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EX-32.2 - CERTIFICATION - Wize Pharma, Inc.f10q0616ex32ii_ophthalixinc.htm
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EX-31.2 - CERTIFICATION - Wize Pharma, Inc.f10q0616ex31ii_ophthalixinc.htm
EX-31.1 - CERTIFICATION - Wize Pharma, Inc.f10q0616ex31i_ophthalixinc.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2016

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________to__________

 

Commission File Number: 000-52545

 

OPHTHALIX INC.

(Exact name of registrant as specified in its charter)

 

Delaware   88-0445167
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

10 Bareket Street, Petach Tikva, Israel   4951778
(Address of principal executive offices)   (Zip Code)

 

+(972) 3-9241114

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer Accelerated filer
  Non-accelerated filer Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐    No ☒

 

The number of shares outstanding of the registrant’s Common Stock on July 25, 2016 was 10,441,251.

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
PART I-FINANCIAL INFORMATION  
   
Item 1. Financial Statements 1
     
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
     
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 16
     
Item 4.   Controls and Procedures 16
     
PART II-OTHER INFORMATION  
   
Item 1A. Risk Factors 17
     
Item 6.   Exhibits 17
     
SIGNATURES 18

 

Throughout this report, unless otherwise designated, the terms “we,” “us,” “our,” “the Company” and “our company” refer to OphthaliX Inc., a Delaware corporation, and its Israeli subsidiary, Eyefite Ltd. (“Eyefite”). All amounts in this report are in U.S. Dollars, unless otherwise indicated.

  

 

 

PART I-FINANCIAL INFORMATION

 

Item 1. Financial Statements

  

OPHTHALIX INC. AND ITS SUBSIDIARY

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF JUNE 30, 2016

 

U.S. DOLLARS IN THOUSANDS

 

UNAUDITED

 

INDEX

 

  Page
   
Condensed Consolidated Balance Sheets 2
   
Condensed Consolidated Statements of Comprehensive Loss 3
   
Condensed Consolidated Statements of Changes in Stockholders' Deficiency 4
   
Condensed Consolidated Statements of Cash Flows 5
   
Notes to Condensed Consolidated Financial Statements 6 - 12

 

- - - - - - - - - - - - - - -

 

1

 

 

OPHTHALIX INC. AND ITS SUBSIDIARY

 

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands, except share and per share data

 

  

June 30,

2016

  

December 31,

2015

 
   Unaudited     
ASSETS        
         
CURRENT ASSETS:        
Cash and cash equivalents  $26   $42 
Investment in Parent Company (marketable securities)   589    658 
Other accounts receivable   23    - 
           
Total assets  $638   $700 
           
LIABILITIES AND STOCKHOLDERS' DEFICIENCY          
           
CURRENT LIABILITIES:          
Related company  $4,081   $3,690 
Other accounts payable and accrued expenses   199    291 
           
Total current liabilities   4,280    3,981 
           
NON-CURRENT LIABILITIES:          
           
Derivative related to Service Agreement   -    - 
           
STOCKHOLDERS' DEFICIENCY:          
Share capital          
Preferred Stock -          
Authorized : 1,000,000 shares at June 30, 2016 and December 31, 2015, respectively; Issued and Outstanding: 0 shares at June 30, 2016 and December 31, 2015   -*)   -*)
Common Stock of  $ 0.001 par value -          
Authorized:  100,000,000 shares at June 30, 2015 and December 31, 2015, respectively; Issued and Outstanding: 10,441,251 shares at June 30, 2016 and December 31, 2015, respectively   10    10 
Additional Paid-in capital   5,519    5,516 
Accumulated other comprehensive income   (103)   (34)
Accumulated deficit   (9,068)   (8,773)
           
Total stockholders' deficiency   (3,642)   (3,281)
           
Total liabilities and stockholders' deficiency  $638   $700 

 

*) Represents an amount lower than $ 1

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

2

 

 

OPHTHALIX INC. AND ITS SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

U.S. dollars in thousands, except share and per share data

 

  

Six months ended

June 30,

  

Three months ended

June 30,

  

