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Artemis Therapeutics, Inc.

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Artemis Therapeutics, Inc.

Interim Condensed Consolidated Statements of Changes in Stockholder's Equity (Unaudited)

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(**) Share data as of December 31, 2016 is restated. (Note 8)

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NOTE 1 -   GENERAL

A.

New York Global Innovations Inc. (the "Predecessor Company") was originally incorporated under the laws of the State of Nevada, on April 22, 1997. On July 8, 2003, the Predecessor Company effected a reincorporation from Nevada to Delaware through a merger with and into its wholly-owned subsidiary, Inksure Technologies (Delaware) Inc., which was incorporated on September 30, 2003. The surviving corporation in the merger was Inksure Technologies (Delaware) Inc., which thereupon renamed itself Inksure Technologies Inc. In 2014, following the sale of its assets to Spectra Systems Corporation, the Predecessor Company changed its name to New York Global Innovations Inc.

 

On August 23, 2016, the Predecessor Company consummated an agreement and plan of merger (the “Merger Agreement”) with Artemis Pharma Inc. (formerly, Artemis Therapeutics Inc.), a Delaware corporation (“Artemis”) and its wholly-owned subsidiary, Artemis Acquisition Corp., a Delaware corporation (“Merger Subsidiary”). Pursuant to the terms of the Merger Agreement, Artemis merged with and into the Merger Subsidiary, with Artemis being the surviving entity (the “Merger”).  Following the Merger, the Company adopted the business plan of Artemis and Artemis became a wholly-owned subsidiary of the Company.  On December 16, 2016, the Company changed its name to Artemis Therapeutics, Inc.  In exchange for the outstanding shares of Artemis, the Company issued to Artemis shareholders a total of 460,000 shares (as adjusted to reflect the reverse stock split) of the Predecessor Company's common stock and series B convertible preferred stock convertible into 3,724,225 shares (as adjusted to reflect the reverse stock split). All series B preferred shares were converted to common shares prior to December 31, 2016. Immediately following the consummation of the Merger, Artemis stockholders owned approximately 82% of the Company’s common stock on a fully diluted basis. Following the issuance and sale of the Company’s Series A Preferred Stock and common stock to an investor, Artemis stockholders owned approximately 73% of the Company’s common stock on a fully diluted basis. (Refer to Note 6).

 

The Company’s fiscal year end is December 31.

 

 

NOTE 1 -   GENERAL (cont.)

 

The Merger between the Predecessor Company and Artemis was accounted for as a reverse recapitalization and, as a result of the Merger, the Predecessor Company ceased to be a shell company. As the shareholders of Artemis received the largest ownership interest in the Predecessor Company, Artemis was determined to be the "accounting acquirer" in the reverse acquisition. As a result, the historical financial statements of the Predecessor Company were replaced with the historical financial statements of Artemis. Following the Merger, the Predecessor Company and its subsidiary, Artemis, are collectively referred to as the "Company".

 

B.

Establishment of Artemis (the "accounting acquirer"):

 

Artemis was incorporated in the State of Delaware on April 19, 2016. Artemis is engaged in the development of agents for the prevention and treatment of severe and potentially life-threatening infectious diseases. Artemis’s lead product candidate, Artemisone, is a clinical-stage synthetic artemisinin derivative with antiviral and antiparasitic properties. Artemis expects to advance Artemisone initially as an antiviral agent to address unmet clinical needs in the growing population of immunocompromised patients infected with human cytomegalovirus (HCMV), and other related clinical indications.

 

On May 31, 2016, Artemis entered into a license agreement with Hadasit Medical Research Services & Development Ltd. (“Hadasit”), and Hong Kong University of Science and Technology R and D Corporation Limited (“RDC”), pursuant to which Artemis acquired a worldwide, royalty-bearing license to make any and all use of certain patents and know-how owned by the Hadasit and RDC relating to Artemisone. Artemis will rely primarily on the license agreement with respect to the development of Artemisone, its lead product candidate.

 

Artemis has not generated any revenues from its activities and has incurred substantial operating losses. Management expects Artemis to continue to generate substantial operating losses and to continue to fund its operations primarily through additional raises of capital. Such conditions raise substantial doubts about the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of assets, carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to continue as a going concern.

