchase 61,117 shares of Common stock at an exercise price per share of $0.0001 with a term of 5 years were issued by the Company to existing holders of Old Common stock, Series A Preferred shares and Series B Preferred shares.
13. In March 2006, the Company issued 342,368 shares of Common stock in consideration for the conversion of a convertible loan.
14. In March, April and June 2006, the Company issued a total of 463,358 shares of Common stock and warrants to purchase 926,717 shares of Common stock at an exercise price per share of $2.49 and a term of 5 years in consideration of $1,149. These warrants include anti-dilution protection and a cashless exercise provision. The issuance costs amounted to $197.
15. In November and December 2006, the Company issued a total of 476,736 shares of Common stock and warrants to purchase 595,921 shares of Common stock at an exercise price of $4.10 and a term of 5 years in consideration of $1,949. These warrants include anti-dilution protection and a cashless exercise provision. The issuance costs amounted to $334.
16. In January 2007, the Company issued a total of 12,211 shares of Common stock and warrants to purchase 15,264 shares of Common stock at an exercise price per share of $4.10 and a term of 5 years, in consideration of $50. These warrants include anti-dilution protection and a cashless exercise provision. The issuance costs amounted to $17.
17. In May, July, and August 2007, the Company issued a total of 218,498 shares of Common stock and warrants to purchase 46,711 shares of Common stock at an exercise price per share of $5.74 and a term of 5 years in consideration of $1,251. These warrants include anti-dilution protection and a cashless exercise provision. The issuance costs amounted to $416.
18. In July 2007, 12,912 warrants were exercised into 12,912 shares of Common stock. The cash consideration received was immaterial.
19. In August 2007, the Company issued 3,492 shares of Common stock at fair value of $18 to an advisor in consideration of consulting services related to the issuance of shares. The fair value of the shares was recorded as issuance costs.
20. On August 13, 2007, the Company issued a $1.05 million convertible unsecured promissory note ("Note"). In addition, the Company issued to the Note holder warrants to purchase up to 91,677 shares of Common stock at an exercise price per share of $5.74 and a term of 5 years. These warrants include anti-dilution protection and a cashless exercise provision. In respect of the Note and warrants, the Company recorded financial expenses relating to the beneficial conversion feature in accordance with the provisions of ASC 470-20, "Debt with Conversion and Other Options" ("ASC 470-20") (originally issued as EITF 98-5 and EITF 00-27) in the amount of $470 with a corresponding credit to additional paid in capital in shareholders' equity. The Company computed the value of the warrants using the Black-Scholes option pricing model with the following assumptions: a risk-free interest rate of 4.72%, zero dividends, volatility of 66%, and an expected term of 5 years. On November 14, 2007, the Note term was extended to December 15, 2007. In respect of this change, the Company recorded additional financial costs of $42 in the statement of operations with a corresponding credit to additional paid-in capital in shareholders' equity. On December 4, 2007, the Note was converted into 183,355 shares of Common stock.
21. On December 4, 2007, the Company's Common stock was admitted for trading on the AIM Market of the London Stock Exchange (AIM). Concurrently, the Company placed 275,429 shares of Common stock at a per share price of GBP 3.50 ($7.35), issued 539,755 shares of Common stock and 88,126 shares of Common stock to investors and consultants, respectively, and issued additional 183,355 shares of Common stock resulting from the conversion of a convertible Note (see note 8(d)21), for a total gross consideration for GBP 3,276,985 ($6,719). The issuance costs amounted to $2,221. In addition, the Company issued warrants to purchase 27,745 shares of Common stock at an exercise price per share of $5.74, and additional warrants to purchase 165,701 shares of Common stock at an exercise price per share of $6.79, each with a term of 5 years. These warrants include anti-dilution protection and a cashless exercise provision.
22. In January 2008, a total of 101,723 warrants were exercised in a cashless conversion to 68,980 shares of Common stock by consultants of the Company. In addition 1,363 warrants were exercised and resulted in the issuance of 1,363 shares of Common stock. The cash consideration received was immaterial.
23. In April 2008, the Company issued a total of 4,074 shares of Common stock to an advisor in consideration of assistance with the Company's fund raising in relation to the placing of the Common stock on December 4, 2007.
24. In December 2008, 860 warrants were exercised and resulted in the issuance of 860 shares of Common stock. The cash consideration received upon exercise of the warrants was immaterial.
25. On December 17, 2008, the Company announced that it was implementing a warrant repricing program ("program") to encourage the exercise of existing warrants provided that such exercise was completed by February 13, 2009. To encourage existing warrant holders to exercise their warrants before the closing date as aforesaid, the following terms were offered:
a) Reduced Exercise Price: $1.313/share (GBP 0.875/share) or the then current exercise price, whichever was lower;
b) Bonus Warrants: for every one dollar ($1.00) or GBP 0.667 paid for exercise of warrants during this program, a new bonus warrant would be issued to purchase 0.1 share of Common stock ( three shares of Common stock before the reverse stock split), which would be immediately exercisable for three years at an exercise price of $8.75 per share.
The exercise price of any warrants that were not exercised before the expiration of the program reverted to the original price as stated in the warrant prior to the program.
26. Pursuant to the warrant repricing program mentioned above, during January and February 2009, 315,023 warrants were exercised and resulted in the issuance of 315,023 shares of Common stock in consideration of a reduced price of $406 and the issuance of 34,804 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 $8.75 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.
27. On October 6, 2009, the Company issued a total of 126,285 shares of Common stock in consideration of GBP 265,200 ($423). The issuance costs were $59.
28. In January 2010, an investor exercised warrants to purchase 6,105 share of Common stock at an exercise price of $4.10 per share, or an aggregate exercise price of $25. An additional investor exercised warrants to purchase 525 share of Common stock at an aggregate price of less than $1.
29. In a series of closings from March through June 2010, the Company issued a total of 413,302 shares of Common stock consisting of 407,800 shares of Common stock issued in March 2010 in consideration of GBP 713,650 ($1,078) with issuance costs of $135 and 5,502 shares of Common stock issued to directors of the Company in May 2010 in consideration of GBP 12,518 ($19).
30. In May 2010, the Company issued 477,934 shares of Common stock in consideration of $1,202. The issuance costs amounted to $87.
31. In August and September 2010, the Company issued 39,080 shares of Common stock 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.