Year ended

December 31,

 
   2016   2015   2016   2015   2015 
   Unaudited     
                     
Operating expenses:                    
Research and development  $128   $303   $43   $197   $812 
General and administrative   108    185    64    103    573 
                          
Total operating expenses   236    488    107    300    1,385 
                          
Financial expenses, net   59    40    30    21    92 
                          
Net loss  $295   $528   $137   $321   $1,477 
                          
Net loss per share:                         
Basic and diluted loss per share  $0.03   $0.05   $0.01   $0.03   $0.14 
Weighted average number of Common Stocks used in computing basic and diluted net loss per share   10,441,251    10,441,251    10,441,251    10,441,251    10,441,251 
                          
Other comprehensive loss                         
Available-for-sale investments:                         
Changes in net unrealized loss   69    294    27    11    136 
   $69   $294   $27   $11   $136 
                          
Comprehensive loss  $364   $822   $164   $332   $1,613 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

3

 

 

OPHTHALIX INC. AND ITS SUBSIDIARY

 

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

 

U.S. dollars in thousands, except share and per share data

 

                   Accumulated     
           Additional       other   Total 
   Shares of Common Stock   paid-in   Accumulated   comprehensive   stockholders' 
   Number   Amount   capital   deficit   income   deficiency 
                         
Balance as of January 1, 2015   10,441,251   $10   $5,494   $(7,296)  $102   $(1,690)
                               
Stock based compensation   -    -    14    -    -    14 
Unrealized loss from investment in Parent Company   -    -    -    -    (294)   (294)
                               
Net loss   -    -    -    (528)   -    (528)
                               
Balance as of June 30, 2015   10,441,251    10    5,508    (7,824)   (192)   (2,498)
                               
Balance as of January 1, 2016   10,441,251    10    5,516    (8,773)   (34)   (3,281)
                               
Stock based compensation   -    -    3    -    -    3 
Unrealized loss from investment in Parent Company   -    -    -    -    (69)   (69)
                               
Net loss   -    -    -    (295)   -    (295)
                               
Balance as of June 30, 2016   10,441,251   $10   $5,519   $(9,068)  $(103)  $(3,642)

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

4

 

 

OPHTHALIX INC. AND ITS SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

U.S. dollars in thousands, except share and per share data

 

  

Six months ended

June 30,

   Year ended December 31 
   2016   2015   2015 
   Unaudited     
             
Cash flows from operating activities:            
             
Net loss  $(295)  $(528)  $(1,477)
Adjustments to reconcile net loss to net cash used in operating activities:               
Decrease (increase) in other accounts receivable   (23)   16    209 
Decrease in other account payables and accrued expenses   (92)   (39)   45 
Increase in balance with Related company   391    536    1,233 
Depreciation   -    1    1 
Changes in fair value of the derivative related to service agreement   -    -    - 
Stock based compensation   3    14    22 
                
Net cash provided by (used in) operating activities   (16)   -    33 
                
Cash flows from investing activities:               
Acquisition of fixed assets   -    -    (3)
Proceeds from sale of property and equipment   -    -    3 
Net cash provided by investing activities   -    -    - 
                
Cash flows from financing activities:               
Net cash provided by financing activities   -    -    - 
                
                
Change in cash and cash equivalents   (16)   -    33 
Cash and cash equivalents at the beginning of the period   42    9    9 
                
Cash and cash equivalents at the end of the period  $26   $9   $42 

 

*) Represents an amount lower than $ 1

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

5

 

 

OPHTHALIX INC. AND ITS SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

 

NOTE 1:- GENERAL

 

a.OphthaliX Inc. (the "Company" or "OphthaliX"), originally incorporated in the State of Nevada on December 10, 1999 under the name Bridge Capital.com Inc., was a nominally capitalized corporation that did not commence its operations until it changed its name to Denali Concrete Management Inc. ("Denali"), in March 2001. Denali was a concrete placement company specializing in providing concrete improvements in the road construction industry. Denali operated primarily in Anchorage, Alaska, placing curb and gutter, sidewalks and retaining walls for state, municipal and military projects.

