Artemis Therapeutics Inc.

Consolidated Statements of changes of shareholder's equity (deficiency)

(USD in thousands, except share data)

---

Artemis Therapeutics Inc.

consolidated statement of cash flows

(USD in thousands)

---

Artemis Therapeutics Inc.

Notes to the financial statement

(USD in thousands)

---

---

 

---

Artemis Therapeutics Inc.

Notes to the financial statement

(USD in thousands)

---

 

---

Artemis Therapeutics Inc.

Notes to the financial statement

(USD in thousands)

---

 

---

Artemis Therapeutics Inc.

Notes to the financial statement

(USD in thousands)

---

 

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. To date, the company is not engaged in lease agreements and accordingly does not expect the standard to have a material impact on its financial statements.

In July 2017, the FASB issued ASU 2017-11, which includes Part I “Accounting for Certain Financial Instruments with Down Round Features” and Part II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests With a Scope Exception”. The ASU makes limited changes to the Board’s guidance on classifying certain financial instruments as either liabilities or equity. The ASU’s objective is to improve (1) the accounting for instruments with “down-round” provisions and (2) the readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite deferral of certain pending content with scope exceptions. This standard is effective beginning in the first quarter of 2019. The Company has derivative warranty liabilities as discussed in Note 7B which upon adoption of the new standard may be classified as equity.

---

Artemis Therapeutics Inc.

Notes to the financial statement

(USD in thousands)

---

 

On May 31, 2016, Artemis entered into the License Agreement with Hadasit and RDC, pursuant to which Artemis acquired a worldwide, royalty-bearing license based on net sales to make any and all use of certain patents and know-how owned by 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.

In addition, Artemis agreed to certain development milestones, including the completion of Chemistry, Manufacturing and Controls (CMC) development and manufacturing for Phase I by the fourth quarter of 2017, completion of a Phase I study by the fourth quarter of 2019, completion of Phase IIa by the fourth quarter of 2022, and the first regulatory submission by the fourth quarter of 2027. Additionally, Artemis agreed to certain investment milestones, including the requirement to obtain financing of not less than $700,000 within seven months of the closing of the Merger on August 23, 2016 (such time, the “Effective Time”), $1 million within 12 months of the Effective Time and $2 million within 24 months of the Effective Time.  In the event that Artemis fails to meet development or investment milestones as set forth in the License Agreement, Hadasit has the right to terminate the License Agreement. We have regular communication with representatives from Hadasit and, to date, we have received no notices from Hadasit or RDC about our development progress or the investment milestones and no indication that Hadasit or RDC intend to terminate the License Agreement for non-compliance. To date, we have not met the development and financing milestones set forth in the License Agreement. We have had discussions with Hadasit relating to amending the development and financial milestones set forth in the License Agreement but there are no guarantees that we will be successful in amending the agreement.

 

As the entity 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 beutilized in the future. Therefore, a valuation allowance was recorded to reduce the deferred tax assets to its recoverable amounts.

---

Artemis Therapeutics Inc.

Notes to the financial statement

(USD in thousands)

---

 

---

Artemis Therapeutics Inc.

Notes to the financial statement

(USD in thousands)

---

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.

 

Preferred A 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 common stock.

 

Preferred C 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. The shares of Series C Convertible Preferred Stock have 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 other securities.

 

B.

Issuance of Shares:

 

On August 19, 2016 and prior to consummation of the merger, Artemis issued 524 shares of common stock (221,307 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 October 2017, the Company issued 300,000 shares of the Company’s common stock, warrants to purchase 275,000 shares of common stock, as well as 250 shares newly designated Series C Convertible Preferred Stock to investors for an aggregate purchase price of $550,000 less issuance expenses. Each share of Series C Convertible Preferred Stock is convertible into 1,000 shares of common stock, subject to adjustments in the event of future financing at a price of less than the conversion price. 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. The shares of Series C Convertible Preferred Stock  have 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 other securities.