32. In September 2010, several investors exercised warrants to purchase 402,307 shares of Common stock at an exercise price of $0.0175 per share, or an aggregate exercise price of $7, exercised warrants to purchase 30,559 shares at an exercise price of $4.10 per share, or an aggregate exercise price of $125, exercised warrants to purchase 0.1 share of Common stock (three shares of Common stock before the reverse stock split) at an exercise price of $8.75 per share, or an aggregate exercise price less than $1, and exercised warrants to purchase 87,405 shares of Common stock at an exercise price of $2.49 per share, or an aggregate exercise price of $218.
33. In September 2010, the purchasers of the 2010 Debentures (see Note 12) received warrants to purchase 428,571 shares of Common stock. Such warrants are immediately exercisable, have a 5-year term and have an exercise price of $4.54.
34. In October 2010, an investor exercised options to purchase 16,298 shares of Common stock at an exercise price of $1.61 per share using the cashless exercise mechanism. Using this cashless exercise method, the investor was issued 12,320 shares.
35. In the first quarter of 2011, 12 investors exercised warrants to purchase a total of 303,337 shares of Common stock at an exercise price of $2.49 per share using the cashless exercise mechanism. Using this cashless exercise method, the investors were issued 169,665 shares. In addition, four investors exercised warrants to purchase a total of 15,746 shares of Common stock at exercise prices of $0.002 and $2.49 per share, or an aggregate exercise price of $38.
36. In March 2011, unexercised warrants held by eight investors to purchase a total of 270,992 shares of Common stock expired. The aggregate value of these warrants, $636, was recorded to finance income.
37. In April 2011, an investor exercised warrants to purchase 7,334 shares of Common stock at the exercise price of $2.49 per share using the cashless exercise mechanism. Using this cashless exercise method, the investor was issued 3,060 shares of Common stock.
38. On April 13, 2011 the Company completed the IPO of its Common stock on the NYSE Amex (formerly NYSE Amex). The Company issued 2,624,100 shares of Common stock, including 164,100 shares pursuant to the exercise of the underwriters' over-allotment option, at a price of $4.54 per share and warrants to purchase 2,829,000 shares, including 369,000 warrants pursuant to the exercise of the underwriters' over-allotment option, at a price of $0.46 per warrant for total gross proceeds of $13,215 or approximately $10,389 in net proceeds after deducting underwriting discounts and commissions of $1,454 and other offering costs of approximately $1,372.
39. On the closing date of the IPO (April 13, 2011) the 2009 Debentures were automatically converted at a conversion price of $2.724 per share of Common stock into an aggregate 209,656 shares of Common stock. In addition the Company issued 5-year warrants to purchase 84,693 shares of Common stock (of which warrants to purchase 11,310 shares of Common stock were granted to placement agents) at an initial exercise price of $4.99 per share in connection with the conversion of the 2009 Debentures. The 2010 Debentures were automatically converted at a conversion price of $3.405 per share of Common stock into an aggregate 1,198,242 shares of Common stock. In November 2011, an additional 2,534 shares of Common stock were issued to compensate the 2010 Debenture holders for a minor portion of the interest which was not paid at the time of conversion.
40. In May 2011, a Director of the Company exercised warrants to purchase 60,507 shares of Common stock at an exercise price of $2.49 per share using the cashless exercise mechanism. The Director was issued 18,269 shares as a result of the warrant exercise. The Director received these warrants as an investor, prior to his appointment to the Board of Directors.
41. In August 2011, three investors exercised warrants to purchase a total of 137,517 shares of Common stock at an exercise price of $3.85 per share using the cashless exercise mechanism. Using this cashless exercise method, the investors were issued a total of 22,472 shares of Common stock.
42. In October 2011, several investors exercised warrants to purchase a total of 314,346 shares of Common stock at an exercise price of $3.85 per share using the cashless exercise mechanism. Using this cashless exercise method, the investors were issued a total of 21,684 shares.
In addition, an investor exercised warrants to purchase 6,494 shares of Common stock at an exercise price of $3.85 per share. The cash consideration received was $25.
43. Also in October 2011, unexercised warrants held by an investor to purchase a total of 76,398 shares of Common stock expired. The aggregate value of these warrants, $50, was recorded to finance income.
44. In the first quarter of 2012, unexercised warrants held by several investors to purchase a total of 34,804 shares of Common stock expired.
45. In June 2012, the Company completed a private placement transaction in which the Company issued 1,944,734 units with each unit consisting of one share of the Company's Common stock and a warrant to purchase 0.75 of one share of Common stock. The warrants to purchase 1,458,550 of Common stock were issued with an exercise price of $8.34 per share, first became exercisable on December 15, 2012 (which, if all were exercised in full, would result in the issuance of 1,458,576 shares of Common stock due to the rounding of fractional shares) and will expire on June 18, 2017. In addition, warrants to purchase 194,473 shares of Common stock having an exercise price of $9.17 per share were issued to the placement agent, first became exercisable on December 18, 2012 and will expire on June 18, 2017. Each unit was sold for a purchase price of $4.90 for total gross proceeds of $9,529 or approximately $8,407 in net proceeds after deducting private placement fees of $953 and other offering costs of $169.
.
46. In the second quarter of 2012, three investors exercised warrants to purchase 46,711 shares of Common stock at an exercise price of $5.37 per share using the cashless exercise method. Using this cashless exercise method, the investors were issued a total of 4,168 shares.
47. In the third quarter of 2012, two investors exercised warrants to purchase 107,770 shares of Common stock at exercise prices ranging from $4.99 to $5.32 per share using the cashless exercise method. Using this cashless exercise method, the investors were issued a total of 68,404 shares. An additional three investors exercised warrants to purchase 16,856 shares of Common stock at exercise prices ranging from $4.54 to $5.57 per share or an aggregate exercise price of $77. In addition, 56,900 publicly traded warrants were exercised at an exercise price of $6.00 per share or an aggregate exercise price of $341.
48. In the fourth quarter of 2012, five investors exercised warrants to purchase 19,739 shares of Common stock at exercise prices of $5.32 and $5.57 per share or an aggregate exercise price of $109. In addition, 8,370 publicly traded warrants were exercised at an exercise price of $6.00 per share or an aggregate exercise price of $50. In addition, in the fourth quarter of 2012, four investors exercised warrants to purchase 53,316 shares of Common stock at exercise prices of $5.32 and $5.57 per share using the cashless exercise method. Using this cashless exercise method, the investors were issued a total of 14,934 shares.
49. In the fourth quarter of 2012, unexercised warrants held by an investor to purchase 4,624 shares of Common stock expired. The aggregate value of these warrants, $24, was recorded to finance income.