 

In December 2005, the Company ceased its principal business operations and focused its efforts on seeking a business opportunity, becoming a public shell company in the U.S.

 

Eye-Fite Ltd. ("Eye-Fite" or the "Subsidiary") was founded on June 27, 2011 in contemplation of the execution of a transaction between Can-Fite BioPharma Ltd. (the "Parent company" or "Can-Fite"), a public company in Israel and U.S., and the Company, as further detailed in Note 1b below.

 

Following the transaction, Denali changed its name to OphthaliX Inc. and also changed its corporate domicile from Nevada to Delaware.

 

On July 5, 2016, the Company released top-line results from its Phase II clinical trial of CF101 for the treatment of glaucoma. In this trial, no statistically significant differences were found between the CF101 treated group and the placebo group in the primary endpoint of lowering intra ocular pressure (“IOP”). High IOP is a characteristic of glaucoma. CF101 was found to have a favorable safety profile and was well tolerated.

 

b.Reverse Recapitalization and related arrangements:

 

1.Recapitalization:

 

On November 21, 2011 (the "Closing Date"), Can-Fite purchased 8,000,000 shares of the Company’s common stock, par value $ 0.001 per share in exchange for all of the issued and outstanding ordinary shares of Eyefite pursuant to the terms of a stock purchase agreement (the “Purchase Agreement”).  As a result, Eyefite became a wholly-owned subsidiary of the Company and Can-Fite became its majority stockholder and a parent.

 

Also on November 21, 2011, the Company issued a warrant to Can-Fite by which Can-Fite has the right, until the earlier of (a) November 21, 2016 and (b) the closing of the acquisition of the Company by another entity, resulting in the exchange of the Company’s outstanding common shares such that its stockholders prior to such transaction own, directly or indirectly, less than 50% of the voting power of the surviving entity, to convert its right to the Additional Payment (as defined below) into 480,022 shares of Common Stock (subject to adjustment in certain circumstances).  The per share exercise price for the shares is $5.148.  

 

6

 

 

OPHTHALIX INC. AND ITS SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

 

NOTE 1:- GENERAL (Cont.)

 

On November 21, 2011, the Company completed a private placement of shares of its common stock for gross proceeds of $3,330 through the sale of 646,776 shares of Common Stock to third party investors and sold 466,139 shares of Common Stock to Can-Fite in exchange for 714,922 ordinary shares of Can-Fite, valued at $2,400 and 97,112 shares to Can-Fite for gross proceeds of $500. In addition, the Company issued to Can-Fite and each of the other investors, for each four shares of the Company’s Common Stock purchased in the financing, nine warrants valid for a period of five years from the closing of the financing to acquire two shares of the Company for an exercise price of $7.74.

 

On June 17, 2013, the Company sold 268,095 Can-Fite ordinary shares for a total consideration of $511. As of June 30, 2016, the Company holds 446,827 Can-Fite ordinary shares, representing approximately 1.6% of Can-Fite's outstanding share capital.

 

The transaction was accounted for as a reverse recapitalization which is outside the scope ASC 805, Business Combinations. Under reverse capitalization accounting, EyeFite is considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of the Company. Assets acquired and liabilities assumed are reported at their historical amounts. Consequently, the condensed consolidated financial statements of the Company reflect the operations of the acquirer for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former shareholders of the legal acquirer and a recapitalization of the equity of the accounting acquirer. These condensed consolidated financial statements include the accounts of the Company since the effective date of the reverse capitalization and the accounts of EyeFite since inception.

 

2.License and research and development services from Can-Fite:

 

In connection with the consummation of the recapitalization transaction, the Company and Can-Fite entered into a license agreement, pursuant to which Can-Fite granted EyeFite a sole and exclusive worldwide license for the use of CF101, solely in the field of ophthalmic diseases ("CF101"). In connection with the license agreement, EyeFite was obligated to make to the U.S. National Institutes of Health ("NIH"), with regard to the patents of which are included in the license to EyeFite, for as long as the license agreement between the Company and NIH remains in effect, a nonrefundable minimum annual royalty fee and potential future royalties of 4.0% to 5.5% on net sales. In addition, Eye-Fite was obligated to make certain milestone payments to NIH ranging from $25 to $500 upon the achievement of various development milestones for each indication.