 

The 275,000 warrants contain a full ratchet anti-dilution price protection so that, in most situations upon the issuance of any common stock or securities convertible into common stock at a price below the then-existing exercise price of the outstanding warrants, the warrant exercise price will be reset to the lower common stock sales price.

 

As such anti-dilution price protection, does not meet the specific conditions for equity classification, the Company is required to classify the fair value of these warrants as a liability, with changes in fair value to be recorded as income (loss) due to change in fair value of warrant liability. The estimated fair value of our warrant liability at issuance date, was approximately $319. The Company recorded a finance expense of $109 at December 31, 2017 in respect of these warrants.

 

The Company uses the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company makes certain assumptions about risk-free interest rates, dividend yields, volatility, expected term of the warrants and other assumptions. Risk-free interest rates are derived from the yield on U.S. Treasury debt securities. Dividend yields are based on our historical dividend payments, which have been zero to date. Volatility is estimated from the historical volatility of our common stock as traded on NASDAQ. The expected term of the warrants is based on the time to expiration of the warrants from the date of measurement.

 

In accordance with ASC-820-10-50-2(g), the Company has performed a sensitivity analysis of the derivative warrant liabilities of the Company which are classified as level 3 financial instruments. The Company recalculated the value of warrants by applying a +/- 5% changes to the input variables in the Black-Scholes model that vary over time, namely, the volatility and the risk-free rate. A 5.0% decrease or increase in volatility would not cause a material change in the value of the warrants. A 5.0% decrease or increase in the risk-free rate would not have materially changed the value of the warrants; the value of the warrants is not strongly correlated with small changes in interest rates.

 

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 and employees:

 

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 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 $75, included in Research & Development Expenses.  35,202 of these options were exercised in July 2017.

 

On August 1, 2017, the Company granted 242,640 stock options to the Company’s CEO. Each stock option is exercisable into a share of the Company’s common stock. . As a result, the Company recognized compensation expenses in the amount of $31 included in General & Administrative Expenses.

 

Upon termination of the CEO’s employment agreement any of the then unvested options shall expire immediately. All vested options may be exercised for a period of 90 days from the termination of the agreement. The options are subject to a 48 month vesting period whereby 5,055 options were vested on September 1, 2017 and 5,055 options become vested on the first day of each following month assuming the employment agreement has not been terminated.

 

NOTE 7   - STOCK CAPITAL (Cont.)

 

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

 

 

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 December 31, 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 December 31, 2017 and 2016, have been separated into exercise price, as follows:

 

(*) Less than 1

 

Compensation expense recorded by the Company with respect to its stock-based employee compensation awards in accordance with ASC 718-10 for the year ended December 31, 2017 and 2016 was $103 and $36, respectively.

 

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.

 

 

NOTE 8   - Convertible preferred stock Series A and common stock - Restatement

 

As explained in note 7, the Company issued Series A Convertible Preferred Stock to one of its shareholders. The shares are convertible to common shares at any point in time and participate in earning on an as converted basis. The Company in its Q1 2017 filling as well as in its fillings prior to Q1 2017erroneously presented these shares as if the shares had been converted to common shares.

 

In Addition, as explained in note 7, the Company effected a one-for-fifty (1:50) reverse stock split of its issued and outstanding shares of common stock. The par value of $0.01 per share did not change as a result of the reverse stock split. The Company in its previous filings erroneously presented its par value and share premium line items based on a $0.5 par value per share.

 

The following tables present the restated financial statements line items:

Artemis Therapeutics, Inc.

Condensed Consolidated Statements Balance Sheet

(Audited)

 

 

(*) Represents an amount lower than 1,000 USD

 

NOTE 9   - Subsequent Events

 

On March 15, 2018, the Company granted options to purchase 48,528 shares of common stock to its CEO, which vested on the grant date and options to purchase 50,000 shares of common stock to its CFO, which options will vest over a 48 month period. These options have an exercise price of $1.30 and will expire on March 15, 2028.