50. See note 13(a) Subsequent Events. e. Issuance of stock options, warrants and restricted shares to employees and directors
1. On March 30, 2006, the Company adopted a stock incentive plan (the "stock incentive plan") according to which options to purchase up to 609,353 shares of Common stock of the Company may be granted to directors, employees and consultants (non-employees) of the Company and the Subsidiary, as determined by the Company's Board of Directors from time to time. The options outstanding are exercisable within a designated period from the date of grant and at an exercise price, each as determined by the Company's Board of Directors. The options outstanding to employees, directors and consultants will vest over a period of three or four years from the date of grant. Any option which is canceled or forfeited before expiration becomes available for future grants.
On August 23, 2007, the shareholders approved an amendment to the stock incentive plan increasing the share reserve under the stock incentive plan by 776,205 shares of Common stock to a total of 1,385,558 shares of Common stock.
In March 2012, the Company's Board of Directors approved an amendment to the stock incentive plan increasing the number of shares of Common stock authorized for issuance thereunder to a total of 2,478,571 shares of Common stock, subject to stockholder approval. The Company's stockholders approved the amendment at the Company's annual meeting of stockholders on April 3, 2012.
2. On June 12, 2008, the Company granted to the Company's employees 91,096 options exercisable at a price of $5.11 per share. The options have a five-year term and vest in four equal annual tranches of 22,774 each. The options were granted under the stock incentive plan terms. The fair value of these options at the grant date was $0.036 per option.
3. On December 1, 2008, the Company granted to a Director of the Company 48,895 options exercisable at a price of $1.47 per share. The options have a five-year term and vest in three equal annual tranches of 16,298 each. The options were granted under the stock incentive plan terms. The fair value of these options at the grant date was $0.91 per option.
4. No options or warrants were granted to employees or directors during the year ended December 31, 2009.
5. 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 905,190 shares of Common stock at an exercise price of $2.49 per share, (ii) warrants to purchase 35,922 shares of Common stock at an exercise price of $0.04 per share, and (iii) options to purchase 182,806 shares of Common stock at an exercise price of $2.49 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.
As the modified options and warrants were already vested, the Company recorded the incremental value measured fair value of the modified award at the modification date as operating expenses. No future compensation will be recorded.
6. In September 2010, the Company granted options to purchase 28,571 shares of Common stock under the stock incentive plan at an exercise price of $8.19 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 12,857 shares of Common stock at an exercise price of $8.19 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 $2.03 per option.
7. In September 2010, a Director of the Company exercised warrants to purchase 28,571 shares of Common stock at an exercise price of $2.49 per share ($71 aggregate exercise price) and used the cashless exercise mechanism to exercise warrants to purchase an additional 57,147 shares. Using this cashless exercise method, the Director was issued 39,786 shares and, together with the warrants exercised for cash, he was issued a total of 68,357 shares of Common stock.
8. In September 2010, a Director of the Company exercised options to purchase 45,701 shares of Common stock at an exercise price of $2.49 per share, or an aggregate exercise price of $114.
9. In September 2010, the Company granted to the Company's employees 91,571 options exercisable at a price of $8.19 per share. The options have a 10 year term and vest in four equal annual tranches of 22,892 each. The options were granted under the stock incentive plan terms. The fair value of these options at the grant date was $2.07 per option.
In September 2010, a Director of the Company exercised warrants to purchase 30,559 shares of Common stock and options to purchase 45,701 shares of Common stock, each having an exercise price of $2.49 per share, using the cashless exercise mechanism. The Director was issued 21,275 shares as a result of the warrant exercise and 31,817 shares as a result of the option exercise, or 53,092 shares of Common stock in total.
10. In December 2010, a Director of the Company exercised options to purchase 91,402 shares of Common stock at an exercise price of $2.49 per share using the cashless exercise mechanism. The Director was issued 56,859 shares as a result of the option exercise.
11. In December 2010, two employees of the Company exercised warrants. One employee exercised warrants to purchase 11,429 shares of Common stock at an exercise price of $0.01645, or an aggregate exercise price of less than $1. The other employee exercised warrants to purchase 17,143 shares of Common stock at an exercise price of $2.49 per share using the cashless exercise mechanism. The employee was issued 10,664 shares as a result of the warrant exercise.
12. In December 2010, the Company granted the Executive Chairman of the Board of the Company 57,142 shares of restricted Common stock in compensation for his services in his new role as the Executive Chairman of the Board of the Company. These shares of Common stock are restricted in that they may not be disposed of and are not entitled to dividends. These restrictions were removed in relation to 14,285 shares of Common stock on October 18, 2012 and will be removed in relation to an additional 14,285 shares of Common stock on October 18, 2013 and the final 28,572 shares of Common stock on October 18, 2014. The value of these restricted shares of Common stock, $285, was based on the fair value at the grant date and is being recognized as an expense using the straight line method. The Company recorded expenses in the amount of $74 in 2012.
13. In January 2011, the Company granted options to purchase 12,857 shares of Common stock. These options were granted under the stock incentive plan, at an exercise price of $6.55 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 fair value of these options at the grant date was $2.020 per option.
14. In May and June 2011, unexercised options held by two employees to purchase a total of 34,135 shares of Common stock expired.
15. In May 2011, three employees exercised options to purchase a total of 67,231 shares of Common stock at an exercise price of $2.49 per share using the cashless exercise method. The employees were issued a total of 25,159 shares as a result of the option exercises.
16. In July 2011, the Company granted an employee 40,000 options exercisable at a price of $3.64 per share. The options have a 10-year term and vest in four equal annual tranches of 10,000 each. The options were granted under the stock incentive plan terms. The fair value of these options at the grant date was $1.597 per option.
17. In September 2011, the Company granted an employee 11,429 options exercisable at $3.86 per share. The options have a 10-year term and vest in equal tranches over four years. The options were granted under the stock incentive plan terms. The fair value of these options at the grant date was $2.099 per option.
18. In September 2011, a Director of the Company exercised options to purchase 45,701 shares of Common stock at an exercise price of $2.49 per share using the cashless exercise mechanism. The Director was issued 16,197 shares of Common stock as a result of the option exercise.
19. In December 2011, the Company granted to the Company's employees 209,857 options exercisable at a price of $3.14 per share. The options have a 10 year term and vest in four equal annual tranches. The options were granted under the stock incentive plan terms. The fair value of these options at the grant date range from $1.301 to $1.597 per option.
In addition, in December 2011, the Company granted to an employee 35,000 options exercisable at a price of $3.14 per share. The options vested immediately and have a 10 year term. These options were granted under the stock incentive plan terms. The fair value of these options at the grant date was $1.096 per option.