 

In June 2015, the license agreement between Can-Fite and NIH terminated due to patent expiration. As of June 30, 2016, the Company accrued an amount of $100 related to its DES Phase III clinical trial and $75 related to its Phase II glaucoma Phase II clinical trial. Eye-Fite will also be required to make payments of 20% of sublicensing revenues, excluding royalties and net of the required milestone payments.

 

As of June 30, 2016 the aggregate amount accrued for these milestones payment is $175.

 

7

 

 

OPHTHALIX INC. AND ITS SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

 

NOTE 1:- GENERAL (Cont.)

 

In addition, following the closing of the recapitalization transaction, Can-Fite, OphthaliX and EyeFite entered into a service agreement (the "Service Agreement"). According to the Service Agreement, Can-Fite will manage the research and development activities relating to pre-clinical and clinical studies for the development of the ophthalmic indications of CF101.

 

According to the Service Agreement, EyeFite will pay to Can-Fite a service fee (consisting of all expenses and costs incurred by Can-Fite plus 15%).

 

As part of the Service Agreement, the Company is required to pay Can-Fite additional payments from future proceeds (due to commercialization or sublicense agreement) in relation to CF101 (the “Additional Payment”). Can-Fite has the right to exchange such future payments for additional shares of OphthaliX upon payment of an exercise price.

 

  c. Liquidity and Capital Resources:

 

During the six months ended June 30, 2016 and the year ended December 31, 2015, the Company incurred operating losses amounting to $236 and $1,385, respectively.

 

In addition, in February 2013 Can-Fite issued to the Company a formal letter, which has been updated periodically (most recently in August 2015), stating that Can-Fite agrees to defer payments owing to it under the Services Agreement from January 31, 2013 for the performance of the clinical trials of CF101 in ophthalmic indications until the completion of fundraising by the Company sufficient to cover such deferred payments. Also, in August 2015, Can-Fite issued a financial support letter pursuant to which it committed to cover any shortfall in the costs and expenses of operations of the Company which are in excess of the Company's available cash to finance its operations, including cash generated from any future sale of Can-Fite shares held by the Company.

 

Both support letters will expire in October 2016 and any related balance shall bear an interest at a rate of 3% per annum. As of June 30, 2016, the deferred payments to Can-Fite totaled $4,081.

 

According to management estimates, liquidity resources as of June 30, 2016, together with the support letters from the Parent Company described above, will be sufficient to maintain the Company's operations at least through October 2016.

 

8

 

 

OPHTHALIX INC. AND ITS SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

 

NOTE 1:- GENERAL (Cont.)

 

These conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

NOTE 2:- UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

The unaudited Condensed Consolidated Financial Statements of OphthaliX Inc. have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheets as of June 30, 2016, included herein was derived from the audited consolidated financial statements for the year ended December 31, 2015. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the six months ended June 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016, or any future period. The information included in this interim report should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors," "Quantitative and Qualitative Disclosures About Market Risk," and the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

 

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates under different assumptions or conditions.

 

The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2015 are applied consistently in these condensed financial statements. For further information, refer to the consolidated financial statements as of December 31, 2015.

 

NOTE 3: IMPACT OF RECENT ACCOUNTING STANDARDS

 

a.In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which defines management’s responsibility to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The pronouncement is effective for annual reporting periods ending after December 15, 2016 with early adoption permitted. The Company is evaluating the effect, if any, that the adoption of this guidance will have on its consolidated financial statements.

 

b.In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes – Balance Sheet Classification of Deferred Taxes” ("ASU 2015-17"). The purpose of the standard is to simplify the presentation of deferred taxes on a classified balance sheet. Under current GAAP, deferred income tax assets and liabilities are separated into current and noncurrent amounts in the balance sheet. The amendments in ASU 2015-17 require that all deferred tax assets and liabilities be classified as noncurrent in the balance sheet. ASU 2015-17 is effective for interim and annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Companies can adopt the guidance either prospectively or retrospectively. The Company does not expect the adoption of ASU 2015-17 to have a material impact on its consolidated financial statements or presentation.