 

NOTE 2 -   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

A.

Unaudited Interim Financial Statements

 

The accompanying unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included (consisting only of normal recurring adjustments except as otherwise discussed). For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

Operating results for the six months ended June 30, 2017, are not necessarily indicative of the results that may be expected for the year ended December 31, 2017.

 

B.

Significant Accounting Policies

 

The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual financial statements.

 

C.

Recent Accounting Standards:

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued a new standard to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of the promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is effective with respect to the Company beginning in the first quarter of 2018; early adoption is prohibited. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. As the Company has not incurred revenues to date, it is unable to determine the expected impact the new standard will have on its consolidated financial statements.

In February 2016, the FASB issued a new lease accounting standard requiring the recognition of lease assets and liabilities on the balance sheet. This standard is effective beginning in the first quarter of 2019; early adoption is permitted. The Company has not yet determined the impact of the new standard on its consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies certain provisions associated with the accounting for stock compensation.  Among other things, ASU 2016-09 requires companies to record excess tax benefits and tax deficiencies as income tax benefit or expense in the statement of income and eliminates the requirement to reclassify cash flows related to excess tax benefits from operating activities to financing activities in the statement of cash flows.  ASU 2016-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. The Company is currently reviewing and evaluating this guidance and its impact on its consolidated financial statements.

NOTE 3 -   COMMITMENTS AND CONTINGENCIES

 

                Agreement with Hadasit and RDC

 

On May 31, 2016, Artemis entered into the License Agreement with Hadasit and RDC, pursuant to which Artemis acquired a worldwide, royalty-bearing license to make any and all use of certain patents and know-how owned by the Hadasit and RDC relating to Artemisone. Artemis will rely primarily on the License Agreement with respect to the development of Artemisone, its lead product candidate.

 

NOTE 4 -   INCOME TAX

A.

Tax rates applicable to the income

 

The Company is subject to a blended US tax rate (Federal as well as State Corporate Tax) of 35% in 2016. The Company's subsidiary in Israel is subject to income tax at a regular corporate tax 25% in 2016.

 

In December 2016, legislation to amend the corporate income tax law in Israel was published. The legislation determined a decrease of the corporate income tax law as of January 1, 2017 to 24% (1% decrease) and as of January 1, 2018 to 23% (additional 1% decrease).

 

B.

Deferred income taxes

 

As the Company is still in its development stage and has not yet generated revenues, it is more likely than not that sufficient taxable income will not be available for the tax losses to be utilized in the future. Therefore, a valuation allowance was recorded to reduce the deferred tax assets to its recoverable amounts.

 

		As of June 30, 2017				As of December 31, 2016
Deferred tax assets:
Deferred taxes due to carryforward losses			3,632				3,583
Valuation allowance			(3,632	)			(3,583	)
Net deferred tax asset			-				-

 

NOTE 4 - INCOME TAX (Cont.)

 

B.

Tax loss carry-forwards

 

Net operating loss carry-forwards as of June 30, 2017 are as follows:

Israel			4,597				4,518
United States (*)			7,357				7,011
			11,954				11,529

  

Net operating losses in Israel may be carried forward indefinitely. Net operating losses in the U.S. are available through 2027.

 

(*) Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.

 

NOTE 5 – WARRANTS ISSUED TO INVESTORS

 

In connection with historical financings, the Company issued warrants to investors as follows:

ISSUANCE DATE		OUTSTANDING AS OF December 31, 2016 and June 30, 2017 *				EXERCISE PRICE			EXERCISABLE THROUGH
January 2010 **			43,069			$	0.055		April 2018

 

* Amount of warrants is retroactively adjusted to reflect the 1 to 50 reverse stock split

 

NOTE 6 -   Computation of Net Loss per Share

 

Basic loss per share is computed by dividing the net loss, as adjusted to include preferred shares dividend participation rights, by the weighted average number of common stock outstanding during the year.