20. In January 2012, the Company granted 15,000 options and 7,000 shares of restricted Common stock to each of 5 non-executive Directors of the Company. These shares of Common stock are restricted in that they may not be disposed of and are not entitled to dividends. 50% of these shares were vested the day after the grant and the remaining 50% vested in January 2013, the one year anniversary of the grant date. All of the options are for a term of 10 years, vest in three equal installments and have an exercise price of $2.66. The fair value of these options at the grant date was $1.185 per option. The value of these restricted shares of Common stock, $135, was based on the fair value at the grant date. Compensation of $55 was recorded immediately and compensation of $80 will be recognized over the vesting period. These options and restricted Common stock were granted under the stock incentive plan.
A summary of the Company's activity for restricted shares granted to employees and directors is as follows:
Year ended December 31, 2012 -------------------------- Restricted shares Outstanding Vested -------------------------------- ------------ ---------- Number of restricted shares as of December 31, 2011 57,142 14,285 Granted 35,000 17,500 ------------ ---------- Number of restricted shares as of December 31, 2012 92,142 31,785 ============ ==========
21. In April 2012, the Company granted to the Company's employees 47,254 options exercisable at a price of $5.13 per share. The options have a 10 year term and vest in four equal annual tranches. The options were granted under the stock incentive plan. The fair value of these options at the grant date was $2.366 per option.
22. In the second quarter of 2012, unexercised options held by an employee to purchase 42,783 shares of Common stock expired.
23. In the second quarter of 2012, the Chief Executive Officer of the Company transferred by gift 16,200 warrants with an exercise price of $2.49 per share to four individuals who are not immediate family.
24. In the second quarter of 2012, a Director of the Company exercised options to purchase 4,286 shares of Common stock at an exercise price of $6.55 per share or an aggregate exercise price of $28.
25. In the second quarter of 2012, an employee exercised options to purchase 6,723 shares of Common stock at an exercise price of $5.47 per share using the cashless exercise method. The employee was issued 2,433 shares as a result of the option exercise.
26. In June 2012, the Company granted the Chairman of the Board of the Company 900,000 options exercisable at a price of $10.80 per share. The options have a 5 year term. 300,000 options vested immediately upon approval of the listing application by the NYSE MKT (formerly NYSE Amex) and half of the remaining 600,000 options will vest on each of June 30, 2013 and June 30, 2014. The total compensation of $3,975 will be recognized over the vesting period. The Company recorded an expense in the amount of $1,325 during the current period. These options were granted outside of the stock incentive plan.
27. In the third quarter of 2012, 11 employees exercised options to purchase 160,685 shares of Common stock at exercise prices ranging from $3.64 to $8.19 per share using the cashless exercise method. Using this cashless exercise method, the employees were issued a total of 65,678 shares.
In July 2012, the Company granted to an employee 20,000 options exercisable at a price of $14.50 per share. The options have a 10 year term and vest in four equal annual tranches. The options were granted under the stock incentive plan. The fair value of these options at the grant date was $8.256 per option.
28. In the third quarter of 2012, a Director of the Company exercised options to purchase 48,803 shares of Common stock at an exercise price of $7.35 per share or an aggregate exercise price of $359. In addition, two Directors of the Company exercised options to purchase 115,379 shares of Common stock at an exercise price of $7.35 per share using the cashless exercise method. Such Directors were issued a total of 36,391 shares as a result of the option exercise.
29. In the third quarter of 2012, unexercised options held by two employees to purchase a total of 20,000 shares of Common stock expired.
30. In the third quarter of 2012, the Chief Executive Officer of the Company transferred by gift 6,750 warrants with an exercise price of $2.49 per share to four individuals who are not immediate family.
31. In the fourth quarter of 2012, two employees exercised options to purchase 5,840 shares of Common stock at exercise prices ranging from $7.35 to $8.19 per share using the cashless exercise method. Using this cashless exercise method, the employees were issued a total of 1,655 shares. In addition, the estate of a deceased Director of the Company exercised options to purchase 50,039 shares of Common stock at exercise prices ranging from $6.55 to $8.19 per share using the cashless exercise method. Using this cashless exercise method, the estate was issued 8,869 shares. Also in the fourth quarter, an employee exercised options to purchase 4,967 shares of Common stock at exercise prices of $3.14 and $5.62 per share or an aggregate exercise price of $26.
32. In the fourth quarter of 2012, the Company granted three employees a total of 18,000 options exercisable at a price of $9.25 per share. The options have a 10 year term and vest in four equal annual tranches. The options were granted under the stock incentive plan. The fair value of these options on the grant date was $5.075 per option.
33. Subsequent to the balance sheet date, in January 2013, the Company granted 15,000 options and 7,000 shares of restricted Common stock to each of 5 non-executive Directors of the Company. These shares of Common stock are restricted in that they may not be disposed of and are not entitled to dividends. 50% of these shares were vested the day after the grant and 50% will vest one year from the grant date. All of the options are for a term of 10 years, vest in three equal installments and have an exercise price of $7.25. These options and restricted Common stock were granted under the stock incentive plan. Also see Note 13(b).
34. 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 --------------- ----------- --------------- ------------- Outstanding at January 1, 2011 1,878,141 $ 4.13 Granted 347,714 $ 3.73 Exercised (*) (112,932) $ 3.01 Forfeited (34,135) $2.49 --------------- ----------- Outstanding at December 31, 2011 2,078,788 $ 4.17 4.96 $ 11 =============== =========== =============== ============= Granted 1,060,254 $ 10.01 Exercised (396,722) $ 7.22 Forfeited (62,783) $ 5.40 Gifted by the CEO to third parties (22,950) $ 2.49 --------------- ----------- Outstanding at December 31, 2012 2,656,587 $ 6.04 $ 5.00 7,046 =============== =========== =============== ============= Vested and expected to vest at December 31, 2012 2,603,154 $ 5.99 $ 4.97 6,980 =============== =========== =============== ============= Exercisable at December 31, 2012 1,587,918 $ 4.51 $ 4.08 5,726 =============== =========== =============== =============
(*) Includes warrants to purchase 402,307 shares of Common stock issued to a Director and sold to an investor and exercised in 2010 (see Note 8(d)32). Also includes options to purchase 16,298 shares of Common stock issued to a former Director and exercised in 2010 (see Note 8(d)34).