 

9

 

 

OPHTHALIX INC. AND ITS SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

 

NOTE 4:- FAIR VALUE MEASUREMENTS

 

The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers.

 

Since the quoted market value of the Company’s Common Stock was based on a sporadically traded stock with little volume, the Company's management determined the Company's stock price fair value based on ASC 820 Fair Value Measurement using the income approach assisted by a third party specialist. Consequently, the derivatives are classified within Level 3 because they are valued using valuation techniques. The fair value of the Derivative as of June 30, 2016 and December 31, 2015 amounted to $0, was determined using the binomial option-pricing model. The aforementioned option-pricing model requires a number of assumptions, of which most significant are the expected stock price volatility and the expected term.

 

The Company's investment in Parent Company ordinary shares is measured in accordance with ASC 820, based on the Parent Company's ordinary shares fair value as quoted in the Tel Aviv Stock Exchange.

 

These securities are classified as available-for-sale securities carried at fair value, with unrealized gains and losses reported as a separate component of shareholders' equity under accumulated other comprehensive loss (income) in the condensed consolidated balance sheets. The assets are classified within Level 1 on the fair value hierarchy.

 

The following table provides information by value level for financial assets and liabilities that are measured at fair value, as defined by ASC 820, on a recurring basis as of June 30, 2016 and December 31, 2015.

 

     June 30, 2016 
     Fair value measurements 
  Description  Fair Value   Level 1   Level 2   Level 3(1) 
                   
  Investment in Parent Company  $589   $589   $-   $- 
  Derivative related to Service Agreement   -*)   -    -    -*)
                       
  Total Financial Assets, net  $589   $589   $-   $ - 

 

10

 

 

OPHTHALIX INC. AND ITS SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

 

     December 31, 2015 
     Fair value measurements 
  Description  Fair Value   Level 1   Level 2   Level 3(1) 
                   
  Investment in Parent Company  $658   $658   $-   $- 
  Derivative related to Service Agreement   -*)   -    -    -*)
                       
  Total Financial Assets, net  $658   $658   $-   $- 

 

*) Represents an amount lower than $ 1

 

(1) Fair value measurements using significant unobservable inputs

 

11

 

 

OPHTHALIX INC. AND ITS SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

 

NOTE 4:- EQUITY

 

The following table summarizes the activity of stock options:

 

     Shares Subject to Options Outstanding 
  Description 

Number of

Shares

  

Weighted

Average

Exercise

Price

  

Weighted-

Average

Remaining

Contractual

Term (in years)

  

Aggregate

Intrinsic

Value(1)

 
                   
  Outstanding as of January 1, 2016 and  June 30, 2016   117,500    7.96    6.36-6.61    - 
                       
  Exercisable as of June 30, 2016   117,500    7.96    6.36    - 
                       
  Vested and expected to be vested   117,500    7.96    6.36    - 

 

(1)The aggregate intrinsic value is calculated as the difference between the exercise price of the stock options and the closing price of the shares of the Company’s Common Stock of $ 0.91

 

12

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets, statements of income and cash flows. This section should be read in conjunction with our Annual Report on Form 10-K for the Year Ended December 31, 2015 and our interim financial statements and accompanying notes to these financial statements. All amounts are in U.S. dollars and rounded.

 

Forward-Looking Statement Notice

 

This quarterly report on Form 10-Q contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the United States Securities and Exchange Commission, or the SEC, press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, those set forth in our most recent annual reports referenced below.

 

This report identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, particularly those set forth under Item 1A. “Risk Factors” as disclosed in our Annual Report on Form 10-K, as filed with the SEC on March 2, 2016.

 

Such risk factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.

 

Description of Business

 

We are a clinical-stage biopharmaceutical company focused on developing therapeutic products for the treatment of ophthalmic disorders. We have in-licensed certain patents and patent applications protecting the use in the ophthalmic field of our current pipeline drug under development, a synthetic A3 adenosine receptor, or A3AR, agonist, CF101 (known generically as IB-MECA). We recently released top-line results from our Phase II trial with respect to the development of CF101 for the treatment of glaucoma or related syndromes of ocular hypertension. In this trial, no statistically significant differences were found between the CF101 treated group and the placebo group in the primary endpoint of lowering intra ocular pressure (“IOP”). CF101 was found to have a favorable safety profile and was well tolerated.