 

Diluted loss per share is computed by dividing the net loss, as adjusted to include preferred shares dividend participation rights, of preferred shares outstanding during the year as well as of preferred shares that would have been outstanding if all potentially dilutive preferred shares had been issued, by the weighted average number of common stock outstanding during the year, plus the number of common stock that would have been outstanding if all potentially dilutive common stock had been issued, using the treasury stock method, in accordance with ASC 260-10 “Earnings per Share”.

 

NOTE 6 -  Computation of Net Loss per Share (Cont.)

 

The loss and weighted average number of common stock used in the calculation of basic loss per share are as follows (in thousands, except share and per share data):

 

		Six Months Ended June 30, 2017				Three Months Ended June 30, 2017				For the period from April 19 (Inception), 2016 to June 30, 2016
Net loss available to shareholders of the company			(421	)			(246	)			(18	)
Net loss attributable to shareholders of preferred shares and to shareholders of preferred shares contingently issuable for little or no cash			48				28				-
Net loss used in the calculation of basic loss per share			(373	)			(218	)			(18	)
Net loss per share			0.07				0.04				0.00
Weighted average number of ordinary shares			5,116,041				5,116,041				3,945,998

 

NOTE 7 -   STOCK CAPITAL

 

A.

Stockholders Rights:

 

Shares of common stock confer upon their holders the right to receive notice to participate and vote in general meetings of shareholders of the Company, the right to receive dividends, if declared, and the right to receive a distribution of any surplus of assets upon liquidation of the Company.

 

B.

Issuance of Shares:

 

On August 19, 2016 and prior to consummation of the merger, Artemis issued 524 shares of common stock (238,629 shares as adjusted to reflect the reverse recapitalization and reverse stock split) for an aggregate purchase price of $127 which was received in October 2016.

 

In August 2016, immediately upon consummation of the Merger, the Company issued 68,321 shares of the Company's common stock, as well as 453 shares of the Company's newly designated Series A Convertible Preferred Stock convertible into 658,498 shares of common stock, to an investor for an aggregate purchase price of $481,000 (net of issuance expenses).

 

Preferred shares confer upon their holders the right to receive dividends when paid to holders of common stock of the Company on an as-converted basis, and the right to receive a distribution of any surplus of assets upon liquidation of the Company before any distribution or payment shall be made to the holders of any junior securities.

 

C.

Reverse Stock Split:

 

On December 16, 2016, the Company effected a one-for-fifty (1:50) reverse stock split of its issued and outstanding shares of common stock. Share data included in these financial statements is retroactively adjusted as if the reverse stock split had occurred at the beginning of the earliest period presented.

 

D.

Options issued to consultants:

 

On August 22, 2016, the Company granted 126,730 stock options to consultants. Each stock option is exercisable into a share of the Company’s common stock of and expires no later than 10 years from the date of grant.

 

One third of the options are vested on the grant date, and one third of the options vest upon the first and second anniversaries of the grant date, with the option becoming fully vested on August 22, 2018. As a result, the Company recognized compensation expenses in the amount of $47,671, included in Research and Development Expenses.

 

NOTE 7 -   STOCK CAPITAL (Cont.)

 

A summary of the Company's option activity and related information is as follows:

		For the six months ended June 30, 2017
		Number of stock options				Weighted average exercise price				Aggregate intrinsic value
Outstanding at beginning of period			126,730			$	0.01
Granted			-				-
Exercised			-				-
Cancelled			-				-
Outstanding at end of period			126,730			$	0.01				163,481
Options exercisable at period end			42,243			$	0.01				54,493

 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the fair market value of the Company’s common stock on June 30, 2017, and the exercise price, multiplied by the number of in-the-money stock options on those dates) that would have been received by the stock option holders had all stock option holders exercised their stock options on those dates.

 

The stock options outstanding as of June 30, 2017, have been separated into exercise price, as follows:

 

Exercise price				Stock options outstanding as  of June 30,				Weighted average remaining contractual life – years as of June 30,				Stock options exercisable as of June 30,
$				2 0 1 6				2017				2017
	0.01				126,730				9.15				42,243

 

As the exercise price of the options is nominal, the Company estimated their fair values based on the value of the Company's shares at the measurement date.