The weighted average grant date fair value of options and warrants granted to employees and directors during the years ended December 31, 2012 and 2011 was $10.01 and $3.73, respectively. As of December 31, 2012, there was $3,409 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted to employees and directors. That cost is expected to be recognized over a weighted-average period of 2.2 years.
The aggregate intrinsic value represents the total intrinsic value (the difference between the Company's Common stock fair value as of December 31, 2011 and 2012 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, 2011 and 2012, respectively.
Calculation of aggregate intrinsic value is based on the share price of the Company's Common stock as of December 31, 2011 ($2.50 per share, as reported on the NYSE MKT) and December 31, 2012 ($7.44 per share, as reported on the NYSE MKT).
f. Issuance of shares, stock options and warrants to consultants
1. On October 16, 2008, the Company granted to a consultant warrants to purchase 19,354 shares of Common stock exercisable at a price of $5.11 per share and has contractual life of 5 years. 33.3% of the warrants vested immediately at the grant date and the remaining portion of the warrants vest in two equal annual tranches of 6,451 starting from the grant date. The warrants were granted under the stock incentive plan terms. The fair value of these warrants at the grant date was $0.179 per warrant. The fair value was estimated using Binomial model with the following weighted-average assumptions: expected stock price volatility range of 62%, risk-free interest rate of 4.2%, expected dividend yield of 0% and a contractual life of the options of five years.
2. On December 1, 2008, the Company granted to a consultant warrants to purchase 67,230 shares of Common stock exercisable at a price of $6.79 per share and has contractual life of 5 years. The warrants vest immediately at the grant date. The fair value of these warrants at the grant date was $0.327 per warrant.
3. On December 7, 2009, the Company granted to a consultant options to purchase 19,354 shares of Common stock, exercisable at a price of $4.20 per share and has contractual life of 5 years. The options vest in three equal annual tranches of 6,451. The options were granted under the stock incentive plan terms. The fair value of these options at the grant date was $3.07 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.
4. In February 2010, the Company issued 32,142 shares of Common stock 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.
5. In September 2010, the Company granted a warrant to purchase 11,369 shares of Common stock at an exercise price of $3.185 per share to a consultant. Such warrant has a 5-year term and was immediately exercisable.
The fair value of the warrant at the grant date was $3.185 per warrant.
6. In September 2010, the Company granted options to purchase 19,069 shares of Common stock at an exercise price of $8.19 per share to each of 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. These options were granted under the stock incentive plan terms.
The fair value of these options at the grant date was $3.01 per option.
7. In September 2010, the Company issued warrants to purchase 46,071 shares of Common stock in settlement of fees in relation to the 2010 Debentures issued in 2010. These warrants were cancelled in March 2011.
8. In the first quarter of 2011, three consultants exercised warrants to purchase 68,576 shares of Common stock at exercise prices of $0.02 and $2.49 per share using the cashless exercise mechanism. Using this cashless exercise method, the consultants were issued a total of 48,939 shares.
9. In March 2011, the Company granted options to purchase 19,068 shares of Common at an exercise price of $6.65 per share to each of 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. These options were granted under the stock incentive plan terms. The fair value of these options at the grant date was $2.51 per option.
10. In March 2011, unexercised warrants held by a consultant to purchase 15,234 shares of Common stock expired.
11. In April 2011, the Company granted warrants to purchase 11,310 shares of Common stock at an exercise price of $4.99 per share to placement agents in settlement of fees in relation to the 2009 Debentures.
12. In April 2011, unexercised options held by a consultant to purchase 3,056 shares of Common stock expired.
13. In June and July 2011, unexercised options held by a consultant to purchase an aggregate 19,355 shares of Common stock expired.
14. In May and June 2011, three consultants exercised options to purchase a total of 85,383 shares of Common stock at an exercise price of $2.49 per share using the cashless exercise method. Using this cashless exercise method, the consultants were issued a total of 30,553 shares.
15. In July 2011, the Company issued to consultants warrants to purchase 50,000 shares of Common stock at an exercise price of $4.01 in compensation for financial advisory services.
16. In August 2011, the Company issued to a consultant warrants to purchase 150,000 shares of Common stock at an exercise price of $4.80 in compensation for financial advisory services.
17. In September 2011, the Company issued to a consultant 12,500 shares of Common stock in compensation for investor relation services. Total compensation, measured as the grant date fair market value of the stock, amounted to $46 and was recorded as an operating expense in the Statement of Operations.
18. In October 2011, several consultants exercised warrants to purchase a total of 29,725 shares of Common stock at an exercise price of $3.85 per share using the cashless exercise method. Using the cashless exercise method, the consultants were issued a total of 1,896 shares.
19. In March 2012, the Company issued 15,000 shares of Common stock to a consultant. Total compensation, measured as the grant date fair market value of the stock, amounted to $73 and was recorded as an operating expense in the Statement of Operations.
20. In April 2012, the Company granted options to purchase 15,280 shares of Common stock at an exercise price of $5.13 per share to a consultant. The options have a 10 year term and vest in four equal annual tranches. The options were granted under the stock incentive plan.
21. In the second quarter of 2012, four consultants exercised warrants to purchase 10,943 shares of Common stock at an exercise prices ranging from$4.99 to $5.37 per share using the cashless exercise method. Using this cashless exercise method, the consultants were issued a total of 2,905 shares.
22. In June 2012, the Company granted options to purchase 25,000 shares of Common stock at an exercise price of $6.86 per share to each of two consultants. The options have a 10 year term and vest in three equal annual tranches. The options were granted under the stock incentive plan. In addition, in June 2012, the Company issued 194,473 warrants to the placement agent for its June 2012 private placement. See note 8(d)45.
23. In June 2012, the Company issued 15,000 shares of Common stock to a consultant. Total compensation, measured as the grant date fair market value of the stock, amounted to $131 and was recorded as an operating expense in the Statement of Operations.
24. In July 2012, the Company granted options to purchase 5,646 shares of Common stock at an exercise price of $14.50 per share to each of two consultants. The options have a 10 year term and vest in three equal annual tranches. The options were granted under the stock incentive plan.
25. In the third quarter of 2012, nine consultants exercised warrants to purchase 55,449 shares of Common stock at exercise prices ranging from $5.15 to $5.57 per share using the cashless exercise method. Using this cashless exercise method, the consultants were issued a total of 34,448 shares. In addition, a consultant exercised warrants to purchase 150,000 shares of Common stock at an exercise price of $4.80 per share or an aggregate exercise price of $720. Also in the third quarter, four consultants exercised options to purchase 35,898 shares of Common stock at exercise prices ranging from $6.65 to $7.35 per share using the cashless exercise method. Using this cashless exercise method, the consultants were issued a total of 12,839 shares.