 

The randomized, double-masked, placebo-controlled, parallel-group Phase II clinical trial was designed to evaluate the safety and efficacy of CF101 when administered orally twice daily for up to 16 weeks in patients with elevated IOP. A total of 89 patients were enrolled in the study. The study was conducted with two cohorts. In the first cohort, treatment was randomized in a 3:1 ratio of 1.0 mg CF101 to placebo. In the second cohort, which was also randomized in a 3:1 CF101 to placebo ratio, the CF101 dose was increased to 2.0 mg. Based on the overall results of our Phase II glaucoma trial, we see no immediate path forward in glaucoma.

 

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Results of Operations -Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015

 

   Six Months Ended
June 30,
 
   2016   2015 
         
Operating expenses:        
Research and development  $128,000   $303,000 
General and administrative   108,000    185,000 
Total operating costs   236,000    488,000 
Financial expenses, net   59,000    40,000 
Net loss  $295,000   $528,000 

 

Revenues

 

We did not generate any revenues from operations. We had no revenues because we do not have any commercial products and we do not expect to have such products.

 

Operating Expenses

 

Research and development expenses. Research and development expenses were $128,000 for the six months ended June 30, 2016, compared to $303,000 for the six months ended June 30, 2015, a decrease of $175,000 or 58%. The decrease in research and development expenses is primarily related to the fact that the Phase II CF101 study for glaucoma was in its final stages during 2016.

 

General and administrative expenses. General and administrative expenses were $108,000 for the six months ended June 30, 2016, compared to $185,000 for the six months ended June 30, 2015, a decrease of $77,000 or 42%. The decrease in general and administrative expenses was primarily due to a decrease in legal and professional expenses related to a proposed acquisition of Improved Vision Systems (I.V.S.) Ltd that was not completed.

 

Financial Expenses

 

Financial expenses, net were $59,000 for the six months ended June 30, 2016 compared to financial expenses, net of $40,000 for the six months ended June 30, 2015, a change of $19,000 or 48%. Financial expenses, net consisted primarily of interest expenses due to deferred payments to our majority shareholder and parent company, Can-Fite. The increase of financial expenses, net was mainly attributable to interest expenses due to deferred payments to Can-Fite.

 

Net Loss

 

As a result of the foregoing, we incurred a net loss of $295,000 for the six months ended June 30, 2016 compared to $528,000 for the six months ended June 30, 2015, a decrease of $233,000 or 44%.

 

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Results of Operations -Three Months Ended June 30, 2016 Compared to the Three Months Ended June 30, 2015

 

   Three Months Ended
June 30,
 
   2016   2015 
         
Operating expenses:        
Research and development  $43,000   $197,000 
General and administrative   64,000    103,000 
Total operating costs   107,000    300,000 
Financial expenses, net   30,000    21,000 
Net loss  $137,000   $321,000 

 

Revenues

 

We did not generate any revenues from operations. We had no revenues because we do not have any commercial products and we do not expect to have such products.

 

Operating Expenses

 

Research and development expenses. Research and development expenses were $43,000 for the three months ended June 30, 2016, compared to $197,000 for the three months ended June 30, 2015, a decrease of $154,000 or 78%. The decrease in research and development expenses is primarily related to the fact that the Phase II CF101 study for glaucoma was in its final stages during 2016.

 

General and administrative expenses. General and administrative expenses were $64,000 for the three months ended June 30, 2016, compared to $103,000 for the three months ended June 30, 2015, a decrease of $39,000 or 38%. The decrease in general and administrative expenses was primarily due to a decrease in travel expenses and share based compensation.

 

Financial Expenses

 

Financial expenses, net were $30,000 for the three months ended June 30, 2016 compared to financial expenses, net of $21,000 for the three months ended June 30, 2015, a change of $9,000 or 43%. Financial expenses, net consisted primarily of interest expenses due to deferred payments to our majority shareholder and parent company, Can-Fite. The increase of financial expenses, net was mainly attributable to interest expenses due to deferred payments to Can-Fite.