26. In September 2012, the Company granted warrants to purchase 7,000 shares of Common stock at an exercise price of $11.16 per share to a consultant. The warrants have a five year term and vested immediately at the grant date. The fair value of these warrants at the grant date was $6.829 per warrant.
27. In the third quarter of 2012, unexercised warrants held by several consultants to purchase a total of 2,965 shares of Common stock expired.
28. In the fourth quarter of 2012, seven consultants exercised options and warrants to purchase 40,934 shares of Common stock at exercise prices ranging from $5.32 to $7.35 per share using the cashless exercise method. Using this cashless exercise method, the consultants were issued a total of 12,704 shares.
29. In the fourth quarter of 2012, unexercised warrants held by a consultant to purchase 290 shares of Common stock expired.
30. Subsequent to the balance sheet date, in January 2013, the Company issued a total of 55,000 shares of Common stock to two consultants. Also subsequent to the balance sheet date, the Company issued warrants to purchase 25,000 shares of Common stock to a consultant in consideration of services rendered. These warrants have a 5 year term, are immediately exercisable, have an initial exercise price of $4.99 per share and include a cashless exercise feature.
31. A summary of the Company's activity for options granted under the stock incentive plan and warrants to consultants is as follows:
Weighted average Number Weighted remaining of average contractual Aggregate Warrants exercise terms intrinsic and options price ( years) value price -------------- ----------- ------------- ---------------- Outstanding at January 1, 2011 558,292 $ 5.04 Granted 249,446 $ 4.93 Exercised (183,684) $ 2.25 Forfeited (83,716) $ 6.46 -------------- ----------- Outstanding at December 31, 2011 540,338 $ 5.49 3.72 $ - ============== =========== ============ ============== Granted 278,045 $ 8.80 Expired (3,255) $ 5.34 Exercised (293,224) $ 5.43 -------------- ----------- Outstanding at December 31, 2012 521,904 $ 7.29 $ 4.81 $ 548 ============== =========== ============ ============== Exercisable at December 31, 2012 419,908 $ 7.22 $ 3.78 $ 474 ============== =========== ============ ==============
The weighted-average grant-date fair value of warrants and options granted to consultants during the years ended December 31, 2011 and 2012 was $2.80 and $5.35, respectively. As of December 31, 2012, there was $495 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted to consultants under the Company's stock incentive 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 stock as of December 31, 2011 ($2.50 per share, as reported on the NYSE MKT) and December 31, 2012 ($7.44 per share, as reported on the NYSE MKT).
g. Compensation expenses
Compensation expense related to shares, warrants and options granted to employees, directors and consultants was recorded in the Statement of Operations in the following line items:
Year ended December 31, ---------------------- 2011 2012 --------- ----------- Research and development expenses $ 78 $ 225 General and administrative expenses 317 2,782 --------- ----------- $ 395 $ 3,007 ========= =========== h. Summary of options and warrants:
A summary of all the options and warrants outstanding as of December 31, 2011 and 2012 is presented in the following tables:
As of December 31, 2011 ---------------------------------------------------------------- Weighted Exercise Average Remaining Price Options Options Contractual per Share and Warrants and Warrants Terms (in Options / Warrants ($) Outstanding Exercisable years) ---------------------------- ----------- -------------- -------------- ------------------- Options: Granted to Employees and Directors 2.49 182,806 182,806 4.3 3.14 244,857 35,000 9.9 3.64 40,000 - 9.5 3.86 11,429 - 9.7 4.10 42,783 42,783 0.6 5.40 49,536 37,152 1.4 6.55 51,428 - 9.0 7.35 332,046 332,046 0.9 8.19 218,713 65,273 8.7 -------------- -------------- 1,173,598 695,060 -------------- -------------- Granted to Consultants 4.20 19,354 12,903 2.9 5.40 19,354 19,354 1.8 6.65 38,136 12,712 8.9 7.35 46,045 46,045 0.9 8.19 38,136 12,712 8.7 -------------- -------------- 161,025 103,726 -------------- -------------- Total Options 1,334,623 798,786 -------------- -------------- Warrants: Granted to Employees and Directors 2.49 905,190 905,190 4.3 -------------- -------------- Granted to Consultants 3.19 11,370 11,370 3.7 4.01 50,000 50,000 4.5 4.80 150,000 150,000 4.6 4.99 11,310 11,310 4.3 5.15 16,976 16,976 0.9 5.37 37,508 37,508 0.7 5.65 102,149 102,149 1.6 -------------- -------------- 379,313 379,313 -------------- -------------- Granted to Investors 0.0002 35,922 35,922 4.3 4.54 428,571 428,571 3.7 4.99 73,383 73,383 4.3 5.37 166,132 166,132 0.7 5.65 50,721 50,721 0.9 6.00 2,829,000 2,829,000 4.3 8.75 34,804 34,804 0.1 -------------- -------------- 3,618,533 3,618,533 -------------- -------------- Total Warrants 4,903,036 4,903,036 -------------- -------------- Total Options and Warrants 6,237,659 5,701,822 ============== ============== As of December 31, 2012 ---------------------------------------------------------------- Weighted Exercise Average Remaining Price Options Options Contractual per Share and Warrants and Warrants Terms (in Options / Warrants ($) Outstanding Exercisable years) ---------------------------- ----------- -------------- -------------- ------------------- Options: Granted to Employees and Directors 2.49 182,806 182,806 3.3 2.66 75,000 - 9.0 3.14 244,143 86,750 8.9 3.64 35,700 5,700 8.5 3.86 11,429 2,857 8.7 5.13 47,254 - 9.3 5.66 23,280 23,280 0.5 6.55 42,856 8,572 8.0 8.19 173,879 95,713 7.7 9.25 18,000 - 9.8 10.80 900,000 300,000 4.5 14.50 20,000 - 9.5 -------------- -------------- 1,774,347 705,678 -------------- -------------- Granted to Consultants 4.20 19,354 19,354 1.9 5.13 15,280 - 9.3 5.66 19,354 19,354 0.8 6.65 31,780 19,068 8.0 6.86 50,000 - 9.5 8.19 38,136 25,424 7.7 14.50 11,292 - 9.5 -------------- -------------- 185,196 83,200 -------------- -------------- Total Options 1,959,543 788,878 -------------- -------------- Warrants: Granted to Employees and Directors 2.49 882,240 882,240 3.3 -------------- -------------- Granted to Consultants 3.19 11,370 11,370 2.7 4.01 50,000 50,000 3.5 4.99 6,635 6,635 3.3 5.57 67,230 67,230 0.9 9.17 194,473 194,473 4.5 11.16 7,000 7,000 4.5 -------------- -------------- 336,708 336,708 -------------- -------------- Granted to Investors 0.0002 35,922 35,922 3.3 2.49 22,950 22,950 3.3 4.54 412,500 412,500 2.7 4.99 57,291 57,291 3.3 6.00 2,763,730 2,763,730 3.3 8.34 1,458,550 1,458,550 4.5 -------------- -------------- 4,750,943 4,750,943 -------------- -------------- Total Warrants 5,969,891 5,969,891 -------------- -------------- Total Options and Warrants 7,929,434 6,758,769 ============== ==============
NOTE 9:- TAXES ON INCOME
a. Tax laws applicable to the the Company and the Subsidiary:
1. The Company is taxed under U.S. tax law.
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 nominal NIS. The financial statements are presented in U.S. dollars.
The difference between the rate of change in nominal NIS value 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.
3. The Law for the Encouragement of Capital Investments, 1959 (the "ECI Law")
According to the ECI Law, the Subsidiary is entitled to various tax benefits by virtue of the "beneficiary enterprise" status granted to part of its enterprises, as implied by this ECI Law. The principal benefits by virtue of the ECI Law are tax benefits and reduced tax rates.
The Subsidiary has chosen the alternative track under the ECI Law. Under this track, the Subsidiary is tax exempt for ten years within the benefit period on part of its taxable income.
Programs, whose year of election entitled them to a beneficiary enterprise status, are required, among others, to make a minimum qualifying investment in productive assets such as machinery and equipment, which must be carried out within three years. The minimum qualifying investment for the Subsidiary is NIS 300, linked to the Israeli CPI. Productive assets that are used by the program but not owned by it will also be viewed as productive assets.
The income qualifying for tax benefits under the alternative track is the taxable income of a company that has met certain conditions as determined by the ECI Law ("a beneficiary company"), and which is derived from an industrial enterprise. The ECI Law specifies the types of qualifying income that is entitled to tax benefits under the alternative track whereby income from an industrial enterprise includes, among others, revenues from the production and development of software products and revenues from industrial research and development activities performed for a foreign resident (and approved by the Head of the Administration of Industrial Research and Development).
The benefit period starts at the later of the year elected and the first year the Subsidiary earns taxable income provided that 12 years have not passed since the beginning of the year of election and 14 years since the beginning of the year of election (as allowed for companies in development area A). The Subsidiary is located in development area A.
If a dividend is distributed out of tax exempt profits, as above, the Subsidiary will become liable for tax at the rate applicable to its profits from the beneficiary enterprise in the year in which the income was earned, as if it was not under the alternative track. The Subsidiary policy is not to distribute a dividend as above.
As for industrial enterprises, in each tax year during the benefit period, one of the following conditions must be met:
1. The industrial enterprise's main field of activity is biotechnology or nanotechnology as approved by the Head of the Administration of Industrial Research and Development, prior to the approval of the relevant program.
2. The industrial enterprise's sales revenues in a specific market during the tax year do not exceed 75% of its total sales for that tax year. A "market" is defined as a separate country or customs territory.
3. At least 25% of the industrial enterprise's overall revenues during the tax year were generated from the enterprise's sales in a specific market with a population of at least 12 million.
Accelerated depreciation:
The Subsidiary is eligible for deduction of accelerated depreciation on machinery and equipment used by the beneficiary enterprise at a rate of 200% from the first year of the asset's operation.
Conditions for the entitlement to the benefits:
The above benefits are conditional upon the fulfillment of the conditions stipulated by the ECI Law, regulations published thereunder and the letters of approval for the investments in the approved enterprises, as above. Non-compliance with the conditions may cancel all or part of the benefits and refund of the amount of the benefits, including interest. The Company's management believes that the Subsidiary is meeting the aforementioned conditions.
b. Tax rates applicable to the Company and the Subsidiary:
1. The Subsidiary:
The Israeli corporate tax rate was 24% in 2011 and 25% in 2012.
On December 5, 2011, the Israeli Parliament (the Knesset) passed the Law for Tax Burden Reform (Legislative Amendments), 2011 (the "TBR Law") which, among others, cancels effective from 2012, the scheduled progressive reduction in the
corporate tax rate. The TBR Law also increased the corporate tax rate to 25% in 2012. In view of this increase in the corporate tax rate to 25% in 2012, the real capital gains tax rate and the real betterment tax rate were also increased accordingly.
The effect of the abovementioned changes did not have an effect on the net deferred tax asset.
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 conducts its business.
c. 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 Subsidiary has tax assessments, deemed final under the law, up to and including the year 2008.
d. Carryforward losses for tax purposes:
As of December 31, 2012, the Company had U.S. federal net operating loss carryforward for income tax purposes in the amount of approximately $36,000. 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 2032. As of December 31, 2012 the Company had net operating loss carryforward for state franchise tax purposes of approximately $34,500 which can be carried forward and offset against taxable income for 10-20 years, expiring between 2012 and 2032.
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 Subsidiary has accumulated losses for tax purposes as of December 31, 2012, in the amount of approximately $13,600, which may be carried forward and offset against taxable income and capital gain in the future for an indefinite period.
e. Taxes on income included in the consolidated statements of operations:
Taxes on income derive from tax prepayments on non-deductible expenses in Israel.
f. 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, ------------------- 2011 2012 -------- --------- Deferred tax assets: Net operating loss carryforward $ 9,413 $ 13,190 Allowances and reserves 305 526 -------- --------- Total deferred tax assets before valuation allowance 9,718 13,716 -------- --------- Valuation allowance (9,718) (13,716) -------- --------- Net deferred tax asset $ - $ - ======== =========
As of December 31, 2012, the Company and the 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 2011 and 2012, the main reconciling item of the statutory tax rate of the Company and the Subsidiary (24% to 35% in 2011 and 25% to 35% in 2012) to the effective tax rate (0%) is tax loss carryforwards and other deferred tax assets for which a full valuation allowance was provided.