 

Net Loss

 

As a result of the foregoing, we incurred a net loss of $137,000 for the three months ended June 30, 2016 compared $321,000 for the three months ended June 30, 2015, a decrease of $184,000 or 57%.

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

 

As of June 30, 2016 and December 31, 2015, we had $26,000 and $42,000 in cash and cash equivalents, a working capital deficit of $3,642,000 and $3,281,000 and an accumulated deficit of $9,068,000 and $8,773,000, respectively. The increase in working capital deficit was primarily due to our expenses financed by our parent company.

 

Net cash used in operating activities was approximately $16,000 for the six months ended June 30, 2016, compared with net cash used in operating activities of approximately $0 for the six months ended June 30, 2015. The increase in net cash used in operating activities was primarily related to changes in account payables.

 

There was no net cash used in investing activities and no net cash provided by financing activities for the six months ended June 30, 2016 and 2015.

 

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We have no current source of revenue. In February 2013, Can-Fite issued us a formal letter, which has been updated periodically (most recently in August 2015), stating that Can-Fite agrees to defer payments owed to it under the Services Agreement (under which Can-Fite manages, as an independent contractor, all activities relating to pre-clinical and clinical studies performed for the development of the ophthalmic indications of CF101) beginning on January 31, 2013 until the completion of fundraising by the Company sufficient to cover such deferred payments. As of June 30, 2016, the deferred payments to Can-Fite totaled approximately $4,081,000. In addition, in August 2015, Can-Fite issued a financial support letter pursuant to which it committed to cover any shortfall in our costs and expenses of the operations which are in excess of our available cash to finance our operations, including cash generated from any future sale of Can-Fite shares held by us. Both letters expire in October 2016 and any related balance bears interest at a rate of 3% per annum.

 

According to management estimates, liquidity resources as of June 30, 2016, together with the support letters from Can-Fite described above, will be sufficient to maintain our operations at least through October 2016. Based on the overall results of our Phase II glaucoma trial, we see no immediate path forward in glaucoma. These conditions raise substantial doubt about our ability to continue as a going concern. The opinion of our independent registered public accounting firm on our audited financial statements as of and for the year ended December 31, 2015 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Future reports on our financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. 

 

As of the date of this report, we have no material capital commitments.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.

 

Critical Accounting Policies

 

Our significant accounting policies, which include management’s best estimates and judgments, are included in Note 2 to the financial statements for December 31, 2015 included in this Quarterly Report on Form 10-Q for the six months ended June 30, 2016.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, we have elected not to provide the disclosure required by this item.

 

Item 4. Controls and Procedures

 

Evaluation of disclosure controls and procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in internal control over financial reporting

 

There has been no change in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, during our most recent fiscal quarter ended June 30, 2016, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II-OTHER INFORMATION

 

Item 1A. Risk Factors

 

See Item 1A. “Risk Factors” as disclosed in our Annual Report on Form 10-K, as filed with the SEC on March 2, 2016.

 

Item 6. Exhibits

 

SEC Ref. No.   Title of Document
31.1   Rule 13a-14(a) Certification by Principal Executive Officer
31.2   Rule 13a-14(a) Certification by Principal Financial Officer
32.1   Section 1350 Certification of Principal Executive Officer
32.2   Section 1350 Certification of Principal Financial Officer
101.INS   XBRL Instance Document *
101.SCH   XBRL Taxonomy Extension Schema Document *
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB   XBRL Taxonomy Extension Label Linkbase Document *
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document *

 

* Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Loss, (iii) the Condensed Statements of Changes in Stockholders’ Deficiency, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Financial Statements.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  OphthaliX Inc.
     
Date: July 25, 2016 By /s/ Pnina Fishman,
    Pnina Fishman, Chief Executive Officer
    (Principal Executive Officer)
     
Date: July 25, 2016 By /s/ Itay Weinstein
    Itay Weinstein, Chief Financial Officer
    (Principal Financial Officer)

 

 

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