NOTE 10:- FINANCIAL INCOME (EXPENSE) Period from January 27, 2000 (inception) Year ended December through 31, December ------------------------- 2011 2012 31, 2012 -------- --------- --------------- Financial income (expense), net: Financial income: Foreign currency remeasurement adjustments $ 28 $ - $ 85 Warrant valuation 2,061 - - Interest on cash equivalents, short-term bank deposits and others 8 5 226 Others - - 49 -------- --------- --------------- 2,097 5 360 -------- --------- --------------- Financial expenses: Bank charges (17) (14) (103) Interest expenses (71) - (380) Interest and amortization of beneficial conversion feature of convertible note - - (759) Warrant valuation - (2,336) (1,931) Convertible debentures valuation (125) - (2,040) Foreign currency remeasurement adjustments -------- --------- --------------- - (76) (76) Others (1) (3) (21) -------- --------- --------------- (214) (2,429) (5,310) -------- --------- --------------- $ 1,883 $ (2,424) $ (4,950) ======== ========= =============== 2011 Director Compensation ----------------------------------- Fees Earned or Paid in Cash Option Awards Stock Awards Total ------------ -------------- ------------- -------- Eugene Bauer, M.D. $ - $ - $ - $ - Isaac Blech $ 7 $ - $ - $ 7 Gary Allan Brukardt (*) $ 11 $ 26 (1) $ - $ 37 Alastair Clemow, Ph.D. $ 14 $ 26 (1) $ - $ 40 Joel Stephen Kanter $ 16 $ 26 (1) $ - $ 42 Stephen Devon McMurray, M.D. $ 14 $ 26 (1) $ - $ 40 Andrew L. Pearlman, Ph.D. $ - $ 128 (2) $ - $ 128 ------------ -------------- ------------- -------- $ 62 $ 232 $ - $ 294 ============ ============== ============= ======== NOTE 11:- DIRECTOR COMPENSATION 2012 Director Compensation ----------------------------------- Fees Earned or Paid in Cash Option Awards Stock Awards Total ------------ -------------- ------------- -------- Sol Barer, Ph.D. $ 7 $ 4,181 (3) - $ 4,188 Eugene Bauer, M.D. - - - - Isaac Blech $ 28 $ 17 (4) $ 18 (5) $ 63 Gary Allan Brukardt (*) $ 19 $ 17 (4) $ 18 (5) $ 54 Alastair Clemow, Ph.D. $ 29 $ 17 (4) $ 18 (5) $ 64 Joel Stephen Kanter $ 33 $ 17 (4) $ 18 (5) $ 68 Stephen Devon McMurray, M.D. $ 28 $ 17 (4) $ 18 (5) $ 63 Andrew L. Pearlman, Ph.D. - - - - ------------ -------------- ------------- -------- $ 144 $ 4,266 $ 90 $4,500 ============ ============== ============= ========
(*) Deceased
(1) Represents the fair value of options to purchase 12,857 shares of Common stock under our stock incentive plan at an
exercise price of $6.55 per share. Such options have a 10-year term and vest in equal installments over three years.
(2) Represents the fair value of options to purchase 80,000 shares of Common stock under the stock incentive plan at an exercise price of $3.14 per share. Such options have a 10-year term and vest in equal installments over four years.
(3) Represents the fair value of options to purchase 900,000 shares of Common stock under our stock incentive plan at an exercise price of $10.80 per share. Such options have a 10-year term and vest in equal installments over three years.
(4) Represents the fair value of options to purchase 15,000 shares of Common stock under our stock incentive plan at an exercise price of $2.66 per share. Such options have a 10-year term and vest in equal installments over three years.
(5) Represents the fair value of 7,000 shares of restricted stock.
NOTE 12:- FAIR VALUE MEASURMENTS
The Company classified certain warrants with down-round protection issued to investors through the years 2006 and 2007 and warrants issued to the purchasers of the 2010 Convertible Debentures as a liability at their fair value according to ASC 815-40-15-7I. The liability in respect of these warrants will be remeasured at each reporting period until exercised or expired. Changes in the fair value of these warrants are reported in the statements of operations as financial income or expense.
The fair value of these warrants was estimated at December 31, 2011 and 2012 using the Binomial pricing model with the following assumptions:
December 31, December 31, 2011 2012 -------------- ------------- Dividend yield 0% 0% Expected volatility 19.1% - 77.8% 78.1% Risk-free interest rate 0.1% - 0.5% 0.3% Contractual life (in years) 0.4 - 3.7 2.7
The changes in level 3 liabilities measured at fair value on a recurring basis:
Fair value of liability in respect of warrants ------------------ Balance as of January 1, 2011 $ 3,670 Classification of liability in respect of warrants into equity due to the exercise of warrants (1,131) Change in the liability in respect of warrants (2,061) ------------------ Balance as of December 31, 2011 478 Classification of liability in respect of warrants into equity due to the exercise of warrants (883) Change in the liability in respect of warrants 2,336 ------------------ Balance as of December 31, 2012 $ 1,931 ================== NOTE 13:- SUBSEQUENT EVENTS
a. Subsequent to the Balance Sheet date, on February 13, 2013, the Company closed an underwritten public offering of 5,600,000 shares of Common stock and Series 2013-A warrants to purchase up to an aggregate of 2,800,000 shares of Common stock. The shares and the warrants were sold together as a fixed combination, each consisting of one share of Common stock and a warrant to purchase one-half of a share of Common stock, at a price to the public of $5.25 per fixed combination. The warrants are currently exercisable, have an initial exercise price of $6.78 per share and expire on February 13, 2018. Gross proceeds were $29,400 or approximately $26,600 in net proceeds after deducting underwriting discounts and commissions of $2,352 and other offering costs of approximately $448. The Company granted the underwriters the option to purchase, at the same price, an aggregate of up to an additional 840,000 shares of Common stock and/or additional warrants to purchase up to an aggregate of 420,000 shares of Common stock. To date, the underwriters have not exercised this option. As of December 31, 2012, fundraising expenses related to this public offering of $40 have been deferred.
b. Subsequent to the Balance Sheet date, on March 8, 2013, the Company announced the appointment of a new member of the Board of Directors effective March 15, 2013. In connection with the appointment, the new board member was granted an inducement award consisting of stock options covering up to 300,000 shares of the Company's common stock, at a per share exercise price of $4.99. Such options have a five year term and 100,000 shares underlying such options will vest immediately upon the effective date of his appointment (subject to approval by the NYSE MKT of an additional listing application with respect to such options)and the remaining underlying shares will vest equally on each of the first and second anniversaries of the effective date of the appointment, subject to continuous service through each vesting date. This award was granted pursuant to a stand-alone award agreement outside of the stock incentive plan.
c. Also see Notes 8(e)33 and 8(f)30.
* * * * * * * * * * * * * * * * * * *
- Ends